WE’VE ALL SEEN THE AD. It starts with the old seventh-grade flashcards, everything from discipline to drive. Then comes Shearson/American Express: Minds over Money. In fact, at Shearson, nothing comes over money. They could have reduced their image to a single flashcard: GREED. Earlier this summer they closed the biggest real estate transaction in the history of the city: selling their old headquarters at 125 Broad Street to Canadian developer Olympia & York for $160 million and buying a new one to be built by O&Y for a record-smashing $478 million. Rising now, on the sandy landfill north of Battery Park that took over $100 million in state-backed bonds to create, is Amex’s 51-story monument to inventive tax avoidance. Not even Karl Malden could cover what this “corporate pickpocket” is taking from city and state tax coffers to make its visionary new headquarters possible.
The story of American Express’s tax-grab tower at Battery Park City has its public culprits: the Koch administration, whose original property-tax abatements for O&Y have wound up benefiting Amex; the Battery Park City Authority (BPCA), whose holdover chairman Richard Kahan had a private financial interest involving Amex at the same time that BPCA was negotiating its Amex deal; and the Cuomo administration, which obliviously handed out $61 million in corporate tax credits to five Amex subsidiaries for relocating into the new Battery Park building.
Koch’s generosity to Amex is old hat. Indeed, this time it was accidental. When the city actually adopted an overly generous abatement package for Battery Park in October 1981, Amex was not an announced interested party. That deal was between the city and Olympia & York, the developer of the four-building World Financial Center at Battery Park which subsequently sold one of the sites in the complex to Amex. The end result is that almost half of Amex’s new building will get a 75 percent, 10-year tax write-off, while the other half will get a 50 percent reduction for the same period.
The man who made Koch’s generosity to Amex notorious was his 1982 gubernatorial opponent, Mario Cuomo. Candidate Cuomo’s Amex issue had nothing to do with this property-tax giveaway, since that has only recently been formally passed on to Amex. Instead, Cuomo repeatedly attacked Koch’s role in persuading the legislature to repeal the state’s 10 percent capital gains tax on large real estate transactions in March 1982. He pointed to a single beneficiary of the repeal, Amex, which announced its deal with Olympia & York right after the demise of the gains tax. He said that Amex, whose president, Sanford Weill, was a leading member of Koch’s campaign finance committee, would avoid $18 million in state tax payments because of the repeal. That was 10 percent of Amex’s anticipated profit on the sale of its old headquarters.
But the recent decisions of Cuomo’s commerce commissioner, William Donohue, and the state’s Job Incentive Board (JIB), which consisted wholly of gubernatorial appointees, have made Koch look stingy by comparison. Cuomo insists he did not know the board was giving Shearson/Amex the largest of these 10-year credits on corporate profit taxes ($35 million) until after it had been voted.
Most of the $61 million in credits pivots around Amex’s move into the World Financial Center. Until Cuomo personally intervened, the JIB was prepared to give Amex even more. JIB director Llewellyn Farr told the Voice that he was recommending approval of Amex’s full claim—which would have eventually added up to approximately $85 million. Nonetheless, Cuomo’s 1982 “carte blanche for American Express” accusation against Koch now resonates with irony.
The conflict issues ensnarling Kahan, which will be detailed later in this story, are the latest front in a high-stakes development war going on at several levels—between city and state, Koch and Cuomo, Cuomo and the remnants of the Carey years. In recent weeks this war has exploded on several fronts. The mayor attacked Cuomo-backed plans for Times Square and the Queens waterfront. The focal points of Cuomo’s aggression have been Kahan and former Carey secretary Bob Morgado, whom the governor recently persuaded to resign as head of the state’s Housing Finance Agency. Kahan has so far steadfastly refused to resign as chairman of BPCA, a state authority, before his six-year term expires a year and a half from now. Kahan was appointed by Carey, as was one other current member of the three-member board.
Since Cuomo has been able to fill only one of the $5,000-a-year vacancies, he views it as a runaway agency. His refusal to attend ground-breaking ceremonies on BPCA projects—and Koch’s eagerness to attend—is as good an indicator as any of just whose agency it is. Koch, whom Carey backed in the 1982 race against Cuomo, has inherited the Carey remnants centered around Kahan. That is one reason why a deal such as the one just completed—benefiting such Koch allies as Amex and Olympia & York, and involving such familiar Carey players as the former governor’s personal attorney Charles Goldstein—could occur in the Cuomo years.
In the middle of the recent battle between Koch and the state over the selection of a development team to rebuild Times Square, the mayor asked Kahan to consider taking over the city’s Public Development Corporation. (Kahan ran the state’s superpower Urban Development Corporation for four years under Carey.) Not only was the Koch offer an indication of how closely Kahan is tied to the mayor; it was an escalation of Koch’s attack on the development wing of the Cuomo administration. Cuomo’s UDC president, Bill Stern, has been taking apart the once ballyhooed legacy of his predecessor, Kahan, for months. Stern has assailed Kahan’s convention center construction management and his multimillion-dollar trough of legal fees for political firms (particularly Goldstein’s). Koch’s willingness to hire Kahan was a mayoral rebuttal of months of Stern attacks. Kahan declined, however, and a couple of days later the mayor and Cuomo announced a peaceful settlement of the Times Square dispute.
BPCA’s president is Barry Light, who runs the authority on a day-to-day basis and is a protégé of Koch fund-raiser John Zuccotti. It was Zuccotti, who has represented World Financial Center developer Olympia & York for years, who persuaded the city, right after the 1981 mayoral primary, to grant O&Y its overly generous property tax breaks. Zuccotti got the Koch administration to drop a tougher abatement formula recommended by an investment banking firm retained by the city. A couple of months ago, Zuccotti obtained the mayor’s written consent for the BPCA deal between Amex and O&Y, a legal requirement. And it was Zuccotti’s friend Light, backed by Kahan’s board, who allowed O&Y to begin renegotiating its contract with the authority for all 7.5 million square feet of Battery Park commercial space six months after it was signed. (Zuccotti did not, however, directly represent O&Y in its negotiations with BPCA.)
BPCA’s agreement to renegotiate these terms in early 1982 is particularly perplexing in view of the history of the deal that immediately preceded the beginning of renegotiation. BPCA said it picked O&Y in the first place—over a broad field of competitors—because of O&Y’s commitment to build and own all of the buildings in the complex. Other bidders wanted to take it a building at a time. In addition, when O&Y and the city negotiated the property tax abatement in October 1981, the city’s investment-banking consultants recommended severe penalties if any of the buildings were “sold, financed, or refinanced within 15 years from the commencement of the abatement.” This was an attempt to prevent O&Y from a fast turnaround, simply marketing the abatements Zuccotti had won. But Zuccotti got the city to drop that requirement.
A few months after Zuccotti got the city to drop that demand, O&Y was back at the table. The renegotiation ultimately led to the severance of the Amex building from the original four-building package without penalties. In other words, O&Y was allowed to sell the flagship building to Amex at an instant profit.
Tax issues aside, BPCA’s renegotiated deal was extremely beneficial to both O&Y and Amex. Under the original agreement, if O&Y wanted to separate one building from the package, they had to give BPCA a $100 million letter of credit, which it would lose should any part of the project be abandoned. The renegotiated Amex deal allowed O&Y to provide a $50 million letter. The letter of credit is the authority’s principle security should O&Y default. O&Y was also released from an obligation under the initial contract to complete the construction of one office tower and certain public facilities before any part of the project could be severed.
Under the original agreement, O&Y was obligated to pay the authority several types of annual rent, each calculated according to different formulas, for the 99 years the complex would lease the Battery Park site. Amex was excused from making one type of these rental payments (percentage rent), which could have added millions to the authority’s revenue.
Documents obtained by the Voice indicate that authority attorneys maintained in early negotiations that these payments should also be paid by Amex. BPCA backed off that position after Amex wrote Light protesting any attempt to apply the percentage-rent provisions to them. Amex contends that as an owner/user of the building it should not have to pay this rent. No one disputes that waiving it was a BPCA concession.
The foundation of the agreement, however, remained the same in both deals. O&Y, and now Amex, would own what’s called a 99-year leasehold to the land—an equivalent of ownership minus the obligation to pay property taxes. Both agreed to make payments in lieu of the property taxes, but at significant discounts. At the end of the lease, the property could revert to BPCA. O&Y, and now Amex, would make both rental end tax payments to the authority, which would use them to repay its bondholders. When the bonds are repaid—in approximately 10 years—the city will finally begin to collect its tax payments.
On April 18, I got a phone call from Glenn von Nostitz, the eagle-eyed aide to West Side state senator Franz Leichter. He told me he’d just gotten the calendar for the next morning’s Job Incentive Board meeting and discovered on it a proposed $50 million tax credit for Shearson/Amex, ostensibly to entice them to stay in New York. Von Nostitz was upset because Amex had announced with great fanfare more than a year earlier that it was staying in the state, indeed that it would be moving into the World Financial Center. It was that announcement, including Amex’s self-publicized $180 million profit on the sale of its old headquarters as the trade-off for moving into the Financial Center, that provoked Cuomo’s campaign attack about the company’s Koch-aided tax avoidance. Von Nostitz said he’d tried to alert Cuomo to the agenda item but had been unable to get through.
When Cuomo returned my call, I told him about the Amex item, said he’d criticized Koch for giving the company $18 million, and asked if he was really going to give them $50 million. Cuomo said he did not even know Amex had applied, much less that an approval was calendared. He said his instructions to Commerce Commissioner Donohue, who chaired the board, were to grant only those abatements that met a strict interpretation of the statute. Cuomo had already prevailed on the legislature to abolish the JIB—a tax gouge raided for years by so many corporations that it had become a scandal even the Business Council and the Republican state senate couldn’t defend. But the legislature and Cuomo had given the board until June 30 to finish its business. The last three months would be box office.
“Even the liberal Village Voice wouldn’t suggest,” said an irritated Cuomo, “that the governor should instruct his appointees on an independent board how they should vote on a matter before them.”
An hour later, the governor’s secretary, Michael DelGiudice, called to read a statement that the governor had abruptly canceled the JIB meeting and had instructed Donohue to carefully review all applications. Von Nostitz had also alerted other reporters, and Cuomo had been besieged by questions. (DelGiudice, who used to work for Shearson/Amex, assured me that he had no involvement in the JIB-Amex issue. Every Battery Park, JIB, or other state official I’ve interviewed concerning the Amex transaction has confirmed DelGiudice’s distance.)
The JIB did not meet again until May 24. Von Nostitz noted that Shearson was not on the agenda. But he called the JIB the day before the meeting just to make certain and was told that Shearson was not scheduled for consideration. The next day, however, shortly before the meeting, the JIB called back and said that Shearson had indeed been placed on the agenda. There wasn’t time for Leichter to do anything but rush over to the meeting and protest. By his own account, JIB director Farr was prepared to recommend the $50 million grant in April, but dropped it to $35 million in May. He says he met with Donohue the morning of the May meeting, explained the changes in the recommendation, and was instructed by Donohue to calendar it.
At the meeting, the $35 million was approved for creating 950 new jobs, principally by expanding into the World Financial Center. The $15 million, for the 3,300 jobs Shearson claimed it was considering moving out of the state but decided to keep here, was denied. The JIB rejection of what is called Amex’s “job retention” claim was based on its ruling that Amex had “not demonstrated that an out-of-state relocation” was “feasible.”
The May decision was essentially repeated when four other Amex subsidiaries—Travel, International Banking, Leasing, and the parent American Express Corporation—came before the board at its final meeting on June 27. By then a fully alerted Cuomo had put Leichter and von Nostitz at a table with the JIB staff, jointly reviewing each application. Some Leichter arguments resulted in reduction of credits; some were rejected. The retention claims of these Amex companies, like Shearson’s, were denied. However, they were approved for creating another 744 jobs, all at the Financial Center. If the numbers on these applications hold up when the new Amex building is completed in 1985, these four companies will get $2.6 million a year for 10 years in reductions on taxes. This combined $61 million for Shearson and the other four is a conservative figure. The credit is actually for a fixed percentage of whatever corporate-profit tax they owe and assumes no increase in profits. All the Amex companies are enjoying quarterly profit bursts. That means they’ll get the same percentage break on higher profit taxes due over the years.
While the Amex “job retention” theory was a hoax, exposed and rejected solely because of watchdog Leichter, the job creation credits granted were also grossly inflated. Take American Express Leasing Corporation, which got an $11 million credit for allegedly expanding by 37 employees when it moves to Battery Park. Twenty of the new employees are secretaries. The state could directly pay these secretaries $30,000 a year for 10 years and save money. Some companies were turned down at the June meeting in part because there was no real connection between the investment decisions that were made and the jobs that were accidentally stimulated. If ever there was an application that fit that description, it was the Leasing Corporation’s.
There was another possible basis for denying the Leasing Corporation, namely that there was no tangible evidence that it was moving into the Battery Park building at all. The four other Amex companies cosigned all the agreements with Olympia & York to buy the new headquarters. Only the Leasing Corporation, which is a mere taxpaying shell for the banking subsidiary, did not. Amex told the Voice it was “an oversight.”
A curious coincidence in three of the other Amex applications produced additional tax-break dividends. The travel subsidiary pays next to no franchise taxes, only $5,000 a year. The banking and parent companies pay a combined $2.8 million a year. The applications for the three firms indicated that banking and the parent company had lost hundreds of jobs in the year immediately before applying. The travel company had gained hundreds. That meant that banking and the parent company would have fewer jobs at the start of the application period, a lower bottom line. So they could claim they were creating more jobs, giving them a higher percentage credit. Since the travel company started with a higher number of existing jobs, they claimed less job creation and got a lower percentage credit. But travel pays so little taxes anyway, the percentage they got hardly mattered to Amex. Amex admitted to the JIB that the reason for the drop in the number of parent company employees was because some were shifted into the travel company. The JIB would not have had to question Amex’s motives to reduce some of the tax benefits gained to this musical-chairs game with personnel numbers.
The Shearson application also contained its excesses. It sought credits both for moving to the World Financial Center and for moving to an unspecified site somewhere in the city. JIB director Farr admitted to the Voice that in its 15-year history, the board had never before approved an application for an unspecified location. “It’s blank check without an address,” said Farr. “We don’t approve credits that are that speculative.” Farr says this one was approved because it was part of a package with a specific site like the World Financial Center. But when an applicant doesn’t even list the optional sites he’s considering, there is no way for the JIB to determine just how real the application is.
A vigilant Cuomo administration could have found ways to reduce its carte blanche for American Express. Just by comparing the widely published price tag on Amex’s new building at Battery Park ($478 million) with the total eligible investment—property plus equipment—claimed on the five applications ($993 million), it could have smelled something wrong. New equipment alone could not account for such a wide disparity (indeed, $78 million in new equipment to be built by O&Y was figured into the sales price of the building).
But the JIB gave Amex credit for every job created that it claimed. JIB accepted Amex’s investment assertions without question, even when the numbers differed massively between the initial application and subsequent letters. Farr and Mary Steffan, the Commerce Department counsel who reviewed the Amex applications, repeatedly emphasized in Voice interviews that the state tax department will have to certify Amex’s numbers when the relocations are complete. But Leichter’s probes have proven that the tax review has been as casual as Commerce’s initial study. The tax review will, however, give the governor one final shot at a fair assessment of Amex’s claims before state benefits begin to flow.
A month before Cuomo took office, Amex started getting nervous about its still-pending transaction at Battery Park. The deal announced back in March had yet to occur, and the candidate who wanted to tax the profits on that transaction would soon become governor. So, Amex’s lawyers opened a meeting with O&Y and the Battery Park Authority on December 8, 1982, with the statement that they “wished to expedite conclusion of the current negotiations in order to accomplish a closing prior to year end 1982.” According to memos on file at the authority, the lawyer was equally blunt about the reason: “to avoid incurrence of any increase in the transfer tax or capital gains tax effected by New York city or state.” The four BPCA representatives at the meeting, all at least technically there to defend state interests, were not recorded as having objected to the goal of beating the tax. One quibbled with the timetable on purely technical grounds.
Throughout early 1983, while a gains tax was discussed in Albany as a new source of city or state revenue, BPCA and the private parties rushed against an unknown deadline. Piles of documents reviewed by the Voice confirm the rush. All of the parties say tax considerations were “not the motivating factor.” By March every piece of the complicated transaction was in place. A March 15 meeting was called for 9 a.m., with the closing planned right after the board approved the package. But Kahan was the only board member to show up. A phone hookup was arranged with one absent member, creating an invisible quorum, but the lawyers confessed at the start of the meeting that Ma Bell could not make a public meeting legal. Kahan and the absent member voted for the package anyway and said they’d reconvene on March 23 to “confirm” their approval.
There was another legal reason why Kahan should have slowed down, one he mentioned only to Light early in March. He had his own private real estate deal going with Amex. Kahan and Light had quietly consulted an outside counsel about whether this simultaneous transaction barred Kahan from voting. Though the counsel expressed what Light concedes was “serious concern” about the issue and said everything should be put in writing before he could give an opinion, the two plunged ahead without an opinion. Kahan’s possible conflict was not disclosed, even to the other two board members, when they actually appeared to vote on March 23.
At this second meeting, Kahan asked the only question posed by a board member before the transaction was unanimously approved. The minutes indicate that Kahan “asked what the status of the capital gains tax law was” and that BPCA general counsel Tom Sullivan “replied that it had not become effective yet.”
In between these two panic meetings, Light signed an agreement on March 18, okaying several pounds of binding documents, even though he was not even authorized by a resolution of his board to do so. He says he did so to “stop the lawyers from lawyering, and lock up the deal.” The documents were placed in escrow and turned over to O&Y’s lawyers. The new Cuomo capital gains law became effective exactly 10 days later. The first time Light formally notified the governor’s budget office of the deal was in a letter dated March 28, the magical starting point for the new tax. Light did not mention in the letter that an escrow closing had already occurred. The reason he wrote to budget at all was because the deal had yet to be approved by the Public Authorities Control Board (PACB), an oversight amalgam of the legislature and the budget office whose mandate is to determine that there are sufficient state funds to pay for a project.
After the approval in late April, Amex attorney David Hershberg and an O&Y counsel wrote long letters to the state tax department. As Hershberg put it, the essence of its case was that “a written contract was entered into on March 18,” before the effective date of the Cuomo gains tax. “The statute does not preclude the exemption of written contracts that have conditions,” argues Hershberg, since these escrow contracts were obviously conditioned on the PACB and BPCA votes. “In fact, all contracts have conditions.” Hershberg concluded: “Let me assure you that avoidance of the gains tax was not Amex’s motive in the handling of this transaction.” Another Amex counsel interviewed by the Voice, Mark Cohen, was somewhat more candid. “Of course it was our intention to avoid the tax,” he said. In any event, Cuomo’s tax department rejected the Amex position, imposed a $9 million tax, and is now faced with the first of what may become several Amex legal challenges to the ruling. Cohen seems confident they will prevail.
Incredibly, while Amex is telling the state tax department that the deal was closed on March 18, the company’s applications for JIB benefits contend that the deal was uncertain right up to June 27. The standard for any claim of jobs retained is that there is a possibility the jobs may leave the state. If Amex had closed on the Financial Center, an out-of-state move was no longer feasible. On February 23, in answer to questions raised by the JIB, Cohen filed a sworn statement with the agency “under the penalties of perjury” asserting that an “out of state relocation of the proposed facility continues to be a practicable alternative.” The only out-of-state locations mentioned in any Amex application are Piscataway, Morristown, and New Brunswick. The Voice contacted the mayors and chambers of commerce in two of the three towns, and the economic development and city planning officials of the third. No one had ever heard that Amex was considering moving there. In conversations with the JIB that continued right up to June 27, months after the escrow closing and even after the final closing on June 15, Cohen concedes he never updated or corrected his February assertion. If an out-of-state option was ever the truth, not even Cohen could argue it was true on June 27.
Shearson vice president Thomas Gengler wrote two March letters to the JIB vigorously pressing the board to put Shearson’s application on its April agenda. He wrote on March 25—after the escrow closing—that “the reason for this request is that a Job Incentive Credit can be a material consideration in a decision that Shearson is now finalizing.” He said that the World Financial Center deal “should have all the final approvals and signings in the near future,” but “not before the Board meeting.” The Public Authorities Control Board vote on the Amex contracts was scheduled for three days after the JIB meeting. The final closing was slated to follow immediately. When Cuomo abruptly canceled the April JIB meeting, the final closing was postponed. The deadline written into the escrow agreement was extended another month. Even with these extensions, four of the five Amex JIBs were approved after every one of the hundreds of closing documents was unconditionally executed.
Clearly, Amex wants to eat its cake and have it too. The truth is that Amex never would have moved anything but its most back-office operations out of the state. The retention claim was always a hoax. Amex was committed to the World Financial Center move before it even applied for credits. Despite that commitment, it made itself taxable under the Cuomo gains tax by flirting with the terms of the Financial Center deal throughout 1982, perhaps confident that the new governor would be Ed Koch and that the tax side of the deal could only get better.
Their irreconcilable claims to two different state agencies on the same transaction cannot be explained away, as Cohen tried with the Voice. He said the gains tax was for the move out of the old headquarters. And that the JIBs were for the moves into the new headquarters. These were “two separate transactions,” he argued, so one could’ve closed and the other remained uncertain. But Cohen’s argument is belied by Amex’s own letters to the tax department, which argue that the two transactions “would proceed together.” It is the sort of facile reasoning that may provoke knowing, supportive smiles at Amex board meetings. But no one in the rest of the world would believe that Amex could have had one deal without the other.
Richard Kahan, at the age of 36, was already the most powerful public developer since Robert Moses. He had the public entities building Times Square, Battery Park, and the convention center under his control. His reign at UDC had turned it into a statewide economic development engine, creating everything from tax-exempt luxury hotels in Midtown Manhattan to the Carrierdome in Syracuse. It wasn’t just his construction techniques that were on the fast track; it was his personal life as well. His relationship with Amanda Burden, the wife of Warner executive and major Carey fund-raiser Steve Roes, was the sizzling talk of the town. In June of 1982 Kahan left UDC and joined the private development firm of Tishman Speyer. The only piece of his once vast public empire that he hung onto was Battery Park. His term as chairman would not end until January 1985.
The Kahan I interviewed last week is a scaled-down version of the Kahan who dominated public development throughout the second Carey administration. To begin with, he is 15 pounds lighter. On a small frame he looks simultaneously lean and drained. It is not just the public beating he has been taking from Cuomo aide Bill Stern that has taken its toll. It is the loss of his job with Tishman Speyer. The timing and circumstances of his departure were very much part of the conflict issue I went to interview him about. In his East Side co-op and at a nearby restaurant, we traveled several times through the intricacies of that issue. He seemed to realize the shortcomings of his own defense—not that he believes he had a real conflict. But he almost had to concede that the full facts do create the appearance of one, and that his and Light’s handling of the issue was at best sloppy. At worst, it begins to look like a cover-up.
The place to start is with Kahan’s official version of events, a version he now concedes was inaccurate. Kahan wrote Light a letter, dated March 28, after he had voted twice to approve the Amex deal. The essence of the letter is an admission that at the same time as the Battery Park bargaining, Tishman was engaged in ongoing negotiations with Amex, trying to persuade Amex to become a major tenant in a project at 375 Hudson Street (a parking lot where Tishman intends to construct a “high-technology” office building). Kahan wrote: “I am a participant in this project and will receive a financial benefit from it when completed.” In his letter, Kahan contended that there was no conflict, however, because he was not involved in Tishman’s negotiations with Amex, nor in the authority’s direct negotiations with the company. Since the letter, he has added a new argument. Kahan now says that as of mid-February, he was no longer associated with Tishman, merely occupying an office there (he does not even do that now). He says that he also lost his financial interest in Tishman’s potential deal with Amex as of February. This reconstructed version of events means that he had no conflicting interest when he voted in March on Amex’s Battery Park transaction. He cannot explain why his own letter was so wrong about where he was working.
His argument that he was not involved in the authority’s bargaining with Amex is absurd: only he could approve the deal, and Light conceded that he kept board members fully abreast of the details by phone. His contention that he did not directly participate in Tishman’s discussions with Amex is meaningless. At any rate, he admits now that he did have something to do with trying to find tenants for the Hudson building, though not specifically with Amex.
What no one can dispute is that Amex’s interest in the Hudson building was inextricably linked to its Battery Park move. Amex’s applications for JIB benefits refer to an unspecified location where it plans to locate the company’s computer center, and possibly its operations facility. These moves, according to the applications, were part of the package of relocations necessitated by the sale of the old headquarters and the acquisition of the Financial Center building.
Kahan’s letter was forwarded to Martin Richman, an attorney with the firm of Barrett, Smith. Richman was the lawyer Light had consulted by phone in early March when Kahan first raised the issue verbally. He was the attorney who expressed “serious concern” about the questions raised and said he needed the facts in writing. But he got the facts in writing only after Kahan voted twice. Richman’s firm received $3.3 million in legal fees from UDC subsidiaries in the Kahan years, but only $6,000 of it came from Battery Park. The only time BPCA used the firm was in 1981. Light and Kahan justified their decision to turn to Richman—despite the authority’s limited prior use of him—by pointing to his prior handling of UDC conflict issues. In fact, Richman had been in the middle of an earlier UDC brouhaha. Former UDC chairman Richard Ravitch had simultaneously used Richman as both counsel to UDC and counsel to his private construction company HRH. And when Ravitch wanted UDC to build a project beneficial to an HRH project across the street, Richman made the argument to an oversight board that Ravitch had no conflict.
After getting Kahan’s letter, Richman recommended, in conversations with BPCA officials, that the board take the vote again, this time without Kahan. So on April 12 the board met again and for the third time passed the deal. This time Kahan abstained. A highly selective version of the Kahan conflict was presented to the other board members. According to Cuomo’s only appointee on the board, Richard Sirota, who was present but not yet legally empowered to vote, the Kahan letter itself was never turned over to the members (Light says it was). The in-house counsel’s memo given to the board deleted Kahan’s admission about his financial interest. Perhaps more importantly, it deleted Kahan’s embarrassing explanation for why he felt compelled to vote on the project, namely that “my participation is necessary to have a quorum, since one of the three member positions is presently vacant.” In fact, there was no vacancy on the board and could not legally be. The outgoing board member, John Hennessy, would not step down until Cuomo’s new member was approved by the senate. He had even voted at the March 23 meeting. Richman says that Light had used the same argument with him back in the beginning of March. Light and Kahan were making billion-dollar public decisions and apparently couldn’t count to three.
According to Sirota, Richman’s letter referring to Light’s clumsy count was not given to the board. Neither, says Sirota, was the $7,300 bill Richman submitted for his brief opinion letter. Neither was the decision to increase the $7,500, three-year-old ceiling on Richman’s retainer with the authority by $10,000, a postopinion increase. Light says they will come before the board in September. Richman did not write his opinion letter until two weeks after the third vote in early April. He found no conflict and said the March vote was “valid and proper.” Nonetheless, he said he urged and concurred in the decision to vote again, without Kahan, in April. That, he said, will “put to rest any possible subsequent questioning,” about “an appearance of conflicting interest.” He cited the applicable sections of the public officers law, including one that barred Kahan from “giving any reasonable basis for the impression that any person can improperly influence him or unduly enjoy his favor.” Confronted with that language, neither Kahan nor Richman would actually contend that it didn’t precisely describe Kahan’s circumstances. Doesn’t the fact that, at the same time, he had a financial interest in a private project with Amex form a “reasonable basis” for the impression that Amex might “enjoy his favor”?
This argument does not even have to rest just on his March votes. On October 21, 1982, Kahan voted to permit Amex to take ownership of the building and to permit O&Y to separate the Amex parcel from the comprehensive package. The resolution authorized Light and the attorneys to commence negotiations with that as a goal. In his letter about the conflict, Kahan contended that negotiations between Tishman and Amex didn’t start until after that October meeting. He now admits that he was wrong about that claim too.
Jerry Speyer told the Voice that the Amex discussions started months before that (he also said they were due to his own close relationships with Amex real estate decision makers). That means that when Kahan voted in October, he was already a participant and a potential beneficiary of Tishman’s related Amex transaction. He made no disclosure, not even to Light, at that time. His own letter stresses the significance of this October vote in setting the parameters of the Amex deal with BPCA.
Kahan’s inaccurate presentation of the date that Tishman’s Amex approach began, coupled with all the other mysterious and secret outrages surrounding the handling of the conflict question, adds to the stench that hangs over this deal. Neither Kahan nor Speyer will offer an explanation for his abrupt departure from Tishman, seven months after he began and shortly after the company gave him a Christmas bonus (a piece of a Chicago building). BPCA repeatedly withheld documents from me about the Kahan conflict. Their attorneys changed the wording of Kahan’s letter when they cited it in their own opinion memos. The Kahan letter refers repeatedly to events that had already happened as if they were yet to happen. The case has all the earmarks of a cover-up.
It now appears that Amex will move its computer operations elsewhere. The company is already pressing the city for tax breaks to move, not to Hudson Street, but to the site of the Brinks truck garage near the World Trade Center. If Tishman doesn’t get Shearson, whatever conflict existed will produce no payoff. But conflicts are a state of mind at a given moment. Battery Park is Kahan’s agency. He made Light its president after Light worked for him at UDC. Kahan’s agency gave Amex a great deal. The public and the authority’s bondholders were entitled to a single-minded representation of their interests without complications. They didn’t get it. The appearances are disturbing enough that they might have gotten the opposite: a trade-off of public benefit for potential personal gain.
The tax-grab items detailed here are hardly the total picture. I have not described Amex’s proud plan for turning its $90 million gain on the sale of its old building into a loss for federal tax purposes. Amex announced that it will dump low-yield municipal bonds at a loss to eat up the gains earned on the building’s sale. I have not mentioned the state sales tax exemptions sought and won by Amex.
The Amex attitude about its own behavior, expressed by corporate vice president Ida Schmertz, is that it did the city and state “a favor” by staying here. Kahan and Light’s attitude is that they turned a desolate landfill into a booming commercial development. There is some truth in both of these contentions. Kahan has what one faithful former employee described as a schizoid personality: “an almost radical, sixtyish sense of social responsibility half of the time and a great attraction to the glamour of the powerful the other half.” Despite the recent revisionist history about him, and despite my own opposition to many of the projects he built, he was an effective public professional throughout his UDC years. This conflict suggests he couldn’t handle the combined pressure of dual public and private roles.
The Battery Park project itself was a Rockefeller fantasy. It began because of the need to find somewhere to dump the ground excavated from under the World Trade Center. It is unmistakably the most important development project occurring in the city today. It is a new city where thousands will live and work. The expenditure and tax forfeiture of public dollars is creating it. Richard Kahan made all that possible, when he operated solely as a public servant. Each new decision there should be made by those with an insulated, publicly motivated conscience. Each decision should be integrated with total state tax and development policy. It cannot remain a fiefdom, run by the remnants of another era caught between private and public interests.
Research assistance by Todd Friedman and Janna Moore