I’ve been consulting for more and more nonprofits lately, and I’m finding that they tend to make the same basic mistakes when it comes to managing the business side of doing good. Because of their very nature (usually a lot of their funding comes from well-meaning donations that are specifically restricted for programs, but not overhead), nonprofits typically keep administration, accounting and compliance expenses to an absolute minimum – not realizing until it’s too late that this could be a fatal mistake. As laudable as their program missions might be, nonprofits should NOT under-budget these often-neglected, non-programmatic departments.
Take the case of U.S. non-profit organizations (NPO’s) doing good in Latin America. Many of them have never even heard of the Foreign Corrupt Practices Act (FCPA), much less set up robust compliance departments to help them navigate the treacherous waters of operating down there. Yet U.S. nonprofits are very much subject to this law, just like regular for-profit companies.
That’s why I’m sharing the following edited post from the FCPAméricas blog (www.fcpamericas.com) about what U.S. nonprofits operating in Latin America should at the very least understand about FCPA compliance:
As with for-profit entities, the first step in grappling with FCPA compliance is for a nonprofit to conduct a risk assessment…including whether they operate in high-risk jurisdictions and the degree to which their operations require contact with government officials. Nonprofits often work as contractors for government agencies, often competing with private companies for these contracts. These transactions present FCPA compliance risks…
Other key risk assessment points for nonprofits include:
- Local staff or agents. Many nonprofits hire individuals or organizations (often local nonprofits) to carry out their work and act as their agents. As with for-profit organizations, such local hires present heightened FCPA risk and should undergo due diligence. In addition, nonprofits should be alert to corrupt or fraudulent practices from local nonprofits, such as attempts to fund administrative costs by requiring kickbacks from contractors hired to do specific projects.
- Management/oversight structure. Many international nonprofits disperse their decision making widely to their people on the ground. At the same time, given the resource constraints facing nonprofits, many have minimal oversight/management resources. Such structures significantly increase FCPA risks while simultaneously limiting the tools available to address them, e.g., internal controls, training, auditing and reporting. Similarly, many nonprofits lack FCPA expertise or even general compliance expertise. This may blind nonprofits to the risks they are facing and inhibit internal reporting…
An important factor that may motivate nonprofits to address FCPA risk is reputational risk…[which is far] greater for nonprofits than they are for corporations, since a corruption scandal at an NGO can dry up funding and threaten its existence. Such scandals can arise from engaging in bribery. If a nonprofit is a repeat victim of corruption, this could also suggest mismanagement. Taking steps to reduce FCPA risk will reduce the potential for both types of corruption…
Nonprofits are treated the same as corporate entities under the FCPA. However, nonprofits should consider the following legal wrinkles:
- Accounting provisions. Because nonprofits are not “Issuers”, they are not subject to the accounting requirements of the FCPA. Nevertheless, they are well advised to have accounting controls similar to those required of Issuers under the FCPA. Internal controls significantly reduce the risk that an employee or agent of the nonprofit will violate the FCPA’s anti-bribery provisions. Perhaps more importantly, such controls also reduce the risk that nonprofits will be a victim of corruption or embezzlement.
- Business Purpose Test. The FCPA prohibits corrupt payments or promises made for a business purpose, which the daring might suggest exempts the activities of nonprofits. That argument is a non-starter, however. In Opinion Release10-02 (2010), the DOJ stated its interpretation that the business purpose requirement would cover nonprofit work. Similarly, as discussed here, the “business purpose” element of the bribery prohibitions included in the UNCAC and the OECD conventions also covers the business of nonprofits…”
The opinions expressed in the shortened and edited post above from the FCPAméricas blog are those of the author Matthew Fowler in his individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author’s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers…FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws…
In conclusion, if you are a U.S.-based nonprofit with operations in Latin America, your senior management and Board of Directors should pay close attention to the organization’s FCPA compliance. As you can see, there are several important issues that an NPO must keep an eye on to avoid problems down the road.
If you’re wondering how you’re going to pay for a compliance department (or even just 1 compliance professional or outside consultant, given the preponderance of restricted donations), you should consider modifying your fundraising plan to seek specific support for compliance-related matters. The support could be in the form of grants, of course, but don’t overlook valuable pro-bono training and/or legal advice. Who are possible donors, you might ask? Consider calling on larger NPO’s with global operations, international foundations, multinational corporations with large FCPA departments and, especially, international law firms with FCPA experience.
Another possible group of potential donors are multinational firms that have run afoul of FCPA regulations that resulted in severe sanctions. There are many companies that fall under this category (Ralph Lauren Corp., BizJet International, Siemens, Ball Corp., SNC-Lavalin, Helmerich & Payne, Chiquita Brands, Stryker Corp. and Walmart just to name a few). As they proceed to comply with the terms of their government settlements (which usually include MAJOR personnel & procedural changes), these sanctioned firms might be open to the idea of sponsoring the compliance department of a nonprofit like yours, in a contrite attempt to clean up their tarnished images. It would be good PR for them and a great source of funding for you!
I hope all of you had a wonderful and safe summer vacation! You might remember that in Part 2 of my blog series “Want to Invest in Honduras? (The Reality)”, I wrote about why I’ve come to the conclusion that Honduras is practically at war for its very sovereignty. And I believe few foreign investors are actually aware of what’s going on in this country; of who the warring factions are; and — if you are already doing business down there — of what your financial AND legal liabilities might be.
Part 3 — The Drug Kingpin Act. If you are an American doing business in Honduras, your risks are far more than just financial. There is this law called the Foreign Narcotics Kingpin Designation Act (FNKDA) that makes it a crime for Americans to engage in “any transaction” with persons designated as drug kingpins. In addition to the monetary penalties, violations of the Kingpin Act could include up to 30 years in jail.
According to the State Department, between 70% and 90% of all cocaine destined for the United States goes through clandestine re-fueling landing fields in Honduras. If accurate, that’s the equivalent of tens of billions of dollars every year! You must therefore take the drug trafficking and money laundering issues in Honduras quite seriously, and do your background investigations and due diligence carefully. This should include following up on all credible local rumors about the person(s) with whom you are considering doing business.
The problem in a country as small and as corrupt as Honduras is that most everybody (who is anybody, and with whom you would naturally want to do business) is rumored to be directly or indirectly involved, especially in money laundering. And I mean the rumors go to the highest level of society, business and government. Even the president of the nation is rumored to be deeply involved, with the help of his brother in the state of Olancho.
Of course, not all rumors are credible or true. But you as an American investor who’s subject to the Kingpin Act have to carefully document the results of your due diligence. This can get complicated and expensive; yet it’s unclear how effective it would be in keeping you out of trouble.
Consider, for example, the following hypothetical situation: let’s say that your background investigations and due diligence clears the owner of a beautiful, modern office building in the capital city of Tegucigalpa where you are considering a 10-year lease for a large call center. You sign the deal, build out your space but 3 years into the lease the U.S. government designates your landlord as a drug kingpin. Are you in violation of FNKDA?
After all, you are now officially engaging in a business transaction with a drug kingpin (and will be doing so continuously), through your monthly lease payments. Does your carefully-crafted due diligence documentation clear you of any wrongdoing? If so, can you legally continue with the 7 years left in your lease?
If FNKDA forbids you from continuing your lease, how do you unwind your massive investment? How much time do you have to unwind? What’s your recourse for the losses?
The building may or may not be seized by Honduran officials, but they would be doing you a favor if they do because you are now technically in business with the Honduran government, and not a drug kingpin. However, longer term, do you really want the Honduran government as your landlord for the next 7 years…?
Obviously, you’re going to need specialized (and expensive) legal counsel to resolve the above hypothetical. Highly unlikely, you might be saying to yourself. Or perhaps you’re thinking that drug kingpins don’t have (legitimate) businesses? Think again! Just take a look at the two most recent kingpin designations in Honduras:
Click on the images, and you will see a good size network of legitimate businesses, any one of whom could be your client, your supplier or your landlord. Please note that the lists are not complete, not by a long shot.
In the case of the most recent designation (the alleged Drug Cartel ‘Los Cachiros’), the Treasury Department estimates the total value of their assets to be somewhere between US $400 million and US $600 million, including vast holdings in real estate and hotels. The seizures are just beginning.
If you happen to be doing business with any one of these companies, you obviously have to stop as quickly as possible and retain competent legal counsel.
Speaking of counsel, please note that even before the Kingpin Act was signed into law by President Clinton in 1999, the National Association of Criminal Defense Lawyers (NACDL) in Washington, D.C. did not like the new law.
They were quoted as saying that: “…any innocent business (a grocer, a car dealer, a boat dealer, a banker) who unknowingly deals with a business owned by a “kingpin” could be caught up in a net with no way out. [The Kingpin Act] is simply too fraught with opportunities for abuse.”
See the complete text here ( http://nacdl.org/Advocacy.aspx?id=11558&terms=foreign+narcotics+kingpin ).
You might be wondering how this designation list (or “black list” according to NACDL) is generated. Well, it starts at the Treasury Department’s Office of Foreign Assets Control (OFAC). Using all available intel, OFAC tabulates a gross list of suspects, which it then circulates among several government agencies, including the DEA, FBI, CIA, Homeland Security and Department of State. If any one of these agencies, for their own strategic reasons, objects to the publication of a particular name, it is removed. The names that remain before June 1 are sent to the White House for final deliberation. The vetting of this list is an annual process.
You may now be wondering what a “strategic” reason might be for objecting to the publication of a particular suspect. I guess that if you’re the CIA and you see one of your key informants on the preliminary list, you may want to protect your source. In my hypothetical scenario described above, the owner of that beautiful modern office building in Tegucigalpa may actually be a drug trafficker and/or money launderer — but for right now, the CIA values his/her information enough to veto their inclusion in the infamous list, at least until next year.
As you may have already surmised, doing business south of the border is NOT a simple extension of doing business in the U.S. If you’re going to invest in Honduras, please do so with your eyes wide open. Don’t assume anything about anybody; do your background investigations and due diligence with earnest; and have a very good personal security plan (and team) in place. Good luck!
In Part 1 (The Sales Pitch), I wrote about the many features that in theory make San Pedro Sula, Honduras a desirable Business Process Outsourcing (BPO) destination for small manufacturers and BPO providers. Except when you look into the issues of crime, violence and general insecurity. One BPO sales team explained it away as mere petty street crime and gang fights over territory. However, my findings tell a much different story.
Part 2 — The Reality…2012 was a Record Year for Murders in Honduras, and they are not solely gang-related.
When I visited Honduras recently, many people were still talking about the circumstances surrounding the murder of the former Police Chief’s son. You see, earlier this year several masked gunmen murdered his 17-year old son (execution style) alongside his 2 bodyguards in a trendy restaurant.
The former Police Chief, who was fired in May 2012 over two high profile murders that happened during his watch (that of the country’s deputy drug czar and of a renowned investigative journalist), angrily claimed that it was the new chief of police who ordered the hit against his son, and that the execution was carried out by police officers. After such incendiary accusations, he was forced to flee the country and, according to family members interviewed by a local newspaper, he is now hiding in the United States.
It is worth noting that the former Chief’s allegations regarding his replacement are not out of the realm of possibility. The rumors are that the substitute has been involved in a number of murders, allegedly carried out by death squads under his command. Although the new Chief was exonerated of one of the murders that went to trial, the Obama administration felt there was enough compelling evidence to temporarily freeze all security aid to Honduras in August of last year for a policy re-assessment.
Just a few days after my arrival in San Pedro Sula, the topic of conversation changed abruptly from police death squads to the national ramifications of a professional assassination carried out in the capital city of Tegucigalpa. The victim this time was the chief of the government’s anti-money laundering unit. An attorney with close ties to U.S. authorities, he was the primary author of Honduras’s 1997 anti-money laundering law. He was shot 7 times while driving home in a perfectly synchronized professional hit involving several accomplices working in coordination on foot, car and motorcycle.
According to the United Nations 2011 Global Study on Homicide, the number of murders in Honduras have been rising steadily, and in fact doubled between 2005 and 2009 (from 35.1 murders per 100,000 to 70.7). This rate jumped another 16% in 2010 to 82.1, making Honduras the most dangerous country in the world in terms of homicides. The state of affairs have gotten so bad, that the Obama administration suspended its Honduran Peace Corps program early last year and evacuated all its volunteers.
What’s even more troubling is that whereas the situation is getting worse in Honduras, it is improving in the neighboring countries of Guatemala and El Salvador (collectively referred to as the “Northern Triangle” region of Central America). According to the country’s largest public university which tracks all violent crime nationwide under a program known in English as the “Honduran Observatory on Violence”, the nation suffered 7,172 murders in 2012, an increase of 68 homicides over 2011. This is in sharp contrast to its Northern Triangle neighbors where both countries saw a decline in homicides. El Salvador tabulated a drop of 40%. Meanwhile, Guatemala is on track for a third year of fewer murders, a much welcome trend.
Coincidentally, the Observatory announced that in 2012 San Pedro Sula suffered 159 murders per 100,000 residents. That ranks San Pedro above Ciudad Juarez, Mexico — which has topped the list for the past 3 years as the most violent city in the world.
Although Mexico’s violence often makes the news in the U.S., the fact is that the murder rate in the Northern Triangle of Central America is far, far worse. The average homicide rate in the Northern Triangle is 63.1 per 100,000. This is 350% worse than Mexico’s 18.1.
As allegations of police death squads working directly for the Chief of Police were circulating in the news, another high ranking government official was assassinated. Thus, I began to wonder whether there isn’t something much, much bigger going on in Honduras than mere petty gang-related turf wars.
However, don’t get me wrong. There’s plenty of that supposed ”petty” crime going around — but it’s not limited to the gang-controlled neighborhoods. Consider that just in the few weeks that I was there, I became aware of three crimes against persons whom I knew personally, or who were only 1 to 2 degrees separated. One was the kidnapping (and subsequent murder despite 2 ransom payments) of a well-known event planner’s spouse. Another was the “24-hour” kidnapping of a personal yoga instructor. In Honduras, these 24-hour kidnappings are known as ”secuestros express” due to their typically small ransom demands, usually ranging from about the equivalent of US $1,000 to US $5,000 so that the ransoms can be paid within 24 hours.
The third crime was a shooting rampage in a public bus that killed 1 and injured 3. The office manager of a dear friend of ours was one of the severely injured. Happily, she survived an emergency operation to remove a bullet lodged just 2 cm. above her thoracic region. She was recently released from the hospital and, as of the writing of this post, is still recovering at home. It was the person sitting right next to her who died (3 gunshots). The assailants are still at large.
I’ve come to the conclusion that Honduras is practically at war for its very sovereignty (both at the highest levels of government as well as on the streets). And I believe few foreign investors are actually aware of what’s going on in this country; of who the warring factions are; and — if you are already doing business down there — of what your financial AND legal liabilities might be. (I will delve into these issues in part 3).
What’s worse, I believe that in the foreseeable future, Honduras will continue to lose battle after battle in this war – leaving behind an ever rising number of victims without prejudice to their social status, gender, nationality, employment situation, age or neighborhood that they live in.
Therefore, unless you are in the war business, think long and hard before putting your employees, managers, executives and/or capital at risk in Honduras.
Part 3 — If you are an American doing business in Honduras, your risks are far more than just financial. There is this law called the Foreign Narcotics Kingpin Designation Act that makes it a crime for Americans to engage in “any transaction” with persons designated as drug kingpins. Penalties for violations of the Kingpin Act range up to $10 million and 30 years in jail…To be continued next month.
Part 1 — The Sales Pitch… I recently accompanied a client to a sales and marketing presentation by a leading Business Process Outsourcing (BPO) provider in the United States extolling the benefits of outsourcing to San Pedro Sula, Honduras. The sales team talked about how this Central American city offers just about everything that a light manufacturer or outsourcer could want, and even more. Chief among them is the abundant supply, quality and stability of an inexpensive bilingual labor force.
With over 400 bilingual schools and 7 universities, Honduras graduates thousands of English-speaking high school and university students every year — far more than all other Central American countries combined! Not only are they well educated, but their English is generally considered to be ”accent neutral”, meaning that it cannot be recognized by the average American as being from any particular region of the world (as in the case with India or the Philippines).
Tragically, the underemployment rate in Honduras is crushingly high (58% in 2012 according to the National Institute of Statistics or INE in the Spanish acronym), but this offers significant opportunities to potential employers. There’s a deep pool of inexpensive talent from which to choose, and once hired, most Hondurans hang on to their jobs for dear life. Job hopping is not very common, so attrition is quite low (under 20% by several accounts).
Other advantages include a phenomenal information and communications technology (ICT) infrastructure with three fiber optic cable networks to ensure less than 80 milliseconds latency. In addition, San Pedro is only an hour’s drive from the largest and deepest seaport in Central America. In fact, Puerto Cortes is 1 of only 6 seaports in the world that have been certified under the U.S. government’s “Megaport Initiative” that scans for radiation and other risk factors prior to shipment. When combined with the presence of a local U.S. Customs and Border Protection office that inspects all containers prior to departure, it means that your cargo will unload much faster upon arrival in the U.S., avoiding your company the slow, time-consuming process of customs paperwork and inspections.
Finally, San Pedro Sula is an economic powerhouse, producing two thirds of Honduras’ entire GDP. Business is the name of the game in San Pedro, and the local business community is highly professional, efficient and competitive – very important factors to consider for your supply chain.
It’s no wonder then that these unique features have persuaded dozens of textile manufacturers over the last 20 years, and a half dozen BPO outsourcers in the last 18 months, to set up shop in San Pedro Sula – including the one whose presentation I alluded to at the beginning of this blog post.
What surprised me was their response to the questions on crime, violence and general insecurity. They explained it away as mere petty street crime and gang turf fights over territory: “you avoid it as you would in any other big U.S. city – simply stay away from the low-income, high-crime neighborhoods and you’ll be fine…”
The BPO sales team made San Pedro Sula sound so attractive that my client wanted to move forward with several projects. However, I was highly skeptical. And it breaks my heart to say it because this is where I grew up. This is where I learned my English; the land of my childhood memories…
Maybe things have improved, I thought to myself. After all, I stopped following local events after the signing of the National Reconciliation Agreement of October 2009 that sort-of resolved the pseudo-military coup d’état and subsequent constitutional crisis that erupted earlier that year. But from what I knew just prior to the coup, I could not in good conscious recommend Honduras to my clients as a “safe” country to invest — notwithstanding my personal feelings.
Since I was going down there anyways on a family matter, I offered to research the issue of violence. With my client’s permission, I’m sharing some of my findings and recommendations in this series of blog posts I’m entitling “Want to Invest in Honduras? Tread carefully!”
Part 2 — The Reality… 2012 was a Record Year for Murders in Honduras and they were not merely gang-related. Moreover, Honduras now ranks as the country with the highest number of murders per 100,000 residents in the world, and San Pedro Sula replaces Ciudad Juarez, Mexico as the most violent city… To be continued next month.
This month marks the 1-year anniversary of the New York Times article by Pulitzer Prize winner David Barstow alleging a vast conspiracy of bribery and corruption in Mexico that dated back to 2002, when Walmart was aggressively expanding its footprint in that all-important emerging market. The Times claimed that it was only after learning of its investigation in November 2011 that Walmart ”voluntarily” disclosed to the U.S. Justice Department that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act (FCPA), which outlaws the bribery of foreign officials by American executives.
All along, Walmart has claimed that none of their senior officers (including its current CEO Michael T. Duke) knew anything about any Mexican bribes.
Yet earlier this year, Democratic Congressmen Elijah Cummings and Henry Waxman, who are investigating certain aspects of the bribery allegations, released emails that indicate that several senior executives, including Mr. Duke (CEO since 2009 and previously the Vice Chairman responsible for Walmart International and its Mexican subsidiary), had specific knowledge that “Wal-Mart paid hundreds of thousands of dollars in bribes to secure approvals to build its store in Teotihuacan on the site of ancient ruins.”
The Cummings/Waxman letter (a copy of which can be read here: http://waxman.house.gov/reps-cummings-and-waxman-release-documents-showing-wal-mart%E2%80%99s-ceo-was-informed-mexican-bribery), focuses on only 1 particular store.
But the New York Times article from last year alleged a massive bribery scheme throughout the entire country. You can read the stunning article here (http://www.nytimes.com/2012/04/22/business/at-wal-mart-in-mexico-a-bribe-inquiry-silenced.html?ref=davidbarstow).
Due to that New York Times report, Walmart is having to spend a lot of money on defending itself against multiple shareholder lawsuits and on the FCPA investigations. In its most recent Annual Report, which the company filed just last week with the Securities and Exchange Commission, the company disclosed that it spent $157 million during the fiscal year that ended January 31, 2013, and that it expected to incur an additional $45 million during the first quarter alone. Given the amount of money Walmart is spending on its legal defense, it’s hard to predict at this point whether any Walmart executive(s) will be going to jail. The investigations are ongoing, and no criminal indictments have been handed down to date.
In addition to the alleged cover-up by Walmart executives in Arkansas, what troubles me is the sophistication of the supposed bribery scheme masterminded by the Mexican executives. If proven to be true, the scheme should serve as a huge wakeup call to any foreigner wanting to invest, or already doing business, in Latin America. You should assess your current operations there, and take concrete steps to protect yourself and your company from corruption risks in this region.
Consider, for example, that the main perpetrator of the alleged Walmart bribery scheme was a 10-year veteran in the company’s real estate department by the name of Sergio Cicero Zapata, who feeling under-appreciated when he was passed over for the job of general counsel of Walmart de Mexico, began to assemble a record of all the bribes he had helped to orchestrate. He then contacted Walmart’s general counsel at the time (Ms. Maritza Munich) in Arkansas with “information about irregularities authorized at the highest levels of Walmart de Mexico.”
According to The Times, in the ensuing internal investigation ordered by Ms. Munich, Mr. Cicero spent hours explaining the mechanics of how he had helped funnel bribes through trusted facilitators, known in Mexico as “gestores” (pronounced hes-TOR-ehs).
Gestores are facilitators who help individuals and companies to get things done in Mexico, especially when dealing with slow-moving government agencies. They grease the wheels of progress and are a daily reality of Mexican culture. Although some are legitimate, many are not and it was Mr. Cicero’s job to recruit the latter. Operating in the shadows, Mr. Cicero recounted how he worked closely with them, sharing strategies on whom to bribe and for how much. He described how they targeted mayors and city council members, urban planners, bureaucrats who issued construction permits, and anyone who might get in the way of Walmart’s relentless quest for growth. The bribes, he said, bought zoning approvals, reductions in environmental impact fees and the allegiance of community leaders. Furthermore, they got zoning maps changed; they made environmental objections vanish; and they expedited permits that typically took months to process.
According to The Times, Mr. Cicero further described how Walmart de Mexico perfected the art of fraudulent accounting. The gestores submitted invoices with brief, vaguely worded descriptions of their services, with secret codes written on the invoices. The invoices covered the bribe and the gestor’s fee, typically 6 percent of the bribe. The codes identified the specific “irregular act” performed. One code would indicate a bribe to speed up a permit; another would describe the elimination of a fine, etc.
According to Mr. Cicero, the invoices with the secret codes were carefully monitored by a handful of Walmart de Mexico executives in the know, which included the board chairman, the CEO, the general counsel and the chief auditor, among others. Each month, they received a detailed schedule of all of the payments performed. Walmart de Mexico then “purified” the bribes in accounting records as simple legal fees. All told, over $8 million dollars were paid in bribes.
But wait, there’s more!! According to the New York Times, an internal probe by Bentonville investigators found that the corruption in Walmart’s largest foreign subsidiary might be far more extensive than even Mr. Cicero had described. In going through Walmart de Mexico’s database of payments, investigators found large “contributions” and “donations” directly to state, municipal and local governments all over Mexico — nearly $16 million in all since 2003 – in return for the licenses, zoning approvals and construction permits needed to build their stores.
Then there’s the reaction by the American bosses in Arkansas, who when upon learning of the scheme, allegedly tried to cover it up…
You might be thinking that this sounds more like the script for a Hollywood fictional thriller about corporate corruption, and not the dealings of a respected Fortune 500 company listed on the New York Stock Exchange. I thought so myself at first, until I started to wonder about the $200 million in legal fees that Walmart has shelled out to defend itself and its executives. You just don’t spend that kind of money unless there is some truth to the allegations!
With over $100 Billion in worldwide sales per quarter, it would seem that Walmart can easily afford $200 million. Now ask yourself, as a foreigner doing business in Latin America, could you survive an investigation on alleged corrupt practices?
The Hudson River Park (HRP) in the West Side of Manhattan runs five miles long – from Tribeca, Greenwich Village and Chelsea all the way north to Hell’s Kitchen and Clinton. It is the longest waterfront park in the United States. But it is not a city or state park; therefore, it does not receive any government money for its maintenance and operations.
HRP is supposed to finance itself, which it has done since its creation – by way of commercial leases and private fundraising. Unfortunately, its operating costs have ballooned in recent years due to deteriorated pier pilings, collapsed bulkheads and damage caused by Superstorm Sandy. For Fiscal Year 2013, HRP is projecting a $7 million deficit to pay for these critical capex and maintenance repairs, which would rise to a whopping $9 million annual deficit by 2022.
But the Park won’t make it that long, because unless something is done immediately to cover these projected deficits, HRP will run out of money by FY 2017. Due to this precarious financial situation, many concerned neighbors, residents, donors, community leaders, real estate developers and elected officials have come together to find ways to help the Park regain its path towards self-sustainability.
One idea that is being pursued by the non-profit organization Friends of Hudson River Park (FOHRP), is the creation of a “Neighborhood Improvement District” (or NID — http://www.hrpnid.org/), which would use the same legal structure and funding mechanism allowed under the City’s Business Improvement District legislation. FOHRP invited me to join the Steering Committee for the creation of this NID nearly two years ago.
Under our proposal, commercial and residential owners closest to the Park would pay a small annual property assessment. With nearly 100 million square feet of built real estate next to the Park, this tiny charge would actually raise about $10 million per year. The money would be collected by the City’s Department of Finance along with the City’s annual property taxes. However, the NID money would not be comingled with the City’s general funds; instead, it would be transferred directly (and fully) to the NID.
After two years of surveys, consultations, analysis and debate – we are at that stage in the project where we must formally disclose to anybody interested (as required by law) all the details of the draft District Plan. FOHRP and members of the Steering Committee have held six public meetings (double that required by law) to share the particulars. But as you can well imagine whenever there is talk of change, or worse yet any type of levy that resembles a tax, there is bound to be opposition.
Here is a well-written article that recently appeared in The Villager that lays out quite succintly the arguments against the NID (http://www.thevillager.com/2013/02/21/is-nid-really-needed-and-who-asked-for-it-anyway/). FOHRP asked me to respond to it:
To The Villager Editor:
I am responding to Eileen Stukane’s article in the February 21st edition of The Villager, entitled “Is NID really needed, and who asked for it anyway?”
My name is Raul Larios and I serve on the Steering Committee (SC) of the Hudson River Park NID to which Ms. Stukane is referring. I have no problem with the 1st half of her article; it is factually correct, and I thank her for at least getting her facts straight. However, I do have a problem with some of her conclusions. For example, her claim that the “public meetings do not seem to offer a plan in progress but rather, a plan in place” is simply unfair. The current draft of the District Plan looks quite different from the original one nearly two years ago when I joined the SC. During that time, the SC has paid careful and deliberate attention to all comments and feedback that have been received prior to, during and after the public meetings. We have analyzed them, debated them and incorporated many of the suggestions into each successive draft of the Plan.
Case in point are the current proposed boundaries of the NID, which have not yet been finalized mainly because we are still hearing from the community regarding certain pros and cons of different layouts. In short, the District Plan is NOT in place, and even at this late hour is still a work in progress. We do hope to finish it in the next couple of weeks since our goal is to submit a finalized version to the City by the end of March. Until then, we welcome any and all comments.
If you wish, you can email your remarks to me at firstname.lastname@example.org instead of Friends of Hudson River Park (FOHRP), if that’s your concern. I will make sure they get heard at the next SC meeting; although I can assure you that FOHRP would never hold back any comments or suggestions for the formation of this NID, even if negative. In fact, quite the opposite is true – it’s the good people at FOHRP who constantly bring to our attention any negative feedback for debate and resolution.
Regarding Ms. Stukane’s observation that “the NID Steering Committee…is comprised of 23 members. Of those, 10 are major real estate developers…”, she seems to imply that somehow they are running or controlling the meetings. Having attended every single meeting since I joined the SC nearly two years ago, I can assure you that nothing could be farther from the truth. The real estate developers have always been cordial and professional – but somewhat reserved in their participation. Most of the debating has transpired amongst the 13 community members, including (by the way) the composition of the Committee. Technically speaking, the community now has a majority (13 to 10), but we’ve never had to use it because all decisions taken (including revisions to the District Plan) have been unanimous.
Regarding Ms. Stukane’s complaint that “three — only three — residential owners” sit on the Committee, let me assure you that it’s not from lack of trying. The SC reached out to dozens of owners, but for one reason or another, only three decided to join. Had I known that Ms. Stukane loved the Park so much, I would have reached out to her personally.
Regarding Ms. Stukane’s allegation that “rather than planning a neighborhood improvement district mostly with prominent real estate developers, and then informing residents after the fact, the NID could have truly been a grassroots movement”, I want to let you know that I personally dragged representatives from FOHRP to nearly a dozen well-attended neighborhood and Community Board events, as well as to one-on-one meetings with individual residents in Chelsea, Clinton and Hell’s Kitchen. The same has been the case with my colleagues on the SC who live in the Village and Tribeca.
So the answer to the questions posed by Ms. Stukane is that the NID is in fact really needed financially, and it’s the community who is asking for it.
Thank you for the opportunity to set the record straight.
This is a tough one to answer. On the one hand, there are reasons to be optimistic. As you may remember from my blog post last month, New York law offered a 30-day period for public comment on the proposed regulations that would govern hydrofracking. The response was overwhelming. Over 200,000 comments were submitted, many of them in paper format, which means that the Department of Environmental Conservation (DEC) was inundated with hundreds of boxes.
Moreover, on the day of Gov. Cuomo’s State of the State address (January 9, 2013), about 1,500 anti-fracking activists descended on the Empire State Plaza in Albany to urge Gov. Cuomo to ban hydrofracking. See a short video of the rally here: http://www.youtube.com/watch?v=tfcqzJ7iGTo. I’m told that this was one of the largest demonstrations (ever!!) in Albany history.
On the other hand, there are many indications that the approval for hydrofracking is signed, sealed and merely waiting delivery. Consider the following facts:
1. At the very outset of the review process, DEC gave the natural gas industry access to DEC’s early draft on proposed rules, regulations and permit language, thereby giving the drillers a golden opportunity to influence the re-drafting of the provisional language. In one blatant example, according to the Environmental Working Group (EWG), industry lawyers tried to “weaken testing requirements for radioactive pollution that might run off of drilling sites during heavy rains.”
In response to the allegations of misconduct, DEC stated that there was nothing illegal about their behavior. That in fact, access was necessary to meet DEC’s “obligations under state law”.
But according to EWG, “nowhere in the law does it say regulators must share detailed rule proposals or specific permit language with the drilling industry outside of the public’s eye, behind closed doors… [And] nowhere in the law does it say regulators must engage in preferential treatment and leave it up to public interest groups to file records requests [under the Freedom of Information Law] to reveal how the Department’s draft plan could be so tilted toward the drilling industry.”
2. DEC took the unusual step of choosing another Cuomo-controlled state agency, the Department of Health (DOH), to review DEC’s internal analysis on the potential health impacts – instead of a totally independent non-governmental evaluation. Moreover, this examination is happening in total secrecy (the Cuomo administration has refused multiple requests to make the DEC’s health review public).
3. DEC has already issued its revised regulations, even BEFORE the completion of DOH’s health review or the release of the final version of DEC’s Supplemental Generic Environmental Impact Statement (SGEIS). The way some cynics see it, the Dept. of Environmental Conservation does not really care what the Dept. of Health or the scientific community have to say about the SGEIS…because DEC has already made up its mind.
4. According to EWG, at least one member of Gov. Cuomo’s inner circle (top advisor Lawrence Schwartz) stands to profit from the approval of fracking.
5. According to a Siena College poll last month on the question of allowing hydrofracking in New York, public opinion is pretty evenly split (44% against; 40% in favor, 16% undecided).
6. The January 9th anti-fracking demonstration in Albany (one of the largest in history), barely got any media coverage.
7. And most telling of all, Gov. Cuomo did not say anything against hydrofracking in his State of the State address last month, as thousands outside clamored for its total ban.
Given points 1 – 7 above, do YOU think that the review process has been fair, transparent or science-based, as promised by Gov. Cuomo? Do you think (as some cynics do) that the decision to approve hydrofracking has already been signed and sealed, and is merely awaiting the required date by law to be delivered?
Speaking of dates, DEC is expected to release its Environmental Impact Statement by February 13. Once the SGEIS is released, DEC can start issuing permits. Only Gov. Cuomo can stop the process.
Therefore, please write him to let him know what YOU want. His address is:
The Honorable Andrew Cuomo / Governor of New York State / State Capitol Building / Albany, NY 12224
In addition, the group “New Yorkers Against Fracking” set up a toll free line that will connect you directly with Gov. Cuomo’s office in Albany that is tabulating calls for and against hydrofracking. The number is 866-584-6799.
You CAN make a difference: start by writing AND calling Gov. Cuomo directly, and then by telling your friends, family and acquaintances to do the same. Simply forward this blog post to your social networks on LinkedIn or Facebook via the share buttons below. But you must act NOW because time is running out.
Good luck and thank you!!
Until next month…
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