Political Profiteering:

How Forest City Enterprises Makes Private Profits at the Expense of America’s Taxpayers

Part II

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Executive Summary

“Without government development incentives, most of [Forest City Enterprises’] development projects ‘would not be economically viable.’”

            – The New York Post, August 6, 2013

            Forest City Enterprises (FCE) is a $10.6 billion real-estate development company that profits from public subsidies at the expense of taxpayers, job seekers, and those seeking affordable housing. Without delivering the jobs and affordable housing it forecasts, FCE takes advantage of communities where it builds large-scale, mixed-use projects, creating a pattern of broken promises. This is the second report in a three-part series detailing how FCE makes private profits at the expense of America’s taxpayers.  As part of Cause of Action’s (CoA’s) ongoing investigations into crony companies that use politics for profit, we found that local residents have been victimized by FCE’s real estate projects in Brooklyn, N.Y.; Albuquerque, N.M.; and New Rochelle, N.Y.

FCE’s pattern promises local governments that its development projects will generate plentiful jobs, housing, economic development, and tax revenues.  Concomitantly, FCE employs a well-funded public relations campaign, a team of politically-connected lobbyists, and campaign contributions to local politicians in order to acquire subsidies, tax breaks, and property through eminent domain.  However, once FCE receives public financial support, it often renegotiates or delays implementation of the benefits that it had previously promised.  In short, it lobbies, profits, and then bilks the taxpayers by breaching its promise to the community.

CoA’s investigation revealed that FCE promised to create more than 70,000 permanent jobs and 3,750 affordable housing units in Brooklyn and Albuquerque, but that it has actually produced only 3,000 permanent jobs and built no affordable housing units.  Meanwhile, FCE pocketed $277.2 million in subsidies from those communities after contributing $310,450 to local political candidates and spending over $8.6 million on lobbyists.  Sadly, these are not isolated incidents, but endemic of an intentional method in which FCE does business.  This pattern is poised to continue in the proposed project in New Rochelle.

Profits over Promises

FCE promised in 2004 that its 22-acre Atlantic Yards project in Brooklyn would generate 10,000 permanent jobs and 2,250 units of affordable housing.  In return, the company received $270 million in direct subsidies in order to construct a new sports arena, the Barclays Center, and to bring the New Jersey Nets there to play.  FCE purchased land for the project at less than half-price and received other land after the government seized it by eminent domain.  To date, the Barclay’s Center has been completed, but only 1,900 part time jobs have been created and the affordable housing remains unfinished. 

Backtracking on Promises

For the Mesa del Sol project in Albuquerque — a 12,900-acre mixed use community — FCE promised to create 30,000 economic base jobs, 30,000 service sector jobs, and 1,200 units of affordable housing over a 50-year period.   After FCE  provided $220,000 in cash and in-kind contributions to candidates for state office in New Mexico — including $150,000 to Governor Richardson’s gubernatorial campaign and the use of one of the company’s corporate jets for three campaign trips in 2006 — FCE received commitments of up to $630 million over 25 years through a new state subsidy.  But by May 2013, FCE announced the sale of its stake in Mesa del Sol, citing its need to focus on “core markets.”  As of May 2013, FCE has received $7.2 in subsidies, but only 2,000 jobs have been created and the construction of affordable housing will be delayed for at least six years.

FCE’s Next Victim of Political Profiteering

The next victim of FCE’s political profiteering appears to be the city of New Rochelle, where FCE has proposed a waterfront redevelopment project known as “Echo Bay.” FCE’s Residential Group (FCRG) has promised to add 285 luxury apartments, 25,000 feet of retail space, and a five-acre park, which FCRG estimates will generate $49 million in revenue and $307 million in economic benefits, including 211 construction jobs, 59 retail and residential management jobs, and 1,000 indirect jobs over a period of 20 years. The project would also provide FCRG with at least $20 million in tax abatements between 2016 and 2035 through a proposal that includes twenty years of Payments in Lieu of Taxes (PILOT).  Echo Bay fits the pattern that CoA exposed with FCE’s past projects.  Specifically, FCRG scaled back the scope of its original proposal, which offered 150,000 square feet of retail and 600 luxury apartments.  Additionally, FCE’s consultants for the project gave $17,000 in campaign contributions to Mayor Noam Bramson, who is a staunch defender of the project.

What follows in this report is a portrait of FCE’s pattern of exploitation and broken promises, documented through news reports, campaign contribution reports, lobbyist filings, litigation, and government documents obtained through Freedom of Information Act (FOIA) requests.  CoA filed seven FOIA requests to attempt to uncover how FCE works with government agencies and city councils behind the scenes, but found a lack of adequate record keeping and uncooperative responses.  CoA’s first report exposed how FCE used $23 million in political spending over the past ten years to obtain $2.6 billion in government subsidies and financial benefits. In its final report, CoA will show how FCE has enriched itself through bribery and political graft, colluded with the government to take advantage of the EB-5 investor program, and benefited from eminent domain abuse.

II. Findings

• Finding:          Despite receiving $270 million in subsidies for the Atlantic Yards project and a commitment of $630 million over 25 years for its Mesa del Sol project, FCE has failed to deliver the public benefits promised in exchange for taxpayers’ financial support.

Atlantic Yards Project: Brooklyn, New York

• Finding:          Forest City Ratner (FCR) promised to create 10,000 permanent jobs and 2,250 units of affordable housing in exchange for $270 million in direct taxpayer money to build its sports arena and land provided to it through eminent domain.  To date, none of the affordable housing has been built and only 2,000 permanent jobs have been created—1,900 of which are part-time jobs.
• Finding:          FCR drafted a Community Benefits Agreement (CBA) in 2005 in order to gather local support for the Atlantic Yards project, but the promised benefits have not been provided.  FCR has not provided an Independent Compliance Monitor to oversee enforcement of the agreement.

Mesa del Sol Project: Albuquerque, New Mexico

• Finding:          FCE employed lobbyists and provided $150,000 in campaign contributions and use of its corporate jet to then-Governor Bill Richardson in order to push through a bill creating a new subsidy for real estate development in 2006.  In 2007, FCE received commitments from the City of Albuquerque and the State of New Mexico for up to $130 million and $500 million in subsidies, respectively, over 25 years.
• Finding:          FCE promised to create 60,000 jobs over a 50-year period and 1,200 units of affordable housing in exchange for the commitment of $630 million in subsidies. However, by the time FCE sold its stake in the project in May 2013, only 2,000 jobs had been created and the original affordable housing agreement had been renegotiated to delay construction by at least six-and-a-half years.

Echo Bay Project: New Rochelle, New York

• Finding:          FCE’s Residential Group (FCRG) has promised the City of New Rochelle that its Echo Bay project will create about 59 permanent jobs and increase local tax revenue.  However, FCRG seeks $20 million in tax abatements from 2016 to 2035 despite the fact that residents have been facing property tax increases and cuts in public services for years.
• Finding:          FCE executives in Cleveland gave New Rochelle Mayor Noam Bramson $5,000 in campaign contributions in August 2007 after FCE was selected as the developer for the Echo Bay project in December 2006.  Mayor Bramson has received $17,500 in campaign contributions from FCRG’s consultants since December 2012.

Executive Summary

When the politically powerful, not the competitive marketplace, determine winners and losers in America’s business decisions, taxpayers take on all of the risk and crony companies extract the profits. The cycle of political profiteering is born when politicians exchange public subsidies for campaign contributions. This method of using the government to profit has become a trademark of one of the largest publicly traded real estate development companies in the United States: Forest City Enterprises.

Forest City Enterprises (FCE) is a $10.6 billion company that most Americans have likely never heard of, even though the public finances twenty-three percent of FCE’s revenue. The FCE business model is dependent upon political profiteering: relying on public money and government influence to reap millions in profit.  Using highly paid lobbyists, political connections, campaign contributions, and strategic hiring of government officials, FCE obtains lavish public subsidies, tax-exempt financing and the seizure of private land from eminent domain condemnations.

The following report exposes the money trail between FCE and its political friends that have resulted in a decade of kickbacks for both FCE and politicians. Between 2002 and 2012, FCE, its subsidiaries, and its employees spent $23 million on campaign contributions and lobbying at the federal, state, and local level. FCE even went so far as to coordinate donations among employees in its project locations: $15.4 million of the $23 million in contributions were made by multiple employees of FCE on the same day. During that same time frame, FCE and its subsidiaries received or signed agreements for fifty-two direct and indirect government subsidies or financial benefits with a total value of at least $2.6 billion. The subsidies amounted to twenty-three percent of FCE’s $11.4 billion revenue during that time period.

The FCE business model is one that damages competition in the market by abusing market mechanisms in ways that capitalizes off government handouts. This report is Part One of a three-part series examining how Forest City Enterprises uses politics to profit.

Preview of subsequent reports:In the reports that follow, resulting from Cause of Action’s two year investigation, CoA will show how FCE took public benefits under the premise of providing jobs for minority workers but failed to deliver as well as how FCE enriched itself through bribery and political graft, without ever being subject to investigation or oversight.

Subsidy and Political Spending Data:

Forest City Enterprises Data

Emails from Forest City Washington’s Alex Nyhan to former colleagues at the District of Columbia (D.C.) Office of the Deputy Mayor for Planning and Economic Development

Forest City Washington Emails

Full FOIA Production

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