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March 3, 2010

DiNapoli: Due Diligence on
Rhino Stadium Project Was Lacking

Due to the lack of due diligence performed on the Rochester Rhinos Soccer Stadium project, one local and two state agencies did not undertake sufficient review and oversight to ascertain whether a $19 million public grant was a good investment of taxpayer dollars, according to an audit released by State Comptroller Thomas P. DiNapoli at a Rochester news conference today. DiNapoli’s report calls for improvements in the oversight of state legislative grants across the state. The audit period covered 2003 to early 2008.

“I understand and appreciate the importance of pursuing economic development projects,” said DiNapoli. “But spending taxpayer dollars without ensuring that a project has a reasonable chance of success is bad business. At least one of the agencies involved in this project should have kept their eyes on the bottom line. Someone should have stepped up to protect the taxpayers’ investment.

“There are lessons to be learned from this, and Mayor Duffy and his administration did a good job salvaging this project after the original owners failed,” DiNapoli added, noting that the audit period started in 2003, several years before Duffy took office.

DiNapoli’s audit concluded that the Empire State Development Corporation (ESDC), Dormitory Authority of the State of New York (DASNY) and the Rochester Urban Renewal Agency (RURA) never determined the project’s business-worthiness and overall feasibility, claiming they believed they had little control over the project because it was funded by a state legislative appropriation. In addition to the $19 million already spent on the project, another $4 million is underway, and the City of Rochester must take on the financial obligation of maintaining the stadium.

“I’d like to thank Comptroller DiNapoli for his continuing efforts to make sure state funds are spent appropriately,” Mayor Robert J. Duffy said. “It is unfortunate that the City has had to commit some of its limited resources to this project in a way that was not anticipated. We took responsibility for a failed project in order to finish it in a fully accountable fashion and we will continue to work with the Comptroller’s Office to increase oversight and transparency.”

Among the audit’s findings:

  • Neither ESDC, DASNY nor RURA assumed lead agency responsibility for the project to coordinate oversight. ESDC and DASNY did not believe a lead agency was necessary, and RURA believed the state was responsible for protecting state moneys;
  • ESDC accepted an inadequate business plan that contained unsupported financial data, and DASNY did not require a business plan at all. ESDC did not verify the accuracy of the stadium owners’ projections;
  • ESDC analysts prepared a finance summary for the ESDC board which wrongly concluded the owners could cover any cost overruns;
  • No agency conducted its own cost-benefit analysis to independently assess the project’s viability, even though an ESDC internal email concluded it was “almost a given that the economic and fiscal benefits are far less than the State investment;"
  • ESDC’s and DASNY’s approval was merely a pro forma exercise and included no meaningful risk analysis; and
  • Despite early indications that the project was in trouble, state moneys continued to fund it because no agency was monitoring project finances.

Although taxpayers may never see a full return on their $19 million investment, DiNapoli’s auditors confirmed that state funds were used strictly for the project.

Agencies involved in this project would likely have come to the same conclusions contained in DiNapoli’s audit if they performed adequate due diligence.

DiNapoli recommended that:

  • A lead agency be designated to approve, administer and supervise the project receiving assistance and monitor the project through completion before any government funds are spent;
  • Before state funds are committed, the lead agency should determine that the recipient of the funds is financially stable;
  • The lead agency should reevaluate any projects when significant budget, and/or financing changes are determined;
  • ESDC and/or DASNY should have definitive policies and procedures in place to verify and support all figures presented to its respective Board’s for the approval of state funding. All funding and expenses should accurately represent the project and be directly related to the grant funds being approved;
  • The city’s RURA should review all materials necessary and perform evaluations of the stadium project on a regular periodic basis to ensure that all contractual obligations are fulfilled;
  • State agencies should perform a cost-benefit analysis before distributing grants to ensure prudent spending of state funds; and
  • DASNY should perform periodic physical observation of projects prior to disbursing funds.

In their responses, state agency and local officials agree, in part, with the audit’s findings and recommendations, but contend that, to the extent they were responsible for reviewing the PAETEC Park project, they completed any reviews that were necessary and feasible.

Click here for a copy of the audit.


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