Message from the Chair

The Public Authorities of the State have become, in recent years, a shadow government, making secret decisions that dramatically affect the daily lives of all New Yorkers. Whether you are concerned about mass transit, school construction, public debt, the cost of electricity, economic development, or the environment, State Authorities are directly exercising enormous power over your lives and concerns.

The Committee on Corporations, Authorities, and Commissions is charged with overseeing all of New York’s public and private corporations, its state authorities, and its commissions, which puts it at the center of the most vital issues facing New York. During the past year, the Committee has used its oversight powers to great effect, holding Public Hearings into the activities of state authorities from Long Island to Buffalo. The Committee’s hearings uncovered the sale of development rights to the Erie Canal for $30,000, the $500,000 phone call to the MTA by a former U.S. Senator, and a series of other activities previously not public. The Committee moved legislation through the Assembly, uncovered serious problems in telephone service across the state, and pushed for more accountability from private corporations.

Our efforts have laid the groundwork for fundamental reform of our State’s Authorities. We need an Authorities Independent Budget Office, an Authorities Independent Inspector General, an end to procurement lobbying abuses, and an end to the lawless sale of public land and property.

More specific information on the Committee’s work is contained in this newsletter.

As always, if you have any questions or concerns, please feel free to contact me.

Richard L. Brodsky

The Erie Canal was an historic public works project that changed the history of our State and nation. Hundreds of lives and a huge amount of capital went into creating the great transportation network that opened the American West to commerce. Nearly two hundred years later that legacy and sacrifice has been turned on its head and become the focus of special interests, procurement lobbyists, and highly politicized decisions. Two major projects at the Canal have come under Committee scrutiny.

In a dramatic set of hearings that began with an examination of subpoenaed documents, the Committee revealed that the State Canal Corporation, a state authority, sold exclusive development rights to the 524-mile Erie Canal corridor to a developer for $30,000 — a deal which State Comptroller Hevesi later rejected based on documents and testimony revealed at the Committee’s Hearing. Subsequently, the governor has asked the Inspector General and the Attorney General to determine if criminal violations took place. The Canal Corporation had ignored dozens of interested bidders, instead embarking on several years of correspondence and planning with a single developer and his influential lawyers and lobbyists. This process, done in secret, without appraisal of the value of the land, and without letting the free market work, yielded a contract that gave the development rights to 1,048 miles of this historic asset for $30,000, excluded other bidders and developers, and unfortunately slowed development along the Canal. The Committee’s Erie Canal investigation has attracted national attention, and is being vigorously pursued. There will be more information to come.

In Syracuse, the Canal Corporation conducted a public and fair bidding process for the rights to develop housing and commercial property at the Syracuse Inner Harbor. After a long process involving many major firms, a winner was selected. In a strange twist, one of the unsuccessful bidders hired a firm run by former high-ranking Administration officials to overturn the bidding process. When Canal Corporation employees refused to reopen the bidding, the lobbyists worked successfully behind the scenes to undo the bid and the employees who stood by the original process were fired. The Canal Corporation withdrew the award, and the entire project is in limbo.

In May, the Committee issued its Interim Report on Verizon Service Quality in New York State, which detailed a serious decline in the quality of service provided by Verizon to its wireline telephone customers throughout the State. The Report linked the decline in service quality to an overly lenient regulatory scheme agreed to between the Company and the Public Service Commission (PSC), and a steep decline both in workforce and capital expenditures. In addition, the Report identified several areas of the State receiving particularly poor service, including Nassau County and Upstate areas around Syracuse, Watertown, Johnson City, and Utica.

In response to the Committee’s work, the PSC in June suspended Verizon’s ability to raise retail rates and ordered a full audit of Verizon’s service quality program, specifically including workforce and capital issues. The PSC also ordered Verizon to come up with a plan to meet all service quality targets associated with its regulatory plan, which Verizon had admitted it could not do.

In July, the Committee convened a Public Hearing in Buffalo to discuss a proposal to grant eminent domain powers to the Buffalo and Fort Erie Public Bridge Authority, which operates the Peace Bridge between Western New York and Ontario. The Committee heard from a broad range of interested parties, including representatives of the Authority and local governments, and local community members. There was grave concern expressed that the new Bridge would cause severe and unfair hardship to the economically disadvantaged residents living near the Bridge. As a result of the Hearing and subsequent discussions with the Authority and interested parties, the Committee developed legislation that would grant the Peace Bridge eminent domain powers for a limited period of time, and require the Authority to contribute an additional $1.1 million toward relocation expenses above the fair market value for the property taken.

In an appearance before the Committee, the President of the New York Power Authority testified that the Authority hired Governor Pataki’s former chief of personal security as Inspector General and Director of Corporate Security. The hiring took place without advertising or posting the job opportunity. Because this person was retired and receiving a State pension, the Authority obtained a waiver from the Civil Service Commission to certify that no other person was qualified to serve in the position, allowing the employee to collect his pension as well as receive his salary, for a total compensation of around $220,000 annually. The Power Authority failed to follow civil service procedures on waivers by not interviewing for other candidates and not advertising the position widely.

In addition, the Committee’s hearings revealed major structural problems with the NYPA Inspector General. The position is unique in two ways: it is the only IG who has another set of specific responsibilities within the agency he is charged with investigating, and is the only IG who lacks subpoena power. This arrangement leaves the position severely compromised with respect to its investigative ability, and suffering from a significant conflict of interest, particularly should there be an allegation of wrongdoing within the security division.

Earlier this year, a lobbying firm run by former high-ranking officials in the Governor’s office — specializing in media relations and lobbying — received a no-bid contract from the Long Island Power Authority (LIPA) for consulting services. The contract was run through KeySpan Energy, which has a management agreement with LIPA. LIPA used this unusual contracting method to avoid public awareness of the deal. After the Committee and members of the Long Island Assembly delegation made the details of the deal public, these lobbyists dropped the contract.

In a second matter, questions have been raised about a no-bid contract given to LIPA’s interim chief financial officer, a former high-ranking gubernatorial employee, who served as a consultant for 14 months and received nearly $600,000; both her predecessor and successor received annual salaries in the range of $225,000. Again, this contract was issued in secret, and LIPA did not submit it to Comptroller Hevesi for approval. It is simply unacceptable for an authority to contract out for services at three times the rate it normally pays its own employees for the same services, and to do so in secret. The LIPA Chairman has acknowledged these mistakes and promised to correct them.

The cure for the systematic abuses at State authorities uncovered at Committee hearings throughout the year is a legislative package, passed by the Assembly, that will dramatically change the way Authorities operate. The legislation would create: a Public Authorities Independent Budget Office to review and publish budget information before decisions are made; a Public Authorities Independent Inspector General to oversee and review activities at all public authorities; a Central Procurement Office which would create new rules to control the sale of public property and end procurement lobbying abuses. The support of the Senate and the Governor is crucial to their becoming law.

MTA Fare Increase and Finances
Hearings held by the Committee starting in December 2002 focused on the Metropolitan Transportation Authority, one of the State’s largest authorities with an annual budget of over $7 billion. In 2002, as the MTA was campaigning for a 33% fare increase, the public was not informed that the MTA had hidden $500 million in cash reserves, making the immediate financial situation seem much more dire. In addition, the MTA has publicly acknowledged a $1.8 billion liability owed to its pension funds. While the MTA produces tens of thousands of documents annually, it has repeatedly buried any useful information or neglected to include it. Such secretive manipulation of its finances has damaged the MTA’s credibility, and led to broad support for fundamental reform.

MTA Obstruction of IG Investigations
The Committee’s hearings also revealed how the independence of the MTA’s Inspector General (IG) had been seriously compromised, and over a dozen investigations obstructed and thwarted by the MTA. In 2000, MTA Chairman E. Virgil Conway refused to provide documents to the Inspector General in fifteen cases, citing attorney-client privilege against its own IG. Because of this unprecedented and unfounded lack of cooperation, the Inspector General closed six investigations of fraud and abuse in the MTA system. He was subsequently denied reappointment by the Governor. Chairman Brodsky has sought a reopening of these matters, but MTA Inspector General Matthew D. Sansverie has not yet responded to the requests. The Committee also heard testimony concerning the fact that the MTA IG is appointed by the Governor, who also appoints a controlling majority of the MTA Board. This conflict of interest does not lend itself to either the appearance or reality of independent investigations.

MTA Procurement Lobbying
Perhaps the most serious problem revealed by the Committee hearings is evidence that an influential former United States Senator was hired by a contractor to lobby the MTA Chairman to prevent the MTA’s attorneys from defending its interests. As a result of this contact, the MTA Chairman made a call to an MTA employee, and the MTA’s protective actions ceased. This single phone call earned the former United States Senator $500,000. At the request of the Committee, the MTA IG has begun a formal inquiry into the matter.

Taken together, the failure to reveal significant financial information, the interference in important corruption investigations, and the ability of a well-connected and well-compensated lobbyist to interfere with the interests of the Authority are evidence of an agency in crisis. The MTA has promised to address these matters in its attempt to reorganize its operations. The Committee is awaiting such action and will monitor it closely.

As part of its reform agenda, the Committee reported a legislative package aimed at improving the accountability of private corporations. The package includes a Corporate Code of Responsibility that would govern the actions of all corporations doing business in New York; the Integrity in Auditing Act, which would regulate the practice of audits; the Investment Banking and Research Reform Act, which would establish standards for investment research and require public disclosure; and the Corporate Disclosure and Responsibility and Taxpayer Protection Act, which would ensure that companies use economic development funds for their intended purposes. The Committee will continue to push for this package in the upcoming Session.