Putting Limits On Pay To Play
by Mike Muller and Joshua Brustein
February 26, 2007

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When Richard Hutchens turned his attention to the Erie Canal in the late 1990s, the famed waterway's heyday had long since passed. Still, the businessman knew a deal when he saw one -- and so he happily paid $30,000 for the development rights to 524 miles of state-owned property along the once-legendary waterway. That came to $57.25 a mile.

Hutchens was not the only developer who saw that such rights could be worth many millions. But he had one big advantage: a close relationship with several staff members at the Canal Corporation, the part of the state Thruway Authority that was selling the rights to develop the land. These friends rebuffed other bidders, fed Hutchens inside information, and hid the Buffalo developer’s lack of experience and prior failures from other officials, according to a 2004 report prepared by the office of then Attorney General Spitzer and Inspector General Jill Konviser-Levine.

Hutchens' friends also asked him to fork over more than $10,000 in campaign contributions for various candidates. In the vernacular of government corruption, Hutchens had to "pay to play."

New York's public officials have long accepted money from those with whom their agencies do business, and such donations are often perfectly legal. But quid pro quos such as Hutchens' are getting increased attention from public officials. In his inauguration speech as governor, Spitzer said he wanted to restrict such practices. Mayor Michael Bloomberg and City Council Speaker Christine Quinn used their respective State of the City speeches to say that they would also limit political contributions from people who do business with the city. And Attorney General Andrew Cuomo has committed his office to developing an Internet database to allow New Yorkers to track the links between political donations from lobbyists and special interests on one hand and state contracts on the other.

Hutchens' sweetheart deal was cancelled by State Comptroller Alan Hevesi, who cited ethical violations in the process. Spitzer, who was attorney general at the time, called the deal the result of "bureaucratic incompetence, cronyism, ethical lapses, and lack of oversight."

Hutchens insisted he had done nothing wrong. But, perhaps inadvertently, he acknowledged what he was doing. "Everybody makes a political contribution for a purpose,” he said. “My purpose was that I'm living in New York, and I need to be a friend, be acquainted with people that make things happen."

OUTRIGHT BRIBERY…
At its most blatant, pay to play is simply bribery and plainly illegal. One of the most notorious cases involved Guy Velella, then a state senator representing the Bronx, who sought campaign contributions and legal fees from a contractor in exchange for the senator’s support in seeking renewal of a state contract to paint a bridge. Court documents seemed to indicate that Velella engaged in many other corrupt practices as well. In 2004, the senator ended up behind bars (his imprisonment turned into a dark comedy in its own right).

Businessman Ron Laberge, who did a large amount of business with state agencies, said that bribery is standard procedure in New York State. In 2003, after the FBI confronted him with proof that he had bribed a state official, Laberge "prepared memoranda outlining the methods used by politicians and business owners to contribute money to campaigns and to have those contributions recognized for later business opportunities," according to court documents obtained by the Albany Times-Union: "This information laid out the blueprint for the FBI concerning the manner in which business is often conducted in New York."

Laberge and two other men, a state employee and a real estate broker, ended up being convicted of trading money for a lucrative lease.

…AND MORE SUBTLE PERSUASION
Laberge and Velella's crimes were particularly blatant. But the pay-to-play system is not always so obvious. Instead, good government groups say, lobbyists, contractors, and developers pressure public officials through campaign contributions. This does not necessarily result in quid pro quos, they say, but exerts a creeping influence on government decisions.

“Actors in this field are presumably shrewd enough to structure their relations rather indirectly,” Stephen F. Williams, a senior judge of the D.C. Circuit Court of Appeals said in a decision addressing pay to play on the federal level.

The case of State Senate Majority Leader Joe Bruno serves as a possible example. Bruno is being investigated by the FBI for his relationship with a personal friend, businessman Joe Abbruzzese. Abbruzzese has paid for Bruno to fly on his private jet to Florida, where the two men played golf and visited an upscale strip club. He also contributes a large amount of money to Bruno's campaigns. Meanwhile, businesses that Abbruzzese has a financial stake in receive hundreds of thousands of state dollars in the form of state grants called member items, money that Bruno has a lot of control over. Abbruzzese is also bidding for the state's horseracing franchise.

The investigation is not complete, and both men insist that they have done nothing wrong. Bruno says Abbruzzese's business ventures should not be seen as questionable simply because the two are friends. But one thing is certain: There is a lot of money involved.

Bruno’s case and the others that make the newspapers are hardly isolated incidents. Vendors who do business with New York State donated almost $2.2 million to state officials between 2001 and 2003, with health, construction, and financial service interests being the most generous, according to a study by the good government organization New York Public Interest Research Group. During the same period, officials gave out about $26 billion in “influence-able" contracts, or contracts where price was not the primary factor in deciding how they were awarded, the group said. In addition, 15 vendors directly violated campaign finance law, giving more than was allowed.

According to a report (in pdf format) published by the city Campaign Finance Board, 22.3 percent of campaign contributions for the 2005 municipal election cycle came from people or entities that do some kind of business with city officials. Certain offices seem to attract a larger proportion of money from this group. In the races for borough president in 2001, for instance, 81 percent of contributions came from lobbyists, their clients, or contractors – even though they accounted for only 8 percent of contributors.

DOES IT MATTER?
Money flowing between officials and those with whom the government does business does not mean that anything improper is taking place, the Campaign Finance Board cautions.

"There is nothing in our data that allows us to conclude that contributions have influenced the awarding (or refusal) of any contract or other benefit," it wrote. "As such, our data do not provide direct evidence of a 'pay-to-play' culture in New York City."

But even if there is not outright corruption, the board, good government groups, and elected officials say that the perception of pay to play is damaging.

"When we look the other way while those who do business with the state give huge contributions to the officials who determine state contracts, we invite even greater cynicism in our public institutions," said Attorney General Cuomo.

Some developers are also concerned.

"When you do business with the city, you get solicited by everyone from U.S. senators down to members of the City Council," said Atlantic Yards developer Bruce Ratner in former Public Advocate Mark Green's 2004 book on campaign finance, Selling Out. Reflecting on his past contributions and fund-raising efforts, Ratner added, "I didn't want to be a person on the outs, nor could my business afford to be a person on the outs given how much business we do with government."

Despite his qualms, Ratner still plays the game. As the Atlantic Yards Report, a blog opposed to his plan for downtown Brooklyn, writes, Ratner no longer makes campaign contributions – directly. But his brother and sister-in-law both contribute large amounts to public officials who may have sway over development projects he hopes to pursue.

Not everyone, however, sees this as a very big deal.

Both the city and state comptrollers – the government's official financial watchdogs – question whether campaign contributions really influence the way that officials grant contracts and do business. Thomas DiNapoli, the new state comptroller, said he would not forgo contributions in future campaigns from those who want to do business with the $145 billion state pension that his office controls. DiNapoli did say he would limit those contributions to $10,000 or less, instead of the $50,000 that is legally allowed under state campaign finance law.

"It is important for people to run for office who are not wealthy people," DiNapoli has said.

City Comptroller Bill Thompson has also questioned whether pay to play is such a big problem. "It's a great catch phrase, but what does it mean?" he told the political blog the Politicker. Accepting a relatively small amount of money from those who do business with the government will not lead to corruption, Thompson argued. He added that the current $5,000 contribution limit for candidates for citywide office is reasonable. "I don't see pay to play on the $5,000 level," said Thompson, who is considered a strong candidate for mayor in 2009.

THE RULES OF THE GAME
There are relatively few restrictions on how public officials and candidates for office can raise money from those with whom the government does business. Money flows particularly freely in Albany, which has relatively permissive campaign finance laws.

Still, there are limits. If they personnally are running for office, state employees are allowed to solicit contributions for their campaign from a person with business before their agency. They cannot, however, direct someone to donate money to other political campaigns – a rule that Hutchens' friends at the Canal Corporation violated.

In addition, a federal rule restricts investors who buy municipal bonds from contributing to officials in charge of issuing those bonds. (They are allowed to make small donations in elections they can vote in, however.)

Many city agencies, including the Health and Hospitals Corporation, the city Housing Authority and the Department of Education, are covered by these state laws. But when city officials do play a role, they tend to be more aggressive than state officials in campaign finance reform. Pay to play has been no exception.

Last year, the city passed a series of laws that tighten restrictions on lobbyists. One of these laws changes the city's campaign finance system so that contributions from registered lobbyists can no longer be matched with public funds. In the past, such contributions were matched $4 to $1.

The city has not moved so quickly on restricting contributions from businesses seeking city contracts, however. In 1998, voters approved a charter amendment that called for the Campaign Finance Board to write stricter rules concerning such contributions. It still has not done so.

In 2004, the Bloomberg administration attempted to move on adhering to the charter provisions and introduced a bill that would have put a $250 limit on campaign contributions from people doing business with the city. Larger contributions would not be eligible for matching funds from the Campaign Finance Board.

That bill failed, with critics saying it went too far. For one thing, the language of the bill was so unclear that homeowners would have been considered to be "doing business" with the city if they applied for certain zoning variances.

Last year, the Campaign Finance Board came up with a series of proposal and asked the City Council to retrict pay to play. But nothing ever came of the plan.

The Bloomberg administration and the Campaign Finance Board disagree about whether the city has fulfilled its obligations under the 1998 charter amendment. The board says it has submitted rules for public comment and that, in any event, the city does not have the ability to enforce pay-to-play regulations.

But the administration disputes this. "The mayor has been clear that voter mandates should not be ignored for bureaucratic reasons or dismissed on technical grounds," said a spokesperson for Bloomberg.

CHANGING THE SYSTEM

Spitzer has said he would set limits on contributions on the state level but has not offered anything specific. So far he and Cuomo are not trying to directly restrict donations but would simply make the contributions more transparent. Cuomo's proposed "Project Sunshine" Internet database would track donors, lobbyists, special interests, state contracts and elected officials, and allow users to find the connections between them. Spitzer's executive budget contains money for the attorney general to pursue this project.

City officials have their own database of people who do business with the city called VENDEX. They hope to make it compatible with the city's campaign finance database, so that officials could monitor which contractors make campaign contributions. But VENDEX only includes current contractors, not those bidding on city contracts. In addition, the database does not include contractors involved in land use even though real estate is the city's biggest industry and developers are among the top donors to city campaigns.

One key dilemna in regulating pay to play is determing what, exactly, it means to "do business" with the city or state. This could be defined narrowly to mean someone with a city contract worth over a certain amount of money or it could be construed more broadly. "If you apply for a license for a sidewalk café, do you have to register? I don't think so," Gene Russianoff of the New York Public Interest Research Group has said. "You have to draw the line somewhere."

And there is the issue of what the city has the legal right to do. In many places, pay-to-play laws put the responsibility for compliance on the campaign contributor. If contractors make an illegal donation, their government contracts can be cancelled. But New York City does not have the legal authority to penalize contractors without the permission of the state.

Bloomberg's 2004 proposal avoided that problem by putting the responsibility on the candidates, punishing them if they accepted money from contractors illegally.

But good government groups see problems with this plan, too. Asking candidates, particularly for local offices such as City Council, to guarantee that none of their contributors hold contracts gives them "a great incentive to opt out of the public financing program," said Megan Quattlebaum of good government group Common Cause New York. "You essentially destroy this great program," she said.

A Joint Investigation Into The Contract Between The New York State Canal Corporation andRichard A Hutchens, CC LLC

Buffalo businessman loses state canal contract
Business First of Buffalo - October 20, 2003
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New York State Comptroller Alan Hevesi said Monday that he has rescinded a contract between the state Canal Corp. and Buffalo businessman Richard Hutchens for development rights along the Erie Canal.

Hevesi said he revoked the contract have because of false and misleading statements made by the Canal Corporation regarding the agreement.

"The Canal Corp. and its parent, the Thruway Authority, have repeatedly asserted that the approval of the Hutchens contract 18 months ago by the comptroller's office is an indication that the contract met our review standards," Hevesi said. "But it is now clear that the Canal Corp. did not provide honest and complete answers to the comptroller's office during the contract review process, so I am rescinding this office's approval which thereby voids the Hutchens contract."

The comptroller has the authority to rescind the contract, which was approved in May 2002.

Hutchens' general manager and partner Tom Bystryk said the comptroller's decision noted Hutchens did nothing wrong. He also said the portrayal in the media is that Hutchens has an exclusive right to develop area along the canal.

"We cannot stop any development on the canal unless it requires a lateral canal cut, which means we bring a private canal into private land that we go out and purchase," said Bystryk. "No state lands are given to us. All we got was an option to cross the canal."

The Thruway Authority was asked by Hevesi to return the $30,000 payment to Hutchens, who would have been eligible to develop 9 percent of the area along the 500-mile long waterway.

Hevesi rescinded the contract in letters sent Friday, Oct. 17 to Thruway Authority Chairman Michael Fleischer and each member of the Thruway Authority board of directors.

The findings, he said, were based on an in-depth analysis of the contract review process and on information disclosed at a recent hearing of the Assembly Committee on Corporations, Commissions and Authorities that focused on the Hutchens contract.

Among these findings are the following:

Hutchens was not the only firm interested in and prepared to pursue real estate development along the canal, contrary to information provided by Canal Corp., officials during the contract review process. At least seven firms that contacted Canal Corp., in response to a 1996 solicitation were interested in real estate development, but were either excluded for specious reasons or ignored. One of the firms was so interested in canal-side development that it went on to complete three residential developments without Canal Corporation assistance.
Canal Corp. officials falsely told the Comptroller's office that they followed up with all 33 firms that responded to the 1996 letter. There is only evidence of Canal Corp. sending letters to 14 of the 33.
Hutchens had inside information that other firms did not have access to, and it appears his proposal was the model for the Canal Corp.'s 1999 solicitation.
Before the Canal Corp.'s formal solicitation for canal-front development concepts, attempts were made to influence at least one Thruway Authority and Canal Corp. board member to support the Hutchens proposal. A handwritten note and other communications from 1998 discuss efforts by Hutchens to discuss his proposal with board member Nancy Carey.
"Development along the Erie Canal will be an important part of upstate economic development efforts in the coming years," Hevesi said. "But there is no excuse for not giving every potential developer an equal opportunity to compete for the right to build."

Bystryk said he is now consulting with legal counsel regarding the Hevesi decison.

Amalgamated Transit Union

Yancey Roy: Oversight loopholes exposed
Thu, Dec 2, 2004
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The scandal over a lucrative waterfront development contract for the Erie Canal exposed not only illegal acts by state officials but also the feebleness of New York's lobbying and ethics laws.

The state attorney general and inspector general released a report this week exposing just how Buffalo developer Richard Hutchens landed the rights to develop the best waterfront along the 524-canal system for a mere $30,000.

He had lots of help. From Canal Corp. employees. From political operatives. From heavyweight lobbyists.

The Canal Corp. worked exclusively with Hutchens for years and never seriously sought other potential bidders for the contract, according to the investigation by Attorney General Eliot Spitzer and Inspector General Jill Konviser-Levine. (The Canal Corp. is a public authority, its members appointed by Gov. George Pataki, that oversees the canal system. It is part of the Thruway Authority.)

Assemblyman Richard Brodsky, D-Greenburgh, Westchester County, had held hearings last year. State Comptroller Alan Hevesi voided the contract determining it was improperly steered to Hutchens.

But a lot of the blow-by-blow about how the contract came about wasn't revealed until this latest report.Canal Corp. officials:

* Provide Hutchens with an early copy of the ad before others could respond.

* Recommended Hutchens retain certain lobbyists, then advised the lobbyists how to structure his offer to the state. They also apparently floated confidential documents to the lobbyists.

* Edited drafts of letters Hutchens sent to canal attorneys to negotiate the contract.

* Portrayed Hutchens as a potential campaign donor and secured him an invitation to a fund-raising event held at the annual National Baseball Hall of Fame weekend in Cooperstown.

The report also named names. For example, Matthew Berhmann, former Canal Corp. operations director and 1998 campaign manager for then-Attorney General Dennis Vacco. He and Hutchens attended a Vacco fund-raiser and Hutchens contributed to Vacco's campaign. Though afterward Behrmann wrote a letter recusing himself from the canal contract deal, he "continued to play an active role in it," the report said.

Donald Hutton, a former deputy director for planning at the Thruway, directed Hutchens to longtime Albany lobbyist Kerry Marsh, who subsequently talked to Robert King, Pataki's then-budget director who now heads the State University of New York. The lobbyist said King made phone calls on the project's behalf.

Now, here's the kicker. Hutton and Behrmann and two other Canal Corp. employees who played roles in Hutchens landing the contract have all left the authority and state service altogether. The significance? State law prohibits the Ethics Commission from seeking to punish former state employees.

Further, none of the lobbying on Hutchens' behalf went reported to the state Lobbying Commission. Why? Because you don't have to disclose lobbying for contracts thanks to a hole in the lobbying law. None of the conversations Hutchens' lobbyists had with canal officials or King was illegal. However, the episode shows just how much lobbying went on for one of the scads of contracts the state awards annually and how there was no oversight of that lobbying.

This was just the latest in a string of scandals regarding government contracts and favoritism. Earlier this year, a former senator and a former labor commissioner pleaded guilty in separate incidents. Legislators have proposed rules governing lobbying for contracts. They blame Pataki for blocking changes. The question now is whether the canal contract will force the lawmakers to close the loopholes.

Yancey Roy can be reached at 150 State St., Albany, NY 12207 or e-mail: yroy@gannett.com.

N.Y. Canal Corp. rebuked on contract
Attorney General unveils findings of canal development investigation
On canal, he has the ad-vantage
Hevesi Rescinds Approval Of Canal Corp. Contract With Hutchens Because Agency Provided False & Misleading Information
Running Scared
Documents questioned in canal sale hearing