-EDC also fails to pay more than $7 million in revenue to the City-

-DEP responds: bills EDC $479,000 for water/sewage costs-

-Thompson calls on Mayor Bloomberg to ensure that all City agencies overseeing leased properties are paying their water bills-

New York City Comptroller William C. Thompson, Jr. releases an audit finding that the Economic Development Corporation failed to pay water and sewage fees to the City for more than two decades at a news conference on June 9, 2008. Photo credit: Marla S. Maritzer View audit View letter to the Mayor

New York City Comptroller William C. Thompson, Jr. today called on Mayor Michael Bloomberg to review whether all City agencies are paying their water and sewer bills after his auditors discovered that the New York City Economic Development Corporation failed to pay and bill sub-tenants for water and sewage use at the Brooklyn Army Terminal for 22 years.

Speaking at a news conference, Thompson harshly criticized the City for not paying its own bills while at the same time squeezing New Yorkers by repeatedly hiking water rates.
“It is unconscionable that the Economic Development Corporation would not pay these bills or collect the costs from its sub-tenants since 1986,” Thompson said. “During this time, the City has made it incredibly difficult for average New Yorkers to pay their bills. A single family homeowner has watched the City’s water bill skyrocket by 464 percent over the last 22 years, while the Terminal has watched its bill go up from zero to… zero!”

As a result of the audit, Comptroller Thompson called on Mayor Michael Bloomberg to immediately ensure that EDC and those agencies overseeing leased properties are paying all appropriate water and sewer bills.

Thompson’s audit – available at www.comptroller.nyc.gov - found that the Economic Development Corporation (EDC)– which has a lease agreement with the City to operate the 97-acre Terminal in Sunset Park – failed to contact the Department of Environmental Protection (DEP) to ask why it wasn’t being billed for water and sewage use - charges it must pay under its lease agreement. DEP was unaware that the Army Terminal had been leased to EDC.

This is not the first time that EDC failed to make sure its tenants paid water and sewage bills. Just last year, in another audit, Thompson discovered that Astoria Studio Limited Partnership II – which also is overseen by EDC - did not pay $335,000 in water and sewer charges for more than a decade.

The reason once again: Astoria failed to ask DEP why it wasn’t being billed. Once auditors uncovered this, DEP dispatched an inspector to the property and then billed Astoria’s account $135,237 for water and sewer use from April 2002 to April 2006.

However, Thompson said, the City in both of these cases has lost  millions of dollars in revenue because New York Water Board rules preclude DEP from billing customers for water and sewer use that is more than four years old.

“New York City taxpayers have lost the benefit of countless dollars as a result of the City’s lax oversight,” Thompson said. “These agencies simply must do a better job, because their failure means your tax dollars.”

In the Terminal’s case, when auditors contacted DEP about the situation, they were told that bills were not being generated for the Terminal because DEP was unaware that the premises had been leased to EDC.

EDC is responsible for promoting economic growth in the City’s five boroughs by providing commercial and industrial real estate development and financial services, managing the City’s wholesale food markets and transport systems, and developing and managing waterfront properties.

EDC’s lease agreement requires it to pay the City: an amount equal to 100 percent of net operating income; all proceeds received, less those used or to be used to restore the premises, and, all other amounts which EDC is obligated to pay pursuant to the provisions of the lease. EDC is allowed to sub-lease the space in accordance with a City-approved sub-leasing plan, which must specify the space to be sub-let, the proposed sub-tenant or class of sub-tenant, and the proposed terms or range of terms for the financial provision of the proposed sub-lease.

Furthermore, the lease requires EDC to agree to pay, or to include in sub-leases to be paid by sub-tenants, charges for water, water meter and sewer rents, real property assessments, excises, levies and fines.

Auditors found that EDC did not comply with certain lease stipulations by not collecting market-rate rents from its construction manager, Turner Construction Company, which resulted in a loss of rental fees totaling at least $211,500. Moreover, EDC did not charge certain sub-tenants rents in accordance with market appraisals, forgoing potential rental payments amounting to almost $300,000.

Finally, EDC’s certified financial statements for Fiscal Year 2007 show total operating revenues of $18,777,935, total operating expenses of $11,405,171, and operating income of $7,372,764 for the Terminal. Although an amendment to the agreement allows EDC to retain its net operating income, Thompson said EDC should pay this balance (less $10,585 in interest) to the City, but has failed to do so.

“As the City’s vehicle for promoting economic growth, EDC has failed to turn over generated income to the City,” Thompson said. “This money should be used to benefit New Yorkers. In these tough financial times, every dollar counts.”

As a result of the audit, DEP notified Thompson last week that it recently sent a $479,124 water bill to EDC for the Terminal. DEP indicated that according to a Memorandum of Understanding forged in December by the City Council and DEP, it would not seek to collect bills older than two years. The Comptroller disagrees with that position and instead continues to hold that DEP should collect from EDC four years worth of unbilled services.
Thompson had called on EDC to work with DEP to grant it immediate access to the Terminal’s water meters, and ensure that it obtained DEP billing statements to bill sub-tenants for water and sewer charges for the appropriate periods.

Additionally, Thompson recommended that EDC: arrange to collect fair market rental income for space occupied at the Terminal; cease its practice of providing rentable space at the Terminal to entities free-of-charge; prepare a formal written agreement to document the terms by which the Mayor’s Office is allowed to occupy space at the Terminal without paying rent; ensure that rental rates are consistent with fair market appraisal values; and, in the future, record in the Terminal’s financial statements revenue obtained from Turner."

Further, Thompson asked EDC to provide adequate documentation to substantiate items expensed for the Terminal’s travel and meals account, and remit 100 percent of the Terminal’s net operating income to the City on a quarterly basis, in accordance with the lease agreement.

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