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.