Joint Investigation Finds Ethical Lapses At State Canal Corporation

Attorney General Spitzer and Inspector General Jill Konviser-Levine today released a report that sharply criticizes the New York State Canal Corporation's award of a contract for exclusive rights to develop waterfront properties.

The 75-page report cites a series of breakdowns in basic management, accountability and ethics at the agency, resulting in years of negotiating with one developer without testing the market in any serious way for other potential partners.

The report also cites three senior Canal Corporation staffers who acted in ways that may have violated the Code of Ethics of the State's Public Officers Law. However, due to a specific limitation of the law, authorities are unable to take legal action against these individuals.

The Attorney General and Inspector General urged the Legislature to carefully review the report and to take specific steps to strengthen state ethics and lobbying laws.

"This report tells a troubling story of bureaucratic incompetence, cronyism, ethical lapses and lack of oversight," Spitzer said. "But the most troubling aspect of the story is that the people who should be held accountable are beyond the reach of the current state Public Officers Law."

"This report should definitely be a catalyst toward reform of state authorities and strengthening of state ethics and lobbying laws," he said.

Konviser-Levine said: "Public employment is a privilege, and with this privilege comes the responsibility to perform one's job according to the highest standards of integrity and accountability. This report should send a clear message that there is no place for unethical conduct in state government."

The report examines the circumstances under which the Canal Corporation in 2001 sold the exclusive rights to develop the canal waterfront to Richard Hutchens for a payment of $30,000, an additional fee of $15,000 to $25,000 per development, and an annual $300 homeowners' fee.

Key findings of the report include the following:

  • Senior officials at the Canal Corporation had no experience or expertise in economic development and were unprepared to make critical decisions on large-scale projects;
  • These officials did little to check Hutchens' background before backing him as the major developer of the canal;
  • They became so invested in the project that they repeatedly provided Hutchens with confidential information and assisted him in winning agency approval; and
  • They withheld important information from the Canal Corporation's Board of Directors about Hutchens' lack of experience in waterfront development and his non-performance on a previous Canal Corporation venture.

The report makes a number of additional findings that include:

  • A senior Canal Corporation official encouraged Hutchens to retain a prominent Albany lobbyist to try to influence the decision-making process in his own agency;
  • A senior Canal Corporation official recused himself from dealing with the Hutchens matter, but continued to be involved in meetings and other discussions about the project; and
  • A senior Canal Corporation official solicited campaign contributions from the developer while the developer was pursuing a major business deal with the state.

The Attorney General's office and Inspector General's office spent more than a year investigating the matter, interviewing dozens of people and reviewing thousands of pages of documents to compile the report. Officials said that the conduct revealed in the report warranted sanctions against Canal Corporation personnel, but that the key people linked to the misconduct are no longer working for the agency. Courts have held that individuals cannot be charged with violations of the Code of Ethics of the state Public Officers Law after they have left state service.

Spitzer and Konviser-Levine said that these rulings allow state employees to avoid accountability simply by changing jobs. They urged lawmakers to consider strengthening ethics and lobbying laws. Specifically, the Attorney General and Inspector General recommended the following:

  • The Code of Ethics should be amended to cover former state employees and to increase sanctions for violations. The code currently permits only fines, suspensions and removals from office, and even these limited penalties cannot be imposed once an employee leaves state service. The law should cover former employees, and both criminal and civil penalties should be available when violations occur. In 1996, Governor George Pataki submitted a bill that would correct this deficiency in the law. Similar legislation has been proposed each year since then by the State Ethics Commission; and
  • The Lobbying Act should be expanded to cover procurement decisions. The registration and disclosure requirements of the Lobbying Act currently apply only to individuals who seek to influence legislation, rulemaking or rate-making proceedings. At a minimum, the law should be amended to cover those who seek to influence contracting decisions by agencies and public authorities.

Spitzer and Konviser-Levine thanked Governor Pataki for referring the matter to their offices for investigation.

The investigation and report were handled in the Attorney General's office by Assistant Attorneys General Zachary Weiss, David Weinstein, John Dormin, Gregory Klass, Meryl Lutsky and Investigator Vincent Gisonti. The investigation and report were handled in the Inspector General's office by First Deputy Inspector General Michael Boxer; Special Counsel Alan Rubinstein; Deputy Inspector General Charles Norfleet; and Investigative Counsel Dennis Saville.