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Brodsky Report on Public Authorities

Brodsky Report on Public Authorities

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Published by JimmyVielkind

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Published by: JimmyVielkind on Dec 27, 2010
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Final Report Of the Committee On Corporations, Commissions, and Authorities, 2010
 Recommendations For Continuing Legislative Reform Of Public Authorities
The historic Public Authorities Reform Act (PARA) took effect on March 1, 2010. This sweepinglegislation builds on the reforms enacted in the Public Authorities Accountability Act of 2005 (PAAA), bringing long-needed reform and fundamental change to New York’s “Soviet-style bureaucracies,”improving the lives of all New Yorkers and the financial future of the state.The legislation is a fundamental, top to bottom reform of New York State’s 700 public authorities.Members of public authority boards now have an explicit fiduciary duty to the authority and its publicmission, and are no longer being beholden to or controlled by those who appoint them. State authoritiesmust submit to the Comptroller all no-bid contracts costing over $1 million and those paid for withappropriated funds. They are required to follow MWBE, lobbying disclosure, and reportingrequirements, and must create a whistle blower program to protect those who report authoritymisconduct.Perhaps most importantly, the legislation creates an independent Authorities Budget Office (ABO) with powers of investigation, referral, and oversight. The ABO has already begun to ensure that authoritiesabide by all elements of the new law. Going forward, there are additional reforms that will ensure that New York State continues its leadership role in the effort to make public authorities more effective andaccountable. The success of the authority reform effort is by no means assured. Vested interests, bothwithin and without the network of public authorities are already seeking to weaken the new legalreforms, and to minimize enforcement of the law. It would be unfortunate and unnecessary if this wereto occur. We have spoken with the ABO the Millstein Advisory Task Force, held hearings andinvestigations on various state and local authorities and compiled the following recommendations we believe are most important to protect and enhance the reform mission going forward.
Dissolution of Unneeded Public Authorities
Among the hundreds of public authorities there are many which could be eliminated. These fall intothree categories. First, those that are essentially defunct and not in operation. We believe there arewell over 100 of these. Assemblyman Hoyt and Assemblyman Brodsky introduced legislation todissolve them (A.11106). This bill should be supported by the new Administration and enacted into lawearly in 2011. The second are those that are duplicative. We believe there are hundreds of these aswell. For examples, it remains unclear why any individual County needs numbers of IDA's when their function could all be handled by a single entity, or why ESDC needs innumerable subsidiaries to carryout it's mission. The process of assessing such duplication for both state and local authorities is acombination of common sense and technical analysis that requires more information about authorityoperations than is currently available. The needed analyses are constrained by the inadequate staffingnow provided to the ABO, which is charged with assuring that such duplication is eliminated. Third,there are functioning, non-duplicative authorities that may not be needed as part of government's coremission. These include large entities such as LMDC or the Canal Corporation, as well as the proliferation of development corporations. The same technical and common sense analysis needs to beextended to these as well.
2These are the first achievable and concrete steps in our efforts to shrink the size of government andreign in public debt. Governor-elect Cuomo has spoken repeatedly of the need to reduce the number of state and local government bodies. The Millstein Task force recommends that public authorities reviewtheir subsidiaries and dissolve those that are not necessary. The Task Force also recommends the ABOlead the review of public authorities which may not be needed. It must be emphasized that this reviewis more highly technical and difficult than is generally thought. It will require not only a review of function and purpose, but of debt structures and relation to activities of state agencies. We againcaution that this review requires additional staff at the ABO, which must be provided immediately.
Ban “Bonuses” and Contingent Compensation
Committee investigations have revealed a pattern of excessive compensation at some authorities,usually local authorities. Excessive compensation is usually but not always in the form of contingentcompensation and includes practices that are part of collective bargaining agreements and payments tomanagers or executives. There appears no policy objection to those that are bargained. We make nofinding as to the wisdom of any particular such agreement, but they do not appear to lead to excessivecompensation and are matters of public record.Such is not the case with respect to managerial compensation. The Committee has found repeatedinstances of excessive compensation, secrecy, and board irresponsibility.
ertain of these cases,including those at the Fulton County Economic Development Corporation and related entities, and theGreene County IDA have caused serious public controversy and may be under scrutiny by other government agencies. Payments to authority employees in some cases rise to the millions of dollars, theexplanations as to why they are necessary are sometimes bizarre, and board members appear surprised by their extent. It is important to remember that in all these cases, authorities and LDC's are being usedto transfer public assets into private hands. Generally title to publicly owned real estate that seems tohave little value is transferred to other public entities, and eventually ends up in private hands. Theincreased value of the property is either left in those private hands, or in one of the public entities. It isthat increased value which has been given in the form of “bonuses” or contingent compensation. It isclear that contingent compensation practices present a serious danger to the public interest. It is not just that the compensation is excessive, it is that the increase in value of a public asset should be left inthe hands of the taxpayer whose property it was originally. There is legislation dealing with this problem which should be enacted quickly. (A.11461)
Mandate Debt Management and Reduction Plans
In light of recent events, it has become clear that the mandatory imposition of debt management anddebt reduction practices for all public authorities will lead to reduced waste and abuse. These public plans are necessary not just to reduce public indebtedness, but to assure that when new debt is issued, itwill be both necessary and acceptable to the public and markets. We have recommended legislation thatwould mandate debt management and reduction policies for all public authorities.
Increase Funding for the ABO
The important reforms in PARA that are beginning to be implemented will collapse if the ABO doesnot receive the funding it needs to carry them out. We emphasize that the ABO is funded by public
3authorities themselves, not by taxpayers, and that it is poised to save the state billions as it uncoverswrongdoing, downsizes the system, and makes all authorities more efficient. The ABO has beendesigned and approved for a staff of about 30. It currently employs only 7 persons. It should be budgeted for a staff of at least 15 in the next fiscal year. This recommendation is shared by the ABOitself and the Millstein Task Force. The ABO has recommended that increased revenue may beachieved by including the estimated 185 LDC’s in the existing assessment of all public authorities. Italso recommends that LDC’s be subject to a Bond Issuance Charges (BIC) for the billions of dollars of debt they issue each year. We concur.
End Evasion of PARA and Other State Laws
Over the last years, a disturbing trend has developed across the State. A spate of not-for-profitcorporations have been created at the behest of local governments at the active direction of leading lawfirms. These NFP's are providing services traditionally offered by governments themselves. We believe there are dozens of them in New York City, suburban and upstate communities. They are oftendescribed as economic development entities, or as ways of privatizing and reducing the cost of government. There is little or no evidence to support these claims, but, according to testimony fromABO Director David Kidera, a cottage industry has developed that is fraught with unansweredquestions. What is most remarkable is the regular assertion by these entities that they are not covered by state laws, including PARA and PAAA. We have investigated a number of these including theFulton County Economic Development Corporation and the M3SLDC in Monroe County. They assertthat they are not bound by state laws on procurement, disclosure and reporting, lobbying, MWBE andmany other areas of law.Two areas require consideration. First, a variety of laws that protect the public interest may not applyto these NFP's. Take the specific cases of procurement, lobbying or MWBE laws. Attorneys for theMonroe County entities assert that these state laws do not apply to them, while insisting that they abide by them as a matter of internal policy or local requirement. The NFP law was created knowing thatmany laws regulating government activity would not apply. It was simply not contemplated thatfundamental public services would be transferred to them and necessary public protections lost in theshuffle. We recommend amending Section 1411 of Not for Profit Corporations Law to restrict theability of a local governments or public authorities to use the NFP law to provide government serviceswithout legal protections, and to tighten or clarify the public purpose for which a local developmentcorporation can be incorporated. We also recommend a thorough review of state laws that do not cover LDC's and NFP's and should be extended to them, and that local governments or public authoritiesshould be required to notify the ABO when they create an LDC. This will assure that public servicesare provided by public, transparent and accountable entities.The second area of concern is the assertion by some LDC's that they are not covered by PAAA andPARA. This has been the subject of litigation, generally resulting in determinations that PAAA andPARA are applicable. But these assertions continue, sometimes in completely unreasonable andunacceptable form. The continuing assertion by the Fulton County EDC, for example, it is not coveredis legally nonsensical. (The issue has been explored in the Committee's recent investigation of theFCEDC). PAAA and PARA contain language, which among many other criteria, make an entitysubject to these laws if it was “sponsored” by a local government. That broad and inclusive languagewas drafted to cover entities that were intended to or actually did, deliver a public service or dispose of  public property, receive public support or engage in efforts to assist a government purpose or function.The FCEDC “bonus” payments are an example of the inevitable consequences of the secrecy and

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