This is the first systematic look at the allocation of economic development monies by the Lower Manhattan Development Corporation (LMDC), a subsidiary of the New York State Urban Development Corporation, that was created to direct the revitalization of Lower Manhattan after the 9/11 attacks. In preparation for this report, Good Jobs New York analyzed all publicly available documents, including board meeting minutes, Partial Action Plans (proposals for the use of Federal funds) and reports to the U.S. Department of Housing and Urban Development (HUD) on its actual use of those funds.

We find that the LMDC favors big business and real estate interests over community priorities, awards contracts to recipients who have relationships with board members, and makes use of an unaccountable process that greatly limits public input, particularly from low and middle-income residents.

This report examines the LMDC’s expenditures for economic development, both in terms of who received funds and how decisions were made, and offers some recommendations for improvements to future allocations. We focus primarily on the approximately $1.3 billion in discretionary rebuilding funds, defined in this report as LMDC funds that do not include Congressionally mandated pass-throughs or recovery grants that went to businesses and residents in the immediate aftermath of the attacks. Highlights of our findings include:

The 9/11 attacks had a disproportionately harmful economic impact on low and middle-income residents. Yet the LMDC has focused on the priorities of powerful businesses and major property owners.

Governor George Pataki and other public officials continue to push for a $6 billion rail link that would improve job access for Long Island residents while the City’s unemployment rate remains high. This costly rail link proposal, possibly funded with 9/11 rebuilding resources, has ranked behind local transportation needs when Lower Manhattan residents have been asked for their rebuilding priorities, even at LMDC sponsored events.

Affordable housing has received broad, consistent support in community forums. However, the one LMDC proposal to address this issue offers only a fourth of what the Mayor had reportedly requested ($50 million rather than $200 million) and, since its much-publicized announcement in July of 2003, it has yet to be approved.

The majority of the rebuilding allocations made so far have benefited neighborhoods such as the Financial District and Tribeca, in Community Board 1, which have a median family income of $110,609, rather than Community Board 3, which includes Chinatown and the Lower East Side and has a median family income of $28,508.

The LMDC board of directors – appointed half by the Governor and half by the Mayor – is dominated by corporate executives and real estate interests. This composition, as well as the priorities of Governor Pataki, appear to have influenced the composition of the grant awards, skewing them toward big business and higher-income neighborhoods.

There have also been a striking number of grants and contracts awarded to organizations to which board members have ties or interlocks. Organizations with which LMDC board members are affiliated have received a total of $112.4 million of the discretionary rebuilding grants awarded by the Corporation. (Again, "rebuilding" grants refer to grants made after funds for business and residential recovery programs had been allocated.)

Board members have consistently recused themselves from votes on projects with which they have ties – a total of 27 recusals over the last two and a half years. Reducing the significance of the recusals, all projects brought before the board so far have been unanimously approved.

Groups without ties to LMDC board members have reported difficulty in accessing information about the status of their funding proposals. Combined with the frequency of approvals for projects with board member connections, this leaves the LMDC open to questions about whether board member ties influence decision-making, despite recusals.

As the subsidiary of a public authority, the LMDC displays many of the accountability and transparency problems that plague the state’s other public authorities. These include difficulty in accessing certain documents, lack of meaningful public input in decision-making and vaguely defined standards for awarding and evaluating grants. (Problems with the allocation of economic development funds stand in contrast to the relatively extensive public hearing process the LMDC has conducted for decisions about the WTC Site and Memorial.)

Taking advantage of a Federal waiver on public hearings for the allocation of the Community Development Block Grant (CDBG) monies made available for the rebuilding of Lower Manhattan, the LMDC instead uses a two-week write-in comment period for Partial Action Plans that prevents face-to-face dialog between the public and board members and is a deterrent to low-income residents.

The LMDC has not yet released several of the studies it has commissioned, even though they are intended to guide its allocation policies. This includes a $490,000 study on the housing needs of Lower Manhattan residents and a $3 million study on linking Lower Manhattan by rail to John F. Kennedy Airport and Long Island.

Although a set of guidelines for applying for funds, dated June 25, 2004, is available on the LMDC’s website, there is no standard application for those wishing to submit proposals for funding, no clear guidelines for measuring success of existing projects, and vague reporting on past allocations. Moreover, although members of the LMDC board sometimes recuse themselves from selected votes, there is no systematic disclosure of the reasons for recusals.

With just under $1 billion remaining in CDBG funds, the LMDC has an opportunity to address all the problems cited in this report. We offer the following recommendations for improving future allocations:

The Governor and the Mayor should use current and future vacancies on the LMDC board to balance out its business-dominated composition. The four board seats that are currently vacant should be filled with directors accountable to the needs of low- and moderate-income New Yorkers – such as mixed-income housing and living wage jobs – and to residents of Lower Manhattan. The Chairs of Community Boards 2 and 3, for example, could be added to increase resident representation. Guidelines should be put in place to ensure that the board addresses a broad range of community needs in its funding allocations.

The LMDC should incorporate community input about the need for jobs and mixed-income housing into its Partial Action Plans. While it’s not expected that the LMDC can reverse the employment and housing crises evident in our city before 9/11, its allocation of funds shouldn’t fuel these problems either. The influx of wealthier residents to the area, due in part to the LMDC's Residential Grant Program, for example, is making Chinatown and the Lower East Side unaffordable for longtime residents.

The LMDC should fully fund the Mayor Michael Bloomberg’s request for $200 million for mixed-income housing, and should release the housing study being prepared by the NYC Housing Development Corporation.

While support for the finance sector in Lower Manhattan is crucial, the LMDC should also direct resources to help diversify the economy, reducing New York City’s reliance on the volatile FIRE (Finance, Insurance, Real Estate) industries. By strengthening its environmental standards to include a preference for purchasing environmentally friendly building materials in New York State, for example, the LMDC could generate a critical mass of demand for "green" building products that would support a range of 21st Century service and manufacturing jobs for New York’s struggling middle class.

LMDC documents should be more detailed and publicly available. HUD reports should specify under which Partial Action Plans and at which board meetings particular expenditures were authorized. Studies should be released to the public upon completion.

Decision-making processes should be made more transparent and user-friendly. Applications for discretionary funds should include a time-table for the use of funds, and guidelines about intended beneficiaries and measures of success. The LMDC should hold and board members should attend accessible public hearings on Partial Action Plans before funds are approved for use. Measures should be taken to ensure that board members and staff take public comments into consideration when making funding decisions.