Tax plan is said to be used as mayor’s own slush fund Atlantic Yards and Brooklyn Bridge Park have similar financing

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The Bloomberg administration illegally diverted more than $22 million in city funds, using the money as a slush fund to further the agenda of Mayor Michael Bloomberg, city Comptroller William Thompson charged this week.

This was possible because of the lack of accountability in a financing scheme known as PILOTs — payments in lieu of taxes — meant to assist so-called economic development projects.

Two big Brooklyn developments — Atlantic Yards and Brooklyn Bridge Park — are each largely dependent on PILOTs like the one that Thompson’s audit says are roiled with a lack of accountability.

Thompson said that $22.1 million in payments made between 2002 and 2004 went straight to the city Economic Development Corporation. He said the EDC illegally distributed the money to causes driven by the mayor’s agenda, including $8.4 million for a new headquarters for the New York Stock Exchange (which fell through), $7 million for cancer research, $700,000 for the city’s police museum, and than half a million dollars paid to consultants on the failed effort to build a new football stadium for the Jets on Manhattan’s West Side.

In addition, Thompson found $59.4 million that was held past the 30-day retention deadline by the city’s Office of Management and Budget, which is chartered to deposit PILOT payments into the city treasury, and a total of $2.1 million was lost to the city from payments not collected by the Finance Department.

“We were surprised to find that this amount of money had been diverted without any oversight,” said Thompson.

The PILOT program, which allows project developers to offer payments in lieu of taxes for the publicly owned property on which their development is built is susceptible to costly flaws and misuse, the audit charges.

A bill passed by the state Legislature in June allows the redirection of taxes collected from property owners within Brooklyn Bridge Park’s development to a PILOT program whose proceeds would go to pay the project’s operating expenses.

So far, this would only benefit the developer of a former Watchtower Bible & Tract Society book and video distribution plant at 360 Furman St., but critics say the bill expedites the process for the creation of other housing by private developers in the park, which is mandated to pay its own maintenance.

In meetings this year, the park planners have said that revenue from 360 Furman St. could cover as much as 30 percent of Brooklyn Bridge Park’s $19.7 million yearly operating costs, or $6.5 million.

For developer Bruce Ratner’s proposed Atlantic Yards project, on a six-block stretch of Prospect Heights emanating from Flatbush and Atlantic avenues, a memorandum of understanding (MOU) signed by the city, state and Forest City Ratner Companies committed the project to the PILOT program.

The MOU document commits to exploration of a variety of subsidized mortgages, tax breaks, and the creation of bonds though the untaxed PILOT program.

As pointed out last March by Councilwoman Letitia James, in whose district the project would be located, the document outlined the creation of a Local Development Corporation that would issue bonds to help pay for the project’s construction. The bonds would be paid for through PILOTS, which could go directly back into the project’s LDC.

This week, James, a fervent opponent of the Atlantic Yards plan, said she hadn’t yet read the Thompson audit, but commented, “PILOTs will now be given the oversight of the City Council,” in response to the audit’s findings that the redirected funds had bypassed the city’s normal budget process.

On June 29, the City Council passed legislation that would prevent the use of PILOTs without approval from the council. Mayor Michael Bloomberg vetoed the bill, but it was put through as part of budget negotiations between the mayor and Council Speaker Gifford Miller.

Miller, a supporter of Ratner’s Atlantic Yards plan, but an opponent of the West Side Jets stadium plan, both of which used PILOTs in similar ways, called the legislation “a victory for New York’s taxpayers, because it assures that every public dime spent goes through the publicly elected legislature.”

In his statement, Thompson explained that the PlLOTs were contained in lease agreements between the city and property owners, and were intended to offer owners property tax relief in hopes of stimulating job growth, enticing new developments in depressed areas, and continuing to expand businesses in the city that might otherwise relocate.

“Under these arrangements, property owners are exempt from paying real property taxes. Instead, they pay an amount prescribed by the agreement that is generally less than the property tax,” wrote Thompson.

A spokeswoman for the Empire State Development Corporation, which will oversee the development of both the Atlantic Yards and Brooklyn Bridge Park projects, said she didn’t think the PILOTs for either project would be subject to city review.

Spokeswoman Deborah Wetzel noted that both projects were automatically eligible for PILOTs, not chosen for them.

“What you need to understand is that when property is owned by the government, you’re exempt from taxes,” she said. “You come in and develop, and then you pay the PILOT.” She added that as a state-run public authority, the ESDC is “entitled to charge the full payment of taxes,” despite PILOT status.

The EDC responded to Thompson’s audit, saying, “Based on the analysis by the Corporation Counsel, both EDC and the [Industrial Development Agency, which oversees PILOT issuance] believe that their treatment of PILOT funds is appropriate and in accordance with the law.”

The city Law Department did not return calls asking what recourse taxpayers had against the city for PILOT payments that had been diverted, and Thompson’s office had little to offer on that front.

“Our job is to make recommenda­tions,” said Thompson spokeswoman Angelica Crane. “We’re very hopeful that the city’s agencies will address the concerns that we’ve raised.”

Updated 4:00 pm, November 10, 2010
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