The City Council voted 4-1 on Aug. 7 to approve $25,000 in funding to help the city’s Local Development Corporation hire a law firm and respond to a $100 million lawsuit that the developer iStar filed against the city and LDC earlier this year.
The council voted to allow the city to enter into an imprest agreement with the LDC — an independent not-for-profit corporation that is separate from the city — in which the city will donate the funds to the organization. Because the LDC — which was established in 2012 to attract new business to Long Beach and assist with economic development — is a separate entity, officials said it was required to retain its own legal counsel and respond to the suit.
The Manhattan-based developer filed the lawsuit in May in Nassau County State Supreme Court, claiming that the city and the LDC reneged on an agreement that both would support tax breaks the developer is seeking from the Nassau County Industrial Development Agency to build two luxury apartment towers on the vacant Superblock property. The IDA has twice rejected the developer’s requests for $129 million and $109 million in tax breaks.
In its suit, iStar claimed that both the city and the LDC breached their contractual obligations set forth in an agreement the city and iStar reached in 2014.
The city filed a motion to dismiss the suit last month. The LDC retained Uniondale-based Harris Beach PLLC, responded to iStar’s complaint on Aug. 9 and made a separate motion to dismiss the suit, saying that it was not a party to iStar’s breach-of-contract claim.
City officials said that if the LDC did not respond to iStar’s complaint, the organization risked defaulting on the lawsuit. Corporation Counsel Rob Agostisi said that the city could have been held liable if the LDC defaulted and cost the city hundreds of millions of dollars. The LDC, he said, did not have sufficient assets to cover its legal fees.
“This item is to help the city,” Agostisi said at the Aug. 7 meeting. “It’s in the city’s interest to continue to defend against iStar in the litigation that they’ve commenced. In that same lawsuit, they named the LDC as a party, despite the fact that there’s no specific allegation of wrongdoing against the LDC.”
An attorney and a spokesman for iStar did not immediately respond to requests for comment.
In 2015, the city — which settled its lawsuit against iStar and the former owner of the Superblock in 2014 for $5.25 million, payable to the city — entered into an agreement with iStar in which the firm would pay the city and its local development corporation $4.1 million to mitigate the project’s impact and for a number of infrastructure improvements and downtown revitalization efforts, if the IDA granted the developer a 20-year payment in lieu of taxes, or PILOT program.
As part of the agreement, iStar would pay the city $3.78 million and the LDC $320,000, according to the complaint, funding that was contingent on the project being completed. The LDC would also give iStar a mortgage recording tax exemption, but stood to collect a number of fees by awarding that break.
“They were involved in the sense that they were going to get $320,000 if the project went through,” one city official with knowledge of the agreement, who declined to be identified, said of the LDC after the meeting. “The thinking was … it would give the LDC some money, because they don’t have any independent revenue that they’re generating.”
According to the LDC’s 2018 budget, it estimated taking in $10,000 in revenue through corporate donations and grants, but projected $22,500 in total expenditures, including $5,000 in legal fees. A recent audit of the LDC states that its total liabilities exceed its assets, and that the organization operated with a $27,000 deficit last year.
Agostisi said at the meeting that he expected the $25,000 to fully cover the LDC’s legal expenses. “We think it’s going to be enough,” he said, “because we anticipate the [lawsuit against] the LDC being dismissed, since there’s no allegation of actual wrongdoing against the LDC.”
According to documents on the city’s website, in December 2017, the LDC’s five-member board of directors informed the City Council and city manager that they wanted to dissolve the corporation, and expressed doubts about its ability to continue, with limited activity expected in fiscal 2018.
Patricia Bourne, the LDC’s executive director — who is also the city’s director of economic development — did not immediately respond to a request for comment.
Council members and residents, including Nassau County Legislator Denise Ford (R-Long Beach) questioned the need to cover the LDC’s legal costs.
Former school board President Roy Lester, an attorney, said the move allowed the LDC to retain a politically connected law firm, and that the city should defend the organization. “By giving them money, how is that keeping them apart?”Lester told the council. “For you guys to be giving it up to the LDC . . . doesn’t make sense to me. It seems to me like another $25,000 that’s going to go to a favored law firm. It seems that this is a corporation that’s losing money every year — they have very few meetings and accomplish nothing. This is the city’s fight.”
Councilwoman Anissa Moore voted against the measure, saying it was “unfortunate” that information about the LDC’s operations was shared only recently. “We don’t have all the answers as to how this will impact the city,” she said.
Councilman Scott Mandel and other council members said that the liability to the city was too risky.
Councilman John Bendo said, “In doing my research for this, I spoke to a member of the LDC who is of the opinion that … the LDC needs to be dissolved immediately and … they should not get this money. I also spoke to corporation counsel, who gave a reasonable explanation of why they should. The question really becomes … is this $25,000 investment worth potentially alleviating hundreds of thousands of dollars in legal fees that could come down the line, because iStar is going to harass us in that regard.”
Correction: In the print edition of this story, the Herald incorrectly stated that iStar was twice rejected for $25 million and $20 million in tax breaks. The developer had in fact applied to the Nassau IDA for payment in lieu of taxes, or PILOT, programs for $129 million and $109 million over a period of 25 years and 20 years, respectively. We regret the error.