Having ended his reign as chief of the most powerful economic development agency in New York, Charles Gargano may now find himself at the center of an audit that is being conducted into allegedly misdirected funds at the agency.
Depending on the findings of the audit by the new New York State Comptroller Thomas DiNapoli, which were slated for release around the end of February, the unelected former economic czar could become part of a criminal investigation.
Allegations that the Economic State Development Corp. paid the rent of the headquarters of agency chief Gargano’s nephew, Frank Gargano — who unsuccessfully ran for local office in Suffolk County on Long Island — further cloud the legacy of the Albany insider’s 12 years in power. The agency was ordered to repay the state more than $100,000, the cost of 18 months’ rent at the offices of the Suffolk County Chamber of Commerce, where Frank Gargano had his campaign headquarters.
Last month, The Real Deal sat down with Gargano in one of the first interviews since he left office. Gargano defended himself against the claims of impropriety and reflected on his experience as the state’s development czar. He found fault with developers and government officials for projects that were thwarted at the end of his tenure.
The investigation of the ESDC follows outgoing Gov. George Pataki’s defiance of Governor-elect Eliot Spitzer’s request last year that the old administration not make any long-lasting public authority appointments prior to leaving office. Pataki extended Charles Gargano’s stint as vice chairman of the Port Authority of New York and New Jersey by six years. The agency controls most of the bridges, tunnels and roads that crisscross the region, and also major portions of the World Trade Center redevelopment.
At the ESDC, Spitzer wasted no time replacing 72-year-old Gargano with Patrick Foye, a mergers and acquisitions lawyer who headed a three-year turnaround effort as chief executive of the United Way of Long Island.
If the audit goes against the agency or Gargano, it could trigger an aggressive look by new Attorney General Andrew Cuomo into past ESDC workings.
Dan Weiller, a spokesperson for DiNapoli, confirmed that the office has been “working on an audit of the Economic State Development Corporation relating to member item payments to the Suffolk Chamber of Commerce.”
If the audit finds that any ESDC monies were improperly used, the matter “could be referred to the appropriate law enforcement agencies,” said Weiller. However, there was no indication that the audit actually would lead to a criminal investigation.
Gargano faces further press scrutiny after a report last month in the Village Voice alleged the economic heavyweight sought a $300,000 payment and a job for his nephew Frank Gargano as a lobbyist for Sal Catucci, head of American Stevedoring, which was looking to extend its Port Authority subsidies at the Red Hook piers in 2003.
The article suggested that the elder Gargano toured the operation and appeared to lay a thinly veiled suggestion that $300,000 would fix the company’s bid with the Port Authority to circumvent an expensive legal battle for state subsidies. Allegedly, Frank Gargano showed up a few weeks later and suggested a monthly legal agreement for the red herring amount of $300,000, which Catucci alleged was to be used to lobby the Port Authority.
In an interview with The Real Deal, Charles Gargano said he had never heard of the Voice article, and categorically denied the exchange:
“That is an absolute lie, I never spoke of $300,000, and that is probably an attempt by Mr. Catucci to get back at me for not supporting his operation,” said Gargano.
“My record is clear at the Port Authority that I thought [Catucci’s] operation should be out of there and we should not continue with making subsidies,” he added. Although he did visit the operation, he said he toured the piers to help in the decision of whether to extend the leases.
Frank Gargano has “his own business that has nothing to do with me,” he added.
In his interview with The Real Deal, Gargano said the agency was responsible for developing more projects than under any other governor in state history, although both the redevelopment of Atlantic Yards in Brooklyn and the conversion of the James A. Farley Post Office on 34th Street to Moynihan Station, which would be used for commuter and long-distance train service, remain very much unfinished. Both have generated considerable controversy and sparked fierce community or interagency disputes.
Gargano said he opposed changes to the Moynihan station project that would commit the state to rebuilding on the current site of Pennsylvania Station and moving Madison Square Garden in addition to rebuilding the post office building.
“It would have been very lucrative for the developers,” he said.
He said the ESDC’s work after the terror attacks of Sept. 11 left a legacy of enormous accomplishment on the agency’s part. Gargano also pointed to the renovations at John F. Kennedy Airport, the construction of the AirTrain link there, and the revitalization of Times Square.
“By 2012 or 2013 the world will look on New York and America as a place that knows how to recover quickly,” he said. “The future of Lower Manhattan is extremely positive,” he added.
Development head Foye inherits messy house
One item on new Governor Eliot Spitzer’s reform agenda is the overhaul of the beleaguered Economic State Development Corporation, part of an attempt to put an end to the alleged cronyism that has been stymieing economic development projects statewide.
The ESDC, the agency in charge of large state development projects, will also have a $20 million deficit by March 31 and a projected shortfall in 2007 of $30 million.
Spitzer appointed Patrick Foye president and downstate chairman of the agency, a move most insiders think will have a positive influence on reforming an organization that for some has become synonymous with big projects that often benefit private interests at the expense of city and state residents. Daniel Gundersen will serve as chairman for the agency’s upstate efforts.
“The primary point is that the Spitzer administration is going to be proactive rather than reactive to developer-driven deals,” said Kathryn Wylde, president of Partnership for New York City, a nonprofit group of business leaders.
Among the projects stopped in their tracks since Spitzer’s victory are the creation of Moynihan Station from the James A. Farley Post Office building on 34th Street, the Hudson Yards development on the West Side, portions of the redevelopment of Lower Manhattan, and possibly the Atlantic Yards Project in Brooklyn. That project’s status remains unclear while federal lawsuits challenging the development are pending.
But hopes for a truly independent agency that won’t kowtow to developers are already wearing thin. Last month, Foye met with developers Steven Roth, chairman of Vornado Realty Trust, and Stephen Ross, chairman of the Related Companies, to discuss the option of redeveloping the current Pennsylvania Station complex on Eighth Avenue by including plans for the original Moynihan station project, which could be equally lucrative for developers.
In a separate interview (see above), previous development agency chief Charles Gargano criticized the Public Authorities Control Board for allowing the same developers to stalemate the already agreed-upon, simpler Moynihan deal with their more lucrative vision for a redeveloped 34th Street.
The ESDC signed a new memorandum of understanding in February that extended the state’s option to purchase the Farley Building, according to the Postal Service.
Foye’s discussions with the developers may not signal his acquiescence to their proposals, supporters say.
“Tear it down and build it up again brick by brick,” said Assemblyman Richard Brodsky, expressing what he hopes Foye will do with the agency. “They should undo the Empire Zone program that is not working and rebuild it,” he added, “and they should re-examine every large project.”
The Empire Zone program was created to stimulate economic growth through a variety of state tax incentives implemented to attract new businesses to New York, but the program has come under considerable criticism for abuses of the system by recipients.
Previously a mergers and acquisitions lawyer for the white-shoe firm of Skadden, Arps, Slate, Meagher & Flom, Foye most recently spent three years as chief of the United Way of Long Island. Although Foye has served as an executive vice president at Apartment Investment & Management Company, a REIT, some think he lacks the background in real estate development that is a prerequisite for the job.
“They are extremely capable and smart,” said Wylde, referring both to Foye and the ESDC’s new chief operating officer, Avi Schick. Schick recently served as assistant attorney general under Eliot Spitzer.
The two must unite 28 “balkanized” economic development efforts around the state, an effort that has been lacking for years, she said.
“Everyone basically in New York State has been fighting for their own projects, their own districts and their own areas,” she said. An emphasis on upstate-downstate cooperation and sharing of knowledge may help.
All of Spitzer’s ESDC appointments will need to be confirmed by the state Senate.
But some think the tough world of development needs a more development-savvy ESDC chief.
Former development czars Edward Logue, Richard Kahan and Richard Ravitch “understood design and construction and they knew how to get things done,” said Kent Barwick, president of the Municipal Arts Society.
“[Foye and Schick] are new guys; no one knows what they are capable of,” he added, calling the ESDC projects, “the biggest stakes games in New York,” with “tremendous economic implications.”
Brodsky, who has met both Foye and Schick and witnessed them handle their first challenge, backing out of the sale of 633 Third Avenue and the purchase of condos at 125 Maiden Lane for their headquarters, thinks they will be able to handle the rough and tough development world with skill.”These are people you can do business with,” he said of the two.
The Spitzer administration is investigating the last-minute sale of 633 Third Avenue to Time Equities, which paid $100 million for the 185,000-square-foot building. Allegedly, they were not the highest bidder for the property, and overcharged the governor’s office for rent by $2 million. At the same time, the ESDC purchased 125 Maiden Lane from the same company, Time Equities, for $62.5 million.
The sale of ESDC headquarters is also being investigated by Brodsky, who chairs the Legislature’s committee on state corporations, authorities and commissions. He said publicly that the state did not get an appraisal before closing the sale, as required by law. Because the 633 Third Avenue property was part of a swap for the Maiden Lane space, the deal would have required the ESDC to notify the public and wait 90 days before closing.
The ESDC property swap deal is an example of the type of insider business deals targeted by Spitzer’s reform platform.
Could that be a warning to the warring factions in the stalled Moynihan Station and the Atlantic Yards projects who might hope to benefit from a public works project without competing bidders?
Barwick is hopeful, and refers to Spitzer’s work as state attorney general, when the new governor took many legal actions in defense of stock owners of public companies: “To bring that same spirit of transparency and the wisdom of consensus-building to the ESDC would be ideal,” he noted.