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October 21, 2006 |
a New Law
At its meeting Thursday, the Board of the Roosevelt Island Operating Corporation (RIOC) dipped into the question of how the new Public Authorities Accountability Law might restrict them in acting on ground leases for Island House and Westview.
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The question came up during discussion of routine approval of a new RIOC staff position. Resident Board member Deborah Beck raised it: "One of the issues of great significance as we look at privatization of the WIRE buildings [Westview, Island House, Rivercross, Eastwood] is precisely how any extension of the ground lease for those buildings is to be handled. This [section 4.7.5 of the law] appears to say that if the disposal is any less than the fair market value of the property, the terms [must be determined] by public auction or negotiation, and [be] determined... to further the public health, safety, or welfare... I’m not quite sure what that means and I think it gives us an opportunity to bring together the issue of the Public Authorities Law requirements with the provisions of the GDP for affordability. Is anyone able to clarify that for me?
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Resident Board member David Kraut saw the opportunity: "In fact, 4.7.5 does give us a huge loophole. If we can prove that it’s worth it to accept less than fair market value for a building [for health, safety reasons, we can sell it] for less. It actually gives an agency such as ours a lot of leeway, if we’re willing to tackle these issues head-on."
Responding to another Board member’s request for an example, Kraut added, "Under this law we would have to bid out the pizza parlor... to get the highest revenue and that could take forever, and it could mean that people are not interested in undertaking a small business on the Island under those terms, and so on. That’s the limitation that this new law puts on us. But if we determine that we need a pizza parlor for reasons of public health or safety, at whatever cost to us, then we can rent the space for a dollar, under this paragraph. But we’d have to defend it later."
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RIOC Counsel Leitner provided additional interpretation: "What Deborah’s saying here is that you can set certain criteria as long as you meet some type of public purpose, in which case, under certain circumstances, as David pointed out, you might be able to take less than fair market value. I do believe the law gives you a certain amount of flexibility. For instance, if you were taking a bid that’s within what you’ve determined to be the fair market value range, and it’s several bids, it doesn’t mean you’re cut off from the criteria that you’ve established. If you find that something benefits the Island and they’re within the same [sale price] range, I believe that law gives you the flexibility to do what you feel is right for the corporation.
Beck then added, "The reason I raise this issue has to do with how the requirements of the law [requiring us to] maximize the financial outcomes for the corporation, and the GDP and its goals of affordability, come together. I think that we, as an entity, will have to sort that out and come up with a policy as to how we’re going to go forward, in relation particularly to the WIRE buildings, because the issue of affordability is paramount as those buildings discuss privatizaiton. We need to come to grips with the implications of this and these two diverse goals and the tools the PA law gives us to ensure that meshing can take place, and I think we have a responsibility to move quickly on that, particularly given the occupants of Island House and Westview who are actively moving on this to have some some certainty that we as a corporation are not going to bury our heads in the sand. I for one would like to see it figured out in as timely a way as possible so that the desires of those residents can be acted upon."
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Resident Board member Patrick Stewart added another dimension: "I think that [under] the Public Authorities Law, while it says ‘maximize the value,’ we as directors have a fiduciary responsibility not just to the corporation, but to the community... As I see it, what may be a social value and not necessarily a financial value, has standing in and of itself. So what I think what will be before us is that in an instance such as you are putting forward, it’s what’s good for the good for the corporation but also what is good for the residents of the Island... I think that that aspect of it is the most important part of it.
Beck started to ask a question: "What opportunities do we as a Board have – what wiggle room, if you will – to..."
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Calogero interrupted: "The authorization under which we operate – the powers we are given – are from the Master Lease with the City of New York, and the GDP is a piece of that. We have no other authorization to act. That is our lease. We’re authorized by the City to act under those powers. That comes first. And so that is always the most powerful document. It is what gives us the power to operate. This Public Authorities Accountability Act was put into place for all authorities to comply with. It’s not going to be a perfect document. It’s a new law, and we’re working our way through it. We may find areas where there will be some conflict, and we’re going to have to work out what those issues are. We’ll do it as they come up. The GDP and the affordability issue on the WIRE buildings is going to be one of them. But these are different issues. We must comply with the act where we can."
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Calogero continued, "When we’ve had conflict before with what’s in the GDP and the Master Lease, we’ve looked to amend that, and that especially as it relates to the WIRE buildings. If you’re going to look to have home ownership there in buildings that were developed as affordable rental housing, you’re looking to try to change that to create affordable home ownership housing. How do you stay within the GDP? I’m not sure it can be done, even regardless of the Public Authorities Accountability act, and you may have to go back to the GDP and look for some type of an amendment. But we’re not there yet.
Beck: "I just wanted to highlight for the board an issue that I know we’re going to have to grapple with, and hopefully as soon as possible."
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Resident Board member Michael Shinozaki restated his view on the supposed conflict between affordable housing and the Public Authorities Law. "We’ve had several discussions on this topic, and I concur in that the GDP is the primary document under which this corporation operates. It specifies directly what percentages this island must have of low, medium, and market-rate housing." Calogero interrupted, saying, "Not the Island. The WIRE buildings." Shinozaki continued, "The WIRE buildings and the [other] areas under the GDP, which include the new construction. The object of the Board in the [law] says that, when we execute those plans, that we will get the best deal we can of the potential offerings that we have available. It’s not just saying, ‘how can we get the most revenue...’ If that were the case we could say, ‘Screw the housing, we’re going to put in a casino here.’ But that’s not the purpose of the Island. The purpose of the Island is to have affordable mixed-income communities and that’s the charter we’re supposed to develop on. We can make the best deals we can, within that goal."
Calogero: "In fact, we already have a test case – Eastwood. We were the first group that had a property transition under the new Public Authorities Accountability Act, where you had to be able to demonstrate that we got a fair market value. We did that through submitting the appraised value to the public so that they could evaluate that, and they had 90 days to do that. There was an affordability provision within that building and there are people that are paying less than market value rent because the federal government is making up the difference. That was a test case for us. We were in compliance with the GDP and also with the Public Authorities Accountability Act. We had to wait 90 days to close to give the public officers opportunity to comment, but we did that, and [there was] no objection. So here we have a test case that we have already proven that we can comply with both laws. We will carve our way and find ways to comply with both. If we can’t, we’ll have to look to one or the other and see if we can have some type of amendment."
Beck offered her view that Eastwood isn’t necessarily a precedent for Island House and Westview: "It is a precedent we can take some comfort from but, in fact, it was a market-rate deal that kept tenants in place, so we retained the affordability component. That option – that particular federal program – is not available for the WIRE buildings now seeking to privatize with an affordability component. We should seek clarification as quickly as possible as to how we are going to bridge the differences between the Public Authorities Law and the GDP, to insure that the Westview and Island House proposals, which are in negotiation, move forward as quickly as possible, and not find themselves hitting a wall."
Calogero responded, "The proposed deal on the WIRE buildings changes all the time. The issue of the affordability is way up in the air – is one of the most compelling issues to deal with. I don’t think we’re at a point yet where our outside broker is ready to advise us on that. I’ll get together with him, but I don’t think there’s anything there yet for you to review."
Beck added, "I do feel that time is of the essence in trying to move this issue to a place where we as a Board can make a decision and recommendation."
Calogero closed the discussion of the matter: "But I don’t even think [the deals are] ready to go to committee yet. But I’ll check."