RIOC Board Meets With Secretary To The Governor Larry Schwartz During Special Board Of Directors Meeting Yesterday - State To Take More Active Role In Roosevelt Island Affairs And Be More Collaborative With RIOC Board

The Roosevelt Island Operating Corp (RIOC) Board Of Directors held a Special Meeting yesterday at the offices of the NY State Empire State Development Corp. The first Agenda Item,

Personnel Matters,

was in Executive Session closed to the public. Speculation is that the discussion concerned the selection of a permanent RIOC President.

The Third Agenda Item,

 Discussion Regarding Executive Search 

for a permanent RIOC President was taken off the Agenda during the Board Meeting. To what extent the discussion of Personnel Matters in Executive Session caused the removal of the discussion regarding an Executive Search for a permanent RIOC President is unknown at this time.

The Second Agenda Item,

Discussion Regarding New York State's Role in Economic Development of Roosevelt Island

was discussed in public.

Present at the meeting was Secretary to the Governor Larry Schwartz. Mr. Schwartz indicated that the Cuomo Administration is committed to working with the RIOC Board and he (Mr. Schwartz) promised to come out to Roosevelt Island and meet with the community

After Mr. Schwartz left the public meeting, several NY State officials stayed to discuss economic development issues including those involving the Cornell NYC Tech project and the NY State bond debt incurred in development of Roosevelt Island. The consensus of the meeting participants appeared to be that:

• NY State will be more involved in addressing issues impacting Roosevelt Island by the Cornell NYC Tech project and 
• RIOC has no responsibility for the NY State bond debt incurred in the development of Roosevelt Island unless there is a surplus of funds which could be used to return some of the state's money invested in Roosevelt Island.

Here's what happened during the Public Session of the October 25 RIOC Board of Dirctors Special Meeting. (Thanks to Roosevelt Island resident Mark Lyon for providing the video.)

Hope to learn more about what happened during the meeting soon.

UPDATE 6:15 PM - From RIOC's Press Spokesperson:

We are very pleased that Mr. Schwartz had a productive meeting with the RIOC Board and was also able to address the Island residents who attended the meeting. We are also pleased that Mr. Schwartz made clear that he and the Administration intend to work closely and collaboratively with the RIOC Board and Island residents going forward.

Update On Roosevelt Island Development Bond Debt - RIOC Has No Obligation To Repay Original Bonds To NY State According To RIOC Audit Committee Chair

Image of Bond Debt From Painependant

In previous posts last November, Roosevelt Island Residents Association (RIRA) Planning Committee Chair Frank Farance questioned whether there were long term bond obligations owed by the Roosevelt Island Operating Corp (RIOC) to agencies of the State of New York. Mr. Farance wrote:

In the prior issue of the WIRE and on the Roosevelt Islander Blog, my letter suggested as much as a $400 million liability for RIOC. I was wrong. I've looked into the supporting paperwork and it appears that almost a BILLION dollars are due to UDC (Urban Development Corporation, now named Empire State Development Corporation - ESDC). According to the Revenue Allocation Agreement of August 3, 1988:...

Roosevelt Island Operating Corp (RIOC) Board Member and Audit Committee Chair Howard Polivy answered Mr. Farance:

There are some very basic misunderstandings in Mr. Farance’s recent letter to the Wire. Let’s start at the beginning. The New York State Urban Development Corporation (UDC) was conceived in 1968 primarily to build state-subsidized housing projects. UDC is now doing business as Empire State Development Corporation (ESDC).

The bond debt belongs with ESDC, not RIOC. By statute, RIOC cannot take on any debt....

Roosevelt Island resident Trevre Andrews followed the discussion between Mr. Farance and Mr. Polivy and asked Mr. Polivy:

Dear Mr. Polivy,

I appreciate the information you provided to the Roosevelt Island blogger but I believe we need some more clarification particularly in light of the numerous failing municipalities across the country and questionable financial practices that continue to be ongoing inside and out of New York City. The issue of the island budget is immensely important to homeowners and residents on the island and without our scrutiny and attention to detail many of us are not convinced there are enough checks and balances on RIOC and the state to give everyone a clear picture of the finances.

If the bond debt used to develop the island doesn’t belong to RIOC why is RIOC making any effort to pay it back?

Can you direct me to where I would find the specific terms of the bonds used to improve the island?

Would residents who have bought condominiums on the island retain ownership after the RIOC lease of the island is up and if so what is their responsibility to pay off any remaining RIOC obligations?

Thank you, I appreciate your time in answering my questions.

Mr. Polivy responded to Mr. Andrews, Mr. Farance and the rest of the Roosevelt Island community in this message I received last Friday.

The debt created when Roosevelt Island was developed was issued by, and remains the responsibility of, the Urban Development Corporation (now ESDC, the Empire State Development Corporation). RIOC financial responsibilities to its related state agency, ESDC, are strictly limited, and specified in the Revenue Allocation Agreement. Specific "taxes" and "rents" are designated by mutual agreement to flow directly to ESDC and do not appear on RIOC's books. The only funds payable from RIOC arise as surplus after normal Operations are provided. This means that RIOC is, first and foremost, responsible to serve the development and operating needs of Roosevelt Island. Only after funds are not needed to serve its community operations is it permitted to send funds off to ESDC. Since no one can be sure that an operational surplus actually exists until after the responsibility to provide the enumerated community services is discharged, no net payments are anticipated until the Master Lease terminates.

RIOC, an independent political subdivision of the State of New York, does not have any portion of the original UDC debt. Since RIOC's limited responsibility to ESDC is contingent, both as to amount and timing, it does not appear on the balance sheet.

Howard Polivy
Member, Board of Directors, RIOC
Chair, Audit Committee

Links to the supporting documents are provided in this post.

A webcast of the most recent RIOC audit committee meeting is here.

UPDATE 12/13 - Audio webcast of RIOC Audit Committee December 7 meeting is below.

Who Owes The NY State Bond Debt Used To Build Roosevelt Island, Empire State Development Corporation (ESDC) or Roosevelt Island Operating Corporation (RIOC) - Not Us Says RIOC

Image of Bond Debt From Painependant

A previous guest post by former Roosevelt Island Residents Association President (RIRA) and current Planning Committee Chair Frank Farance raised an issue of the long term financial stability of the Roosevelt Island Operating Corp (RIOC): According to Mr. Farance's November 9 Post:

... there are some topics of real and long- term consequence that affect all residents. One topic is the long-term finances of the Island. Roosevelt Island was built in the 1970's with hundreds of millions in bonds. I've heard that as much as $400 million is due, of which RIOC's "profits" will pay it down....

Mr. Farance follows up on previous post with:

A BILLION DOLLAR MESS

In the prior issue of the WIRE and on the Roosevelt Islander Blog, my letter suggested as much as a $400 million liability for RIOC. I was wrong. I've looked into the supporting paperwork and it appears that almost a BILLION dollars are due to UDC (Urban Development Corporation, now named Empire State Development Corporation - ESDC). According to the Revenue Allocation Agreement of August 3, 1988:

• ... WHEREAS, in order to develop the Premises [Roosevelt Island] in according with such lease, UDC borrowed funds to finance construction of public facilities including without limitation, roads, sidewalks, sewer system, AVAC, water lines, schools, promenades, recreational facilities, a tram, parking garages, other parking facilities and other public facilities;
• WHEREAS, in addition, other funds have been advanced to cover deficits arising from the operation and maintenance of the Premises;
• WHEREAS, under chapter 899 of the New York Laws of 1984 (the "RIOC Act") UDC is required to assign the Master Lease to RIOC;
• WHEREAS, the RIOC Act provides, in pertinent part, among other things, that all revenues derived from the contracts, leases, agreements or instruments assigned to or assumed by RIOC pursuant to Section 6 Subdivision 2 of the RIOC Act be applied first to the payment of obligations assigned to or assumed by RIOC, as more fully provided herein;
• WHEREAS, the RIOC Act further provides the UDC and RIOC shall enter into such agreements and take such actions to permit UDC to recover the investment it has made in the Premises; ...

As of March 31, 1987 the Accrued Operating Deficit was $54,894,528 and the Public Facilities Debt was $117,462,448 (see PDF page 18 of the August 3, 1988 Revenue Allocation Agreement). In addition, another approximately $50 million operating deficit has accrued since the agreement. With an agreed upon interest rate of 5.74% per annum, the total due this fiscal year is $857 million. The annual interest is about $50 million (over $4 million a month), which dwarfs RIOC's $20 million in annual revenues. RIOC Board members frame this in wishful thinking (I Hope The State Doesn't Ask For Its Money), but this is a BILLION dollar Oops!, and it is off RIOC's balance sheet.

I'm sure we'd wish for ESDC to forgive the debt, but our billion dollar liability is their billion dollar asset and I'm not hopeful that ESDC (the State's flagship entity for economic development) is willing to take a couple black eyes when it might affect their ability to issue bonds (read: in ESDC vs. RIOC, I'm guessing RIOC loses).

As a former RIRA President, I complained loudly about the inadequacy of RIOC's 5-year budget and RIOC started providing 15-year projections, which had revealed significant risks and liabilities. Again, I ask RIOC Board members to disclose the true finances of RIOC and to explain their financial plans.

[Attached documents: #1 August 3, 1988 Revenue Allocation Agreement, which references the other three documents of July 21, 1988: #2 Assignment and Assumption Agreement, #3 Phase I Subleases and Revenue, #4 Other Agreements. Important Note: There are other records, I am awaiting a response from RIOC.]

In addition to being published in this Blog, Mr. Farance's statement was also published as a Letter to the Editor in the November 19 Main Street WIRE. Prior to publishing Mr. Farance's guest post, I asked RIOC:

Frank Farance has submitted the following article regarding the finances of Roosevelt Island Operating Corp. Mr. Farance asserts, based upon his review of certain documents described in his article, that almost a billion dollars are owed to the State of NY.

Is Mr. Farance correct? If not, can you clarify what is the current state of debt owed, if any, by RIOC to NY State or any of it's Agencies.

I understand this is a very important issue and am checking with you before publishing Mr. Farance's article. I plan to publish it on Friday. A comment from RIOC regarding the accuracy of Mr. Farance's article would be very helpful. If you do not wish to comment, please let me know that as well.

I received this reply from Howard Polivy, RIOC Board Member and Chair of RIOC's Audit Committee yesterday (Monday) afternoon:

There are some very basic misunderstandings in Mr. Farance’s recent letter to the Wire. Let’s start at the beginning. The New York State Urban Development Corporation (UDC) was conceived in 1968 primarily to build state-subsidized housing projects. UDC is now doing business as Empire State Development Corporation (ESDC).

The bond debt belongs with ESDC, not RIOC. By statute, RIOC cannot take on any debt. That’s why it’s quite properly not shown on our books. However, since the WIRE buildings were built with the UDC financing, it’s only reasonable and fair that any revenues derived from them would be split between RIOC and ESDC. Therefore, the RIOC Act requires a formal revenue allocation agreement exist that addresses how RIOC revenues should be split with ESDC. Part of that agreement requires that RIOC pass through PILOT payments (Payment in lieu of taxes) and gives ESDC a portion of the ground rent collected. RIOC has been doing that for the past 24+ years. Other income could/should theoretically be shared with ESDC but only after all other capital improvement payments have been deducted against operating incomes. When deducting all capital expenditures there are no expected excess funds to be shared through to 2068.

RIOC's annual budget and financial statements properly restrict themselves to its own direct receipts, expenses, assets, and liabilities.

So, bottom line, there’s no big groundswell of debt piling up ready to swallow up the Island. The board is not crossing its fingers and hoping the State won’t notice that RIOC owes them money. The board and RIOC staff is now, and has for the last 24+ years, been responsibly living up to its agreement with NY State.

Frank Farance on Why Roosevelt Island Finances, Elections and RIRA Matter

Below is a guest post from former Roosevelt Island Residents Association (RIRA) President and current Planning Committee Chair Frank Farance.

Why All This Matters

To some residents, RIRA sounds like intramural squabbling: cranky residents with strong personalities fighting over petty stuff. However, there are some topics of real and long- term consequence that affect all residents. One topic is the long-term finances of the Island. Roosevelt Island was built in the 1970's with hundreds of millions in bonds. I've heard that as much as $400 million is due, of which RIOC's "profits" will pay it down.

In other parts of the State, benefits from taxes, etc. flow from multiple sources, e.g., curbs and road repair from the village, parks from the township, traffic lights and sewage from the county, and major highways from the State and Federal governments. For geographically isolated Roosevelt Island, it seemed convenient to consolidate the money flows into a single State budget line item and to dispense them through the single agency RIOC. It was convenient until the Pataki administration took aim at Roosevelt Island and, with a single pen stroke, knocked out the money flow. Circa 1995, we went from $6 million annual "subsidy" to zero dollars quickly. The word "subsidy" was a contentious term because Roosevelt Island, a much smaller community then, didn't have the revenues to sustain itself.

What happened over the next half decade was: significant lapses in capital spending (e.g., seawall in need of serious repair), several attempts to reduce operating costs (e.g., eliminate third shift of Tram), increases in public safety fees (gets more revenue to RIOC), a sell-off of the Island parks and other land to raise money (Southtown, Octagon), a refusal to accept monies (e.g., seawall and Blackwell House repair), and so on. So one can imagine the frustration of Island residents back then. Circa 2005, as Pataki's gift to State Senator Olga Mendez who switched to the Republican Party, we now have the requirement that 5 of the 9 members of the RIOC Board must be Island residents, which allows our voices to be heard better.

However, we are still making bad financial decisions, regardless of resident or "elected" resident involvement on the RIOC Board. In summary, we had a $6 million negative cash flow in 1995 and twenty years later (according to RIOC's budget) we're back to a $6-8 million negative cash flow if Southtown 7-9 are not built, and we run out of cash around 2020. Negative cashflow, out of money, $400 million debt -- Not Good.

What has paid for the high spending in the past handful of years is the lump sum payments (soon they will be exhausted). Octagon made an $11 million lump sum ground lease payment, which translates to $48,000 per year ($4,000/month) contribution to the Island's operations (excludes the $110,000 annual payment for extra red bus service), i.e., Octagon building's several hundred market rate units pay less than one apartment's rent for all of RIOC's services. Ditto for Southtown 1 and 2 and their low contributions. Ditto for Southtown 3-6, whose contributions are now lower than originally forecast. Please understand, this is not any criticism of Octagon and Southtown residents (who had nothing to do with this), this is a criticism of the RIOC Board.

In September 2008 we experienced the financial meltdown, so the RIOC Board was well aware of future financial risk, including the increased possibility that Southtown 7-9 would not be built, yet RIOC "bet the farm" with large expenses in the hopes of Southtown 7-9 being built. In December 2008, we had "elected" members on the RIOC Board, such as Jonathan Kalkin, who were in favor of such excess spending (Mr. Kalkin likes technology). The 2008 Tram upgrade could have spent only $15 million (from the State), but the RIOC Board chose the dual system at an extra cost of $10 million (from RIOC's lump sum payments).

Now let's roll forward to December 31, 2012 when Hudson-Related is supposed to have started building Southtown 7-9, or pay a $1.5 million de-designation fee. The contours of this negotiation are: the developers have RIOC over a barrel because RIOC will be desperate for money (without it RIOC goes bankrupt), RIOC is already in a cash poor situation (because of the extra $10 million spent on the Tram), which puts RIOC in the worst negotiating position -- much of this was understood in September 2008. The possible high-tech center at Goldwater won't significantly help RIOC (City-owned land), RIOC doesn't have $6-8 million in services to sell the universities, and the developers can wait on collaborating with Stanford/Cornell until after the de-designation deadline to maximize their negotiating position against RIOC.

So we keep getting these bad real estate deals where the developers/owners win and the Island loses. Oh there is another deal: Rivercross privatization deal for market rate conversion. The Wall Street Journal's article confirmed prior estimates: apartments would be sold at $500/sq-ft, with $150/sq-ft transfer fee back to the building, i.e., $350/sq-ft profit, which means about $200-400 million profit in the transaction. The RIOC Board determines the ground lease and determines what portion (zero to $350/sq-ft) of those sales come to RIOC, which 4 of 7 appointed directors come from Rivercross.

Former RIOC President Steve Shane has pointed out: those living in Mitchell-Lama buildings have already consumed their benefits via reduced rates, maintenance, ground leases, taxes, etc.. In other words, if you've had a $2000/month benefit for 35 years ($840,000), then you deserve very little of that $350/sq-ft profit and RIOC should have the rest. (Note: These are back of envelope numbers, not actual numbers.) Mr. Shane, while maintaining the State's concerns, got himself fired last year by this unbalanced board with a significant conflict of interest. In follow-up E-mails with RIOC Board Member Margie Smith, Matt Katz, Sherie Helstien, and other Maple Tree Group members just after the firing, Ms. Helstien says on June 30, 2010, "Perhaps I should forget about updating our signage for this coming Fall's plebiscite [election]? Shall we just call off any further voting?". Thus, discussion of cancelling the RIOC Board nominee elections was a result of (1) the Shane firing (now MTG has all their people on the board), (2) MTG legislation that would further restrict the Governor's involvement in RIOC (see full E-mails below).

This matters to all of us because we are all greatly affected by the Island's finances. The issues above are part of the subtext that drives these kinds of disagreements among residents on RIOC and in RIRA.

Click here for the emails referenced by Mr. Farance in next to last paragraph.