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February 24, 2004

 

HEVESI & SPITZER CALL FOR MAJOR REFORM OF PUBLIC AUTHORITIES

Hevesi Proposes Legislation That Improves Accountability,
Imposes Procurement & Lobbying Rules,
Strengthens Independence & Effectiveness Of Authority Boards,
Creates Commission To Evaluate Major Authorities

Citing the many serious problems discovered at public authorities, New York State Comptroller Alan G. Hevesi and Attorney General Eliot Spitzer today called for major reform of authorities. Comptroller Hevesi issued omnibus legislation to make public authorities more accountable, which proposes new laws regarding awarding of contracts, strict requirements for registration and disclosure by lobbyists, governance reforms of authority boards including a majority of independent members, and increased oversight powers for the Comptroller's Office. The Comptroller also issued a report detailing many gaps in current oversight.

“Authorities have made major contributions to New York, including building and expanding our transportation systems, our public universities and water systems. But authorities have become a semi-secret fourth branch of government with little or no accountability and many have developed a culture of arrogance. It's time for a major reform to bring authorities under control and ensure that they use their resources to serve the important public tasks they have been given, unhindered by waste and corruption,” Hevesi said.

"We need to put the word ‘public' back into the phrase ‘public authorities'", said Attorney General Spitzer. "These entities supposedly were created to benefit the public, but they operate without any real oversight by, or accountability to, the people they are supposed to be serving. The time has come for sweeping reforms to the entire system."

In addition to the 113-page reform legislation, Hevesi released a study which found that there are more than 640 authorities in the State, including 169 major State public authorities and affiliated subsidiary corporations, 43 authorities that are affiliated with State agencies, 425 local authorities and three interstate authorities with three subsidiaries. Authorities issue more than 90 percent of State debt. State general obligation debt makes up the remaining 10 percent. The 17 authorities that have issued at least $100 million in debt have a total of $105 billion in debt outstanding, including $33.8 billion in State supported debt.

“New Yorkers pay for public authorities in the form of rates, tolls and fees, and our taxes offset authority-related tax-exemptions and pay the debt service on authority-issued bonds. In most cases, New Yorkers have no choice but to use authority facilities. But they do not have even indirect control over how these billions of their dollars are used. Authorities have created a system of taxation without representation,” Hevesi said.

The study includes a partial list of major cases of corruption, waste, mismanagement and other significant problems, including 55 that have occurred just since 1990. “A review of past practices by authorities reveals substantial mismanagement, as well as a history of unethical and, at times, illegal activity. Concern regarding the lack of oversight has intensified recently in light of these widespread scandals, resulting in a public cry out for reform,” Hevesi said.

The proposed reform legislation includes the following provisions:

  • Sets a new broader definition of what an authority is to help identify all of them for the first time.
  • Defines four classes of authorities: Class A larger State authorities and their affiliates, Class B State affiliated authorities, Class C local authorities and Class D international and bi-state authorities.
  • Imposes strict new procurement, lobbying and governance rules on Class A and B authorities.
  • Creates a temporary commission with the power to review the mission and operations of Class A and B authorities and then decide if it is necessary to revise their functions or merge them with other authorities or state agencies, subject to legislative disapproval. The Commission would make similar recommendations to the Governor and Legislature about Class C and D authorities.
  • Strengthens oversight by giving the Comptroller's Office the power to approve authority contracts before they are awarded, as is the case for State agencies.

“There has been enormous growth in the number of authorities, but there has been no systematic effort to provide oversight or review existing authorities and make sure their mission still makes sense. That's the purpose of the proposed commission,” Hevesi said.

Authorities are largely unaccountable to State government. Out of more than 640 entities with State and local functions:

  • Only 11 must receive approval by the Public Authorities Control Board before issuing debt;
  • Few are subject to debt caps established by the Legislature.
  • The 2004-05 Executive Budget and State financial plan reports on finances of only 31.
  • The State Comptroller receives financial data and other reports from only 53.

The Office of the State Comptroller posts on its website ( www.osc.state.ny.us ) the limited information it receives about authority finances and operating costs such as staff salaries, but much information is not readily available to the public.

The recent efforts of the Office of the State Comptroller have led to meaningful reforms in the budget process at the Metropolitan Transportation Authority, new internal controls at the Long Island Power Authority, the pending appointment of an Independent Private Sector Inspector General for the New York Racing Association and the cancellation of a contract that granted exclusive development rights along much of the New York State Canal System for $30,000. But the pattern of problems makes it clear that broad reform is necessary.

The Attorney General's Office conducted a lengthy investigation into criminal conduct at NYRA, which resulted in arrests and convictions, and is currently conducting an investigation of alleged contract improprieties at the Canal Corporation. Spitzer has repeatedly urged adoption of improved procurement, lobbying, ethics and operational reforms for all authorities.

“It is time to rein in this large semi-secret unsupervised government empire. Authorities provide crucial services and borrow and spend enormous sums. They must be accountable to the public,” Hevesi said.

“These authorities must be responsive to the principles of openness, transparency, fairness and efficiency. There is too much at stake to let this opportunity for reform pass us by,” Spitzer said.

It is currently difficult to obtain detailed information about authority contracting in order to estimate how much money contract reforms could save. However, in 2002, nine large State authorities spent $3.95 billion through contracts. It is generally accepted that competitive bidding can save from 10 percent to 37 percent. Assuming only one percent savings from improved competitive bidding, total savings for just those nine authorities could be $39 million a year. That does not include potential savings from reduced waste and mismanagement. Those savings would clearly more than offset the minor cost of the Commission, estimated at $1.5 million a year for three years, or the additional Comptroller's Office staff, estimated at $1.5 million a year.

 

Click Here for a copy of the Report.

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Fact Sheet: The Public Authority Reform Act of 2004

Comptroller Hevesi's legislation will increase accountability, deter misconduct and reduce waste and inefficiency at the more than 640 State and local public authorities operating in New York.

Specifically, the bill:

Classifies and Names Authorities

  • Prior to this legislation, there has been no formal definition of a public authority or a centralized listing of the public authorities in New York State. This legislation defines authorities' characteristics, and specifies more than 640 authorities in New York State.

Mandates Strengthened Corporate Governance

  • Requires major statewide public authorities to establish stronger corporate governance standards, including rotating auditing firms or partners every five years and requiring external audits to be conducted in accordance with generally accepted accounting principles,
  • Requires public authorities' annual reports to include greater detail about executive officers' compensation
  • Mandates that authorities' board must have a majority of “independent” members, prohibits any member of an authority's governing body from serving simultaneously as an executive officer, and requires CEOs and CFOs to certify every public authority's annual financial statements.

Improves Procurement Practices

  • Strengthens the existing requirement that public authorities establish and enforce procurement guidelines, in areas such as competitive bidding and contracting.
  • Requires the major statewide public authorities to adopt guidelines that are at a minimum equal to the statutory requirements applicable to State contracts, and gives the Comptroller authority to review public authorities' contracts before they can become effective, at his discretion

Expands Lobbying Disclosure

  • Expands the definition of lobbying to include attempts to influence contracting decisions.
  • Requires all lobbyists to disclose any contracts, invitations for bids, requests for proposals or other solicitations they have attempted to influence or intend to influence.

Creates Commission on Public Authority Reform

  • The Commission would gather information about each of the State's public authorities and make decisions about needed changes, including the possibility of consolidations and eliminations of State authorities. Its decisions could be overridden only by a resolution of either house of the Legislature.
  • For local, bi-state and international public authorities, the Commission would recommend changes for consideration of the Governor and the Legislature, but would not have the authority to decide on the elimination of such authorities.
  • The Commission would consist of 11 members: three appointed by the Governor, two appointed by the Senate Majority Leader, two appointed by the Assembly Speaker, and one each to be appointed by the Senate Minority Leader, the Assembly Minority Leader, the Comptroller, and the Attorney General. The Governor would designate the chairperson.

Creates Authority Oversight Responsibility

  • Authorizes the Comptroller to designate a Deputy Comptroller to supervise public authorities; these would be funded by an assessment on authorities.


 

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