Tuesday, March 28, 2006

Community benefit agreements become costly as Bloomberg endorses concept

From: PatJonesNY
Date: Tue, 28 Mar 2006 15:48:42 EST
Subject: From Crain's
To: reysmont@yahoo.com

Developers' deal-making escalates

Community benefit agreements become costly as Bloomberg endorses concept
By Erik Engquist
Published on March 27, 2006

Two years ago, to win backing for a proposed East Side retail complex, a developer agreed to bankroll a $2 million park rehabilitation. This past winter, a builder coughed up $5 million in goodies to smooth the way for a controversial new mall in the Bronx. Last week, the Yankees, seeking support for a new stadium, announced a community benefits agreement that could cost an astonishing $50 million.

Unheard of in New York City just a few years ago, community benefits agreements, or CBAs, are fast becoming standard components of large developments. They're also getting more expensive as each one builds on its predecessors. Critics say they are corrupting the city's process for approving new development projects. Some observers are calling for restrictions on side deals.

"It's just the Wild West," says Julia Vitullo-Martin, a fellow at the Manhattan Institute, a conservative think tank. "Anybody who wants something comes forward and demands it from the developer."

Most CBAs involve builders pledging to create open space; use union labor; set hiring quotas for women, minorities and local residents; and buy from local businesses. In exchange, community groups and elected officials help the project get approved.

A 2000 CBA for the Staples Arena in Los Angeles spawned a wave of similar agreements across the country. Now, they are gaining momentum in New York with the backing of Mayor Michael Bloomberg. He praised the CBA for The Related Cos.' Bronx Gateway Center mall as a "sweeping [agreement] that will go a long way toward meeting the community's needs." He also cheered the CBA for the Brooklyn Atlantic Yards project.

Previous mayors, notably Rudy Giuliani and Ed Koch, fought such deals, saying they distorted the public review process by buying off would-be opponents.

"For a long time, the city had a bright-line rule about not doing it," says attorney Jesse Masyr. In 1999, a client of his secured the crucial support of then-Councilman Philip Reed for its East River Plaza retail project by promising $2 million for nearby Jefferson Park. "When Giuliani found out about it, he went nuts," Mr. Masyr recalls.

Similarly, during the 1980s construction boom, an epidemic of what were then called "extractions" from developers drew the ire of Mayor Ed Koch. He commissioned a report that branded them unregulated taxes that threatened the integrity of government.

Wide-ranging demands in the Bronx
Critics include lawyers who question whether CBAs are enforceable, because they don't specify a benefit to the developer. In a legal contract, both parties provide something.

Meanwhile, the CBA free-for-all continues. Bronx groups wanted The Related Cos. to build affordable housing and a waterfront park, give $500,000 annually to a scholarship fund, pay the salary of an engineer hired by the activists, and endow an office and staff for them to monitor the proposed Gateway mall in return for their support.

Related rejected those terms, and many groups refused to sign the agreement. But promises to hire Bronx contractors and suppliers, pay half of warehouse store membership fees for 1,000 Bronx families, lease an office to Community Board 1, open a day-care center and require Gateway tenants to accept food stamps satisfied Bronx City Council members. The project was approved.

"There are a lot of social goals being played out," says Raymond Levin, of counsel at Mr. Masyr's firm, Wachtel & Masyr. He says developers see CBAs as a cost of doing business.

Some developers endorse the concept. Forest City Ratner Cos. Executive Vice President James Stuckey calls the CBA Forest City signed for its Atlantic Yards project "a vehicle for positive change," noting provisions for subsidized housing, job training and hiring of minority and women businesses.

He acknowledges that the deal won crucial political support for the project from the groups who signed it. One of those groups, Build, will be hired to run programs promised by the CBA.
"They're saying they support the development. I would, too, if he gave me $15 million," Ms. Vitullo-Martin says drily.

Liberal groups want CBAs to be required by law for projects involving public subsidies or rezoning. "Baseline mandates for prevailing wages and local hiring would help community groups negotiate for affordable housing, child-care centers, new parks and other benefits," says Adrianne Shropshire, a fellow at the Drum Major Institute for Public Policy.

The calls for regulation may ultimately force the mayor's hand. Even proponents fear the agreements are running amok. Ms. Shropshire warns that CBAs could become public relations tools for developers rather than boons for communities.

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