Thursday, October 28, 2010

Inspector General Slams Aqueduct Bidding Process

By Eric Yun

From the moment Aqueduct Entertainment Group (AEG) was selected to run video lot- tery terminals (VLTs) at Aqueduct racetrack in January, there were suspicions of foul play - so much so that the Inspector General’s office open an investigation into the bidding process. The Inspector General’s 308-page report, released last Thursday, characterized the bidding process as a “political free-for-all” and ruled that AEG should have been disqualified from the start.

“This process was doomed from the start, and at each turn, our state leaders abdicated their public duty, failed to impose ethical restraints and focused on political gain at the cost of millions to New Yorkers,” said Inspector General Joseph Fisch. “Unfortunately, and shamefully, consideration of what was in the public’s best interest, rather than the political interest of the decision makers, was a matter of militant indifference to them.”

The bidding process for a vendor to rede-elop Aqueduct was established in 2008 by then Governor Eliot Spitzer, Senate Majority Leader Joseph Bruno and Assembly Speaker Sheldon Silver. Lobbying restrictions were removed, allowing campaign cash to flow to the decision makers. The Inspector General found that more than $100,000 in campaign donations was given to various legislators from lobbyists representing the six bidders.

The report showed ineptitude and possible corruption from state legislators and executives. Among the Inspector General’s findings were that Governor Paterson’s office ignored key advice warning against the selection of AEG; Senate leaders leaked bid analyses to AEG giving them an unfair advantage; Senator John Sampson pressured AEG to include a New York City contractor before he would select AEG as the winner; Senator Malcolm Smith recused himself from the process, but still advocated for AEG; Assembly Speaker Silver did not actively participate in the process even though he believed AEG was not the best choice.

The problems with AEG started at the very beginning. There were serious questions raised about leadership within the company. During the previous 2009 bidding process for Aqueduct, Capital Play, led by Karl O’Farrell, had serious licensing issues. The Division of the Lottery found that O’Farrell voluntarily surrendered his bookmaking license in Australia because of legal issues. Based on these facts, Capital Play removed O’Farrell as its chairman.

O’Farrell returned in 2010 as a consultant to AEG, although testimony showed he was much more involved in the bidding process. Another issue was AEG’s chairman Richard Mays, a former Arkansas judge with close ties to President Bill Clinton. The Inspector General found that the inclusion of Mays was “purely political.” There were also concerns about Reverend Floyd Flake’s close relationships with Governor Paterson and Senator Smith.

The Division of the Lottery warned state leaders that AEG might not be licensable because of O’Farrell’s involvement. In August 2009, Lottery officials told state leaders that of the six groups, AEG and Peebles would have licensing issues and should be avoided. These warnings were ignored.

While the harshest criticism was directed at the “three men in a room,” the Inspector General found fault with the political leaders in Aqueduct’s district: Assemblywoman Audrey Pheffer (D-Ozone Park) and Senator Joseph Addabbo (D-Howard Beach). The two elected officials were in constant contact with lobbyists for the companies, and appear to have ignored important information regarding the proposals.

Pheffer knew about the meetings where Lottery officials cautioned leaders about selecting AEG and Peebles. According to the report, “she deemed those evaluations within the purview of others and chose to focus, apparently exclusively, on the vendors’ relationship with the community.”

Pheffer said she ranked the companies based on how she felt they would interact with the community based on a “gut feeling.” These feelings led Pheffer to favor SL Green, but she was amiable to any company so long as they were willing to work with the community.

While the Inspector General found no fault with a locally elected official focusing on community relations, they criticized the process where a “gut feeling” could outweigh objective financial analyses.

Similarly to Pheffer, Addabbo focused primarily on community issues. Senate leaders asked Addabbo for his input because of Aqueduct was within his district. Addabbo testified that he was willing to work with any company and maintained his neutrality because it was vital that the project begin. When Addabbo met with Senate Leaders, he focused on his constituent’s frustration with the bidding process, and the need to get something started.

However, there were questions raised about Addabbo’s neutrality. Pheffer testified that he remained neutral throughout the process, but Senator Adams testified Addabbo gave him a ranking, which ranked Wynn first, followed by SL Green and AEG.

If Addabbo did express a ranking, the Inspector General found it was not based on objective analysis. Testifying just several months after AEG’s selection, Addabbo could not recall specific details about individual bids, and he testified that he merely “glanced” at information given to him regarding various executives’ analyses of the proposals.

Addabbo emphasized to The Forum that his responsibility to his constituents was to get the process started. “We always questioned the process that was created during the Pataki Administration,” Addabbo said. “I had to work with the process given to me. I spoke with all the bidders, and they were all people I could work with.” Confident that each company could work with the community and provide jobs, Addabbo said he focused less on other analyses and worked to get the process finished.

With the latest selection of Genting, which followed a more regimented request for proposals vetted by the Division of the Lottery, Addabbo said it was “time to move forward.” The new process worked, and Addabbo is “very happy to provide jobs and save the racetrack at Aqueduct.”

Another person criticized in the Inspector General’s report was CB 10 Chair Betty Braton. The Inspector General questioned Braton’s close relationship with AEG’s O’Farrell.

While CB 10 maintained neutrality on the bidders, Braton preferred AEG and frequently communicated with O’Farrell. The Inspector General found that the two shared sensitive documents, and Braton updated O’Farrell on meetings and her views on local newspaper articles about Aqueduct. At one point, O’Farrell e-mailed other AEG officials and wrote, “Betty and Donna [Gilmartin, a Community Board member] will work on Addabbo and Audrey [Pheffer] for us.”

The Inspector General concluded, that Braton’s actions were just another example of a flawed process decided “through private conversations rather than objective assessment."

Braton countered that she did nothing wrong, and merely talked with O’Farrell because he loved to gossip. She argued she did not distribute any confidential information, and she even testified that O’Farrell’s involvement with AEG had caused CB 10 members to prefer SL Green.

“Community Board 10 took no position in favor of any of the proposals,” Braton said. “We indicated from the start of the process to the end that we will work with whoever got selected.”

As for her personal preference for AEG, Braton would not comment on the decision. However, she noted that her personal preference played no role in AEG’s selection. “I had no conversations with any of the three people making the decision. There was no action on my part to influence their decisions,” Braton said.

The Inspector General’s report shined a light at backroom Albany dealings and possible corruption. It recommends that the “three men in a room” process never be used again for important state contracts. Criminal charges may be filed since it has been forwarded to the US Attorney General’s office, the New York County District Attorney and the New York State Commission on Public Integrity.

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