ALBANY — The Cuomo administration is tapping two discretionary funds to steer nearly $47 million to an outlet mall on Staten Island, a multi-pronged subsidy that increased after the developers contributed $85,000 to the governor’s campaign.
The Empire State Development corporation last month approved $21.9 million in subsidies for Empire Outlets, one of three projects clustered around the St. George ferry terminal on Staten Island’s North Shore that were approved in the waning days of the Bloomberg administration. That’s on top of a $25 million grant awarded last April by the state’s Dormitory Authority.
The new payments include $16.5 million from what critics have called a $400 million slush fund that was created in last year’s budget by Dean Skelos, the former Senate Republican leader. ESD had tried to spend money from the budgetary pool, called the Transformative Investment Fund (TIF), last year, but retreated in January afterresistance from Skelos’ former colleagues in the Legislature. (Skelos lost his seat after he was convicted in December of federal corruption charges.)
A hearing on the entire slate of ESD subsidies is scheduled for Tuesday afternoon at the St. George Library.
State officials insist that the funds are being properly directed to stimulate growth in an area that has long wanted for more development and say Empire Outlets will directly create 1,306 permanent jobs.
But discretionary funds came under increased scrutiny this year, after a federal trial detailed how Skelos’ partisan opposite, former Assembly Speaker Sheldon Silver, dipped into a now-defunct budgetary pool in exchange for legal fees. And critics say the payments to Empire Outlets in particular have ballooned to an unreasonable level.
In addition to the $46.9 million in state subsidies, New York City agencies are contributing $25.3 million and the Staten Island borough president $1.5 million. As a result, taxpayers are financing roughly a quarter of the $304 million project, and nearly two times as much as the developers’ $43.3 million stake, project documents show.
“Of all the things that have been supported with economic development funding in recent history, over the last four or five governors, this has to rank among the most questionable ever,” said E.J. McMahon, president of the fiscally conservative Empire Center for Public Policy. “This is waterfront property next to the ferry landing facing the Manhattan skyline — this needs a big government injection? This isn’t some down-at-the-heels upstate city that has absolutely nothing going on, this is prime space in New York City. It’s absolutely mind-blowing that a penny of government subsidy is being spend on this.”
A CITY PROJECT
Cranes soared in Michael Bloomberg’s New York, as the billionaire mayor re-zoned entire neighborhoods to fulfill the destiny of a defiantly booming post-9/11 city. Smoke-stained brick factories along the once-industrial shores of Brooklyn and Queens gave way to shiny glass towers as new parks and esplanades attracted residents to the water. The northern shore of Staten Island, sometimes called the forgotten borough, was to be no exception.
The departments of city planning and economic development completed a study of the area, from Snug Harbor to St. George, in 2008. While denser then the rest of Staten Island, the latter neighborhood was underutilized, to a planner’s eye, with a former Coast Guard station and parking lots particularly ripe for development.
A formal plan followed in 2011, dubbed “North Shore 2030.” It envisioned “downtown Staten Island” sprouting in St. George, leveraging the ferry terminal — which connects with the Staten Island Railroad and a score of bus lines — as well as court and government buildings into a true neighborhood.
“By 2030, St. George has the potential to become the true 24/7 downtown for the North Shore and Staten Island,” the plan said. “New mixed-use development on underutilized sites will provide more affordable live/work destination for artists and downtown Manhattan workers, such as the former Coast Guard site, and on private sites throughout the downtown neighborhood. Pedestrian improvements and waterfront connections will make the neighborhood inviting to new and current residents and draw visitors off the ferry to the newly available amenities.”
The city’s Department of Small Business Services completed an environmental review, and the New York City Economic Development Corporation solicited proposals from developers. In the armpit between the ferry terminal and the stadium build in 2001 for the Staten Island Yankees, they envisioned an outlet mall.
The logic was simple: About two million tourists were among the roughly 22 million passengers taking the ferry each year, and the right attractions could get them to stay before hopping a boat back to Manhattan. Developers projected the outlets would draw four million visitors — and $180 million in spending — per year, an in-city alternative to bus trips that take foreign tourists to outlet malls in New Jersey and upstate Woodbury.
“It’s really hard to think of another place in New York City that has fallen so short of its potential for economic development,” Jonathan Bowles, director of the Center for an Urban Future, told the Wall Street Journal in 2012. “There’s no reason why you can’t get significantly more tourists to stay on Staten Island for half an hour, or an hour.”
Empire Outlets was yoked to the newly dubbed New York Wheel, which at 625-feet tall will open as the tallest ferris wheel in the world, just north of the stadium. BFC Partners, a Brooklyn firm, was selected to develop the outlets. But there was a problem: BFC wasn’t willing use unionized construction workers, and the Democratic City Council member from the district, Debi Rose, was not willing to sign off on the deal until they did.
In the waning days of 2013, with Bloomberg on his way out of City Hall, a deal was cut:Empire Outlets would receive $50 million, mostly in city subsidies, and the powerful Building Trades Council would support the mayor’s (ultimately unsuccessful) plans to re-zone areas of east midtown, in Manhattan.
Empire Outlets would have 100 stores developed alongside a 200-room hotel and multi-level parking garage, with a groundbreaking scheduled for 2014. According to Anthony Hogrebe, a spokesman for EDC, BFC signed a 50-year lease to pay $1.5 million for the first five years, escalating over time, along with a percentage of the gross receipts of the hotel and mall. Hogrebe said the city agreed to give $13.8 million in loans to the developer and $11.5 million in grants for capital projects. Jason Conwall, a spokesman for Empire State Development, also tallied $19 million in city tax abatements, and said the state promised $11.5 million in grants to match the city’s investment.
There was also a guarantee to use union construction workers and to spend several million dollars more on community benefits— concessions won by Rose. The City Council voted unanimously to approve the project on October 30, 2013.
GOING FOR STATE HELP, TOO
Just over a month later, fleets of men in suits trekked to Albany for what had become an annual tradition of Gov. Andrew Cuomo’s tenure: subsidy day. They filed into thebrutalist concrete auditorium known as The Egg and listened to speeches and videos touting the governor’s stewardship and the state’s tremendous economic progress. Then they learned if they would be getting any money.
In 2011, Cuomo created ten economic development councils and stocked them with machers of business, real estate and higher education who he hand-picked from regions around the state. Some were or would become political donors; more were powerful people who the governor opted to bring onto the team rather than face as opponents.
The councils were tasked with developing strategic plans for their fiefdoms, and their members would be given a say over who got state funding therein. More than a dozen funding streams from various state agencies were consolidated into one process under one application, repackaged into a single, efficient process that culminates in an annual ceremony where Cuomo handed out the awards. Pots of “best plan” bonus funding turn Cuomo into Ed McMahon with a Queens accent, smiling among the chosen as they secure millions for their projects, some of which boost their own interests.
New York City always loses the game, though. Cuomo, a Democrat, is fond of boasting that he’s done more to boost upstate areas than any governor since DeWitt Clinton dug the Erie Canal, and on a per capita basis, state subsidies have rained down more heavily on Buffalo and the North Country than Brooklyn or Staten Island’s North Shore.
But even as New York City finished last in the 2013 contest, state officials awarded their first $3.5 million for Empire Outlets.
“The Empire Outlets will transform the underutilized public land on the North Shore of Staten Island next to the Staten Island Ferry Terminal,” officials with the city’s regional council wrote in their application for funding. “The property, currently occupied by a parking lot, has been moribund for decades.”
The technical recipient was St. George Outlet Development, LLC, a creation of BFC that was registered to its offices on Myrtle Avenue in downtown Brooklyn. Founded in 1985, it draws its initials from the surnames of its three partners: Brendan Baron, Joseph Ferrara and Donald Capoccia.
About a month after the regional council award, Ferrara and Baron did something common for men in the real estate business: they cut checks to the Cuomo campaign. The donations, each for $25,000, came on top of $5,000 contributions the pair made toward the end of May, 2013.
Another six months went by. Empire Outlets did not break ground. An LLC tied to the last partner, Capoccia, gave $10,000 and another BFC company kicked in $25,000.
Officials at BFC did not respond to emails about Empire Outlets, and Capoccia, reached Friday afternoon on his cell phone, said he could not talk but would return a reporter’s call. He did not.
It’s common for people or companies receiving government subsidies and contracts to contribute to politicians in New York, a practice that Cuomo shrugged off last fall. “It hasn’t been a problem for the past 100 years,” the governor said, “so I don’t know why it would be today.”
The governor’s spokesman, Rich Azzopardi denied the donations had any effect on state funding.
“The economic development project you’re questioning was advanced by the Bloomberg administration, was widely endorsed by local officials and had been in the works for years as part of a major transformation of Staten Island,” he said.
But less than a month after the July contributions, a two-page memo went from Cuomo’s Division of the Budget to the state’s Dormitory Authority, which issues debt on behalf of schools and hospitals that have less experience (and scale) in the municipal bond market. The memo is light on specifics, but it directed DASNY, as the Dormitory Authority is known, to send $25 million for the Empire Outlets project to BFC, tapping into a pot of money not available to the regional councils: the State and Municipal Facilities Program.
SAM: NEW YORK’S NEW EARMARKING PROGRAM
The first $385 million of SAM money was one of the last additions to the 2013 budget, appearing in the final print after Cuomo, Skelos and Silver had concluded their closed-door negotiations. The statutory criteria were broad: funds would be used for government entities to do capital improvements, but could also be directed to “economic development projects sponsored by the state or municipal corporations … that will create or retain jobs.”
The budget language — which was broadened in 2014 and 2015, as lawmakers tripled the size of the fund to $1.16 billion — doesn’t specify which agency will oversee the funding. In 2014, analysts from the Office of State Comptroller noted: “It is unclear how these funds will be allocated.”
Administration spokespeople defended the fund as providing state resources to needed local improvements. But what Cuomo and legislators never said publicly was that rank-and-file lawmakers would be able to earmark the money for individual projects in their own districts. In Albany, earmarks had been thought to dry up in 2010 as the budget crunch accompanying the recession at the time led then-Gov. David Paterson to veto appropriations under the “member item” program, in which legislators could send funds to organizations or programs in their districts.
In fact Cuomo had cracked down on the member item program when he was attorney general, and in 2010 campaigned against a practice that good-government groups said invited corrupt conflicts. (Several lawmakers gave them reason to worry.)
The Empire Center, McMahon’s organization, revealed details of the SAM program in the summer of 2015, based on a Freedom of Information Law request. The state Assembly and Senate subsequently gave POLITICO lists of their earmarks, revealing that money was flowing based on legislative power, not need.
In October of 2015, Cuomo told reporters that it was unfair to compare SAM grants to member items.
“That’s not a member item. Critics say a lot of things,” he said. “Factually, it’s not. It goes to a government.”
But the grant for Empire Outlets did not go to a government, and as of last autumn, it was the second-largest payment authorized under the SAM program. Documents from DASNY indicate that the money will be spent on improvements to the Staten Island Railroad’s right of way, which snakes along the site’s edge. At least $2 million was spent as of October, according to records released to POLITICO under the Freedom of Information Law.
They show the August memo from the Budget Division was immediately followed by DASNY inviting executives at BFC to apply for the grant. The September document lines out a project budget of $270.3 million, most of which — $175 million — would be borrowed from foreign investors making use of the EB-5 visa program.
DASNY officials spent three months reviewing the application, winning the certification from ESD that Empire Outlets would create new jobs in January. On April 16, ground was broken in a ceremony featuring Borough President Jimmy Oddo and Lt. Gov. Kathy Hochul.
“The Empire Outlets project provides an enormous breakthrough in the transformation and revitalization of Staten Island. More importantly, it offers an array of attractions and benefits for hardworking families in the borough and beyond,” Hochul said,according to the Staten Island Advance.
A NEW SOURCE OF FUNDS
BFC issued press releases through the summer and fall of 2015, announcing retail tenants like Nordstrom Rack, H&M, Francesca’s and Wilson’s Leather. They were quieter about sending a second funding request to Cuomo’s regional council, seeking another $11 million and pushing back the opening date into 2017.
“There are extraordinary costs associated with hardening the waterfront infrastructure, adding retaining walls and other protection of critical transportation assets,” the application states, saying the money would fund “a portion of these public infrastructure improvements.”
Last December’s subsidy day ceremony brought an award of $1 million for infrastructure and $875,000 for marketing assistance. After a year without any formal co-chairs, Fisher Brothers’ partner Winston Fisher took the reins of New York City’s regional economic development council. In December, he put the best spin on New York City’s second-to-last-place finish.
“We’re pretty happy that we were still recognized for doing a good job this year. … They’ve always respected our recommendations. The money’s planned to be spent, get out the door and create jobs,” he said. “Overall it’s very exciting for Staten Island. There’s a waterfront revitalization along with the Wheel. They’re putting in the outlet stores. It’s a great use of that waterfront and an ability to bring tourist as well as local dollars to that area.”
Conwall, the ESD spokesman, explained that the agency increased its commitment from $11.5 million because large, complex projects “evolve” over time.
“This has long been a priority project for the State and the City – beginning back in the Bloomberg administration – that has widespread support within the community and region because it will transform the economy of Staten Island’s North Shore,” Conwall said in a statement, echoing Cuomo’s own spokesman. “By attracting residents and travelers to its 340,000 square-foot retail complex, with more than 100 designer stores, and 200-room hotel for visitors, Empire Outlets is going to be an economic engine for the area, as well as key employer when it creates more than 1,800 local jobs.”
Last December’s award ceremony was different than prior years because Cuomo also announced the winners of a special $1.5 billion competition for upstate regions. The governor funded that contest using a one-time pot of money won from bank settlements, saying upstate areas needed catalytic investment to drive them forward.
Leaders in the Senate and Assembly went along, but Skelos — a stalwart of Nassau County and leader of a nine-senator bloc from Long Island — pushed for balance. In the final version of the budget, the $400 million Transformative Investment Fund was born.
It’s unclear how or why the Cuomo administration chose to dip into that fund for Empire Outlets, but a $16.5 million appropriation was approved by Empire State Development’s board on January 21.
Officials at ESD initially failed to respond to a request for records about the fund’s spending criteria, then claimed after POLITICO appealed under the Freedom of Information Law that the request had been “inadvertently misplaced.”
The agency promised on Feb. 12 to respond by March 16.
ESD president Howard Zemsky said recently that it makes decisions about which projects to fund based on discussions with local officials and the regional economic development councils.
Blair Horner, executive director of the New York Public Interest Research Group, said these kinds of discretionary funds should be “super transparent.” His organization and other good-government groups are this year asked politicians to sign a pledge promising to reform the process of lump sum payments, which the Citizens Union said total $2.9 billion in the current year’s budget.
“Given the situation in Albany, these are precisely the kinds of arrangements that raise eyebrows because they are connected to, maybe indirectly, some of the most gigantic scandals that have engulfed the state Capitol,” Horner said. “The governor and all elected officials should be purer than Caesar’s wife.”
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