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Developers in the driver's seat on transportation

Unfocused transport policy leaves real estate industry eager to give Congress directions

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Nearly five years ago, Democratic Senator Chuck Schumer of New York landed a million-dollar highway earmark in a transportation bill chock full of more than 6,300 such projects. As earmarks go, it failed to gain much attention. This same bill, after all, directed billions elsewhere for projects far more visible than a rural highway leading to a Catskills Mountain resort planned by a prominent real estate developer.

The relatively small earmark came after the developer, Concord Associates’ Louis Cappelli, and his team opened their wallets and donated a combined $100,000 to the Democratic Senatorial Campaign Committee, then headed by Schumer. None had ever contributed to that political action committee (PAC) before. Some of the same executives gave an additional $64,000 to the committee over the next few years, after the bill with the earmark was signed into law.

But the New York Department of Transportation did not claim this specific million-dollar earmark. Its intended purpose — to study widening Route 17 from two to three lanes in each direction over a 43 mile stretch — did not appear to be a priority for the state. The stretch of road in question starts near the village of Harriman and extends northwest to Sullivan County, where Cappelli envisions a huge “Entertainment City” to restore the Catskills to its former fame as a vacation destination and generator of much-needed local jobs. A wider road might cut travel time from New York City, some 100 miles away from the resort and its planned time-shares, dinner theater, riding stable, winery, artists colony, and spa. Empire Resorts Inc., of which Cappelli is also a director and major shareholder, would oversee horse racing and video gaming operations at the site. Empire also hopes to develop a full casino on 29 acres situated just across the highway. The potential is massive; but the planning is still largely unclear.

The theme is a common one in transportation budgeting: Different levels of government often operate on completely different wavelengths. At the federal level, the Government Accountability Office (GAO) says its approach to tackling problems is, simply stated, “not working well.” Although the cash-strapped federal government is spending more than it used to, those investments are not resulting in a better performing system, GAO reported. Spending hundreds of millions to expand Route 17 could indeed reap massive benefits for local communities and travelers. But whether that would come at the expense of more immediate needs usually goes uncharted.

Virtually all players agree there is no coordinated vision in setting priorities for federal transportation projects. That vacuum has led to a tidal wave of earmarks by Congress. Quite naturally real estate developers and other interests make great efforts to influence which projects get funded. As a group, more than 100 real estate development interests – including both firms and local authorities—spent roughly $5.5 million on federal transportation lobbying in 2009 for projects ranging from rail investments to new interstate exits, according to a Center for Public Integrity analysis of lobbying disclosure records. Within that group, some 50-plus development company executives and PACs also spent at least $6.9 million on federal candidates, parties and other PACs from 2005 to present, based on a CPI analysis of data compiled by the Center for Responsive Politics. That is on top of the millions spent by some of their parent corporations and national real estate organizations.

Complicating those requests, Congress is already transferring billions each year from the general treasury just to maintain current funding to budget-depleted states. New York is certainly one of them. Acting New York Transportation Commissioner Stanley Gee says the state has already been forced to delay projects as a result of funding shortfalls. Among the signs of impending trouble: The state transportation department warns that nearly 3,000 bridges will desperately need maintenance and improvements over the next decade. There simply is not enough money to fund everything.

Which explains why dozens of developers and real estate interests are among the nearly 1,800 groups, as identified by the Center’s investigation, that jockeyed in 2009 for what federal money is available. Securing money for new roads, highway exits, rails, or other projects as Congress tries to limit spending will be a challenge. And developers, who focus on directing money to help their individual projects, are among the sectors also spending millions to support federal lawmakers’ campaigns.

“That’s the way the game is played,” bluntly states real estate developer and urban land use scholar Christopher Leinberger. “I’d prefer it wasn’t.”

Schumer: Highway earmark equals jobs

Schumer’s longtime support for projects to help the struggling Catskills area certainly precedes any donation by Concord. Job creation, after all, is always a key concern, and one that trumps most others in the current Congress.

“A world-class resort is just what the doctor ordered for Sullivan County,” Schumer declared while touring Concord’s planned resort site in 2008 with developer Cappelli. “[W]idening Route 17 will provide crucial access.” For decades the region was a major vacation destination famously known as the ”Borscht Belt.” Comics like Mel Brooks, Milton Berle, and Woody Allen filled seats in local theaters while resorts and golf courses were booked by throngs of New York City residents. But tourism declined in the 1970s and popular hotels, including the Concord, went out of business. In recent years many have looked to casinos as a way back.

Neither Schumer nor Cappelli responded to repeated requests for comment about the Route 17 road earmark.

New York’s state government passed its own incentives package in 2008 promising state support if Concord invests $1 billion in the area, creates 2,000 permanent jobs, and generates $50 million per year in local tax revenues. But when it comes to a massive highway expansion costing hundreds of millions of dollars, Concord needed to look beyond the state capital to federal lawmakers.

When the local Times Herald-Record alluded to Cappelli’s personal contributions shortly after the 2008 tour with Schumer, the developer called the newspaper “cynical” and wrote that “because [Schumer] does care about working people” he would provide “invaluable” assistance, “especially when it comes to securing federal aid to improve roads in the region.” A local booster, Thompson, N.Y., Town Supervisor Anthony Cellini, labeled any implication of impropriety as “ridiculous.” Schumer unabashedly supports the project, both men argued, for its economic potential. Cappelli notes his team already invested more than $100 million in the area in addition to millions in donations from his charitable foundation.

The practice of targeted political contributions is hardly unique. The Concord individuals’ $164,000 in contributions to the Democratic Senatorial Campaign Committee, along with $50,000 from other Cappelli executives, is but a fraction of the nearly $14.3 million that real estate interests contributed to the same group over that time span since 2005, according to the Center for Responsive Politics.

But the back and forth over that unused 2005 federal earmark does get to a larger point about transportation funding. Though Schumer declared the road expansion a top priority in the next multiyear transportation bill, the state has yet to spend his earmarked money to study the project. One analysis conducted by Sam Schwartz Engineering and paid for by the Natural Resources Defense Council projects casino traffic would cause major congestion, but suggests that a new lane alone would do little to solve critical bottlenecks. New York is already engaged in a massive effort to upgrade the road’s existing lanes to Interstate quality. Schumer requested $541 million in federal dollars from the next transportation bill to “complete the transformation” of that road.

Cappelli, meanwhile, continues to seek hundreds of millions in financing in the face of a tight lending market, telling local reporters he will realize his vision “or die trying.” Better road access to the area might certainly help his financing attempts. According to a 2008 survey of developersconducted by the Urban Land Institute, more than half felt their projects were constrained by a lack of infrastructure spending. In February, the state did clarify plans for local transportation improvements including funding for Concord Road. The 1.3-mile street fronts the vacant resort site and an edge of Kiamesha Lake. One state senator labeled it a “road to nowhere,” unless the luxury resort is built.

Campaign contributions: A cost of doing business

Concord Associates is hardly the only real estate developer lobbying Washington for transportation bucks. Nor does it lead its peers in congressional campaign support.

National homebuilders like A.G. Spanos Companies and Lennar Corp., for instance, contributed hundreds of thousands to federal candidates and party committees since 2005. Other real estate executives focus their support more tightly. Some examples:

  • Lennar chief executive Stuart Miller single-handedly gave more than $96,000 to Democrats in 2009, including $3,500 to Senator Patty Murray of Washington, who chairs the Senate’s powerful appropriations subcommittee on transportation.
  • The Spanos family, also owners of the San Diego Chargers pro football team, contributed hundreds of thousands to Republican Party committees since 2005. Tens of thousands more went to individuals such as Republican Senator John Ensign of Nevada and Democratic Senator Barbara Boxer of California, who chairs the Senate’s public works committee.
  • K. Michael Ingram and David Eaton are among the team looking to develop Arizona’s Douglas Ranch, a vast planned community potentially home to hundreds of thousands of residents. The two individuals’ families contributed more than $240,000 to federal candidates, parties, and PACs since 2005.
  • The top three executives of the family-run LeFrak Organization in New York contributed more than $305,000 to federal candidates, parties, and PACs since 2005, including $81,100 to the Republican National Committee and $27,000 to Democratic Senator Robert Menendez of New Jersey.

All these companies also hire federal lobbyists for transportation funding. Last year, they hoped the payoff would be a $500 billion multiyear billproposed by House Transportation Committee Chairman James Oberstar, a Minnesota Democrat. But congressional leaders have yet to agree how to pay for such legislation. In the meantime, the transportation community is focused on annual appropriations bills, the economic stimulus money still being spent in the states, and congressional jobs packages as the main federal funding sources for transportation.

For earmarks in particular, the appropriations route can be the fastest way to win money for pet projects. Congress passed one bill in December that included at least 1,000 highway, transit, and railroad earmarks. And it will soon get to work on another. The Obama administration’s fiscal 2011 budget proposed doing away with a significant swath of earmarks, but it remains to be seen if Congress can withstand the pressure from lobbyists.

Local candidates benefit from real estate contributions

When showering political candidates with cash, many developers make sure they also include state officials. That’s because most transportation funding is either raised by the states or spent there once federal money flows from Washington.

“All politics are local,” says John Krieger, co-author of a U.S. Public Interest Research Group report analyzing transportation campaign spending. “But the transportation bill ends up being the most localized.”

Krieger’s report examined appropriations earmarks for a specific year — 2008 — and found traditional “highway interests” gave a total $133 million to state and federal candidates. “You see this situation of the industries taking care of — through campaign giving — both the local side and the federal side,” says Krieger. Highway and construction interests spent more on state elections than the defense industry or the energy and natural resources industries, according to the report.

But at the micro level, Krieger finds it extremely difficult to follow specific state and federal money trails or identify which earmarks might be associated with the desires of a particular interest group. “There’s still a lot of cat and mouse to figure out how and where the influence is being, for lack of a better term, bought,” Krieger argues.

The Center’s examination of real estate development interests revealed that executives frequently make federal donations under different first names or from company affiliates. Other money is contributed to trade groups and candidates’ leadership PACs. Spouses and family members often contribute money to the same candidate on the same day as a senior real estate executive, the data showed. Some lobbying disclosure documents clearly spell out a group’s intentions while others simply list transportation funding as a concern.

And then there are the less-obvious transportation lobbying interests like local hospitals, and universities. Their executives or boards often contribute heavily to federal candidates and while they may not win funding for themselves, they would like it for projects in their backyard to benefit the overall community. Thus, congressional transportation bills are increasingly viewed as a win-win for lawmakers seeking both business support and praise from local leaders.

As do many others, St. Louis developer Richard Baron believes the nationally maligned — but locally cherished — earmarking process results from an absence of federal or regional purpose in transportation policy. “Lawmakers have tried to legislate for these projects,” Baron says, “because the local communities have said, ‘Look, we need to do something!’”

“They [lawmakers] have just filled that void,” he adds. ”But they’ve done it in a totally haphazard way.”

Although real estate developers are stepping up to support federal candidates with millions of dollars, the industry’s donations pale in comparison to those made by the wider transportation lobby and its range of construction, engineering, auto, railroad, retail, manufacturing and other interests. 

Since 2005, for example, the PACs of 19 unions lobbying on transportation spent at least $55 million on federal candidates’ campaigns, according to a Center analysis of data compiled by the Center for Responsive Politics. Builder, engineer, and developer interests lobbying on transportation contributed more than $30 million through their own PACs. And that money doesn’t even include the millions that committees directed straight to party coffers, or the millions more that company executives contributed on their own.

Transportation lobby PACs

Notably, that campaign money often represents workers or business leaders working in partnership with the public sector to revitalize communities and create jobs. Much of the campaign money goes to support candidates rightfully championing their home districts.

“We’re all special interests,” notes Brenna Walraven, the managing director of property development for California-based USAA Real Estate, a diverse development and private equity company with more than $5 billion in assets. “That’s the system you have.”

The problem in transportation, as pointed out by everyone from the U.S. Chamber of Commerce to public interest groups, is that barely enough money is available to maintain existing transportation systems. That puts a premium on knowing how to fight for money that is available — a lobbying push that some Congressional aides and members worry is growing too large to handle. It’s “unsustainable,” says one Senate aide.

Transportation lobbying business thrives

Of the more than 100 real estate development interests lobbying on transportation last year, roughly half were newcomers who arrived on the scene after January 2008. The majority listed transportation as their sole concern. While some national real estate groups also lobby on transportation, the area — unlike say, tax breaks — is ripe for internal disagreement among member companies.

Transportation politics are more often hyper-local. Individual developers often turn to insiders to influence lawmakers. Concord Associates, for one, hired former Connecticut state lawmaker Vincent Roberti in the fall of 2008. Roberti’s bipartisan lobbying firm, Navigators Global LLC, reported being paid $350,000 for services last year on behalf of Concord. No contract among individual real estate developers in the transportation lobby was higher.

In addition to Roberti’s lobbying work, he chairs Palisades Pictures, the producer and distributor of numerous films including a 2004 documentary of then Presidential-candidate John Kerry. Roberti is described in his biography as an “active member of the Democratic Congressional Campaign Committee’s Speaker’s Cabinet.” Records from 2009 indicate that he bundled more than $109,300 to that committee through June. He also serves on the finance committee of the Democratic Senatorial Campaign Committee, to which he also bundled $45,400 in 2009.

Another Navigators lobbyist listed on the Concord account previously was campaign finance director to three sitting Democratic senators. Though Schumer publicly went on record supporting the Catskills highway expansion well before Concord turned on the lobbying spigot, the size of the earmarks required to fund such a project would need support from other legislators to survive in a final bill.

Cappelli has already successfully purchased or developed a number of sizable projects in the tri-state area and in Maryland. His luxury residential project, Trump Tower, was the first of its kind in Westchester County, N.Y., and is the tallest building between New York City and Albany. But much of the industry has been forced to put plans on hold due to tighter lending markets. Cappelli, who last year publicly declared that financing for Concord was within reach, is no longer making promises on when he can secure the money to move forward.

A handful of law and lobby firms, such as Pennsylvania’s Delta Development, represent many of Cappelli’s peers within the transportation lobby. Delta is among the top ten firms in the federal transportation lobby, based on number of clients served.
Former congressmen work on behalf of some of these developers. Los Angeles home builder Pardee, for instance, contracts with former California congressmen Victor Fazio, a Democrat, and Ron Packard, a Republican. Florida’s Avatar Holdings looked to former Ohio congressman Dennis Eckart. More often, the industry’s lobbyists tend to be ex-House and Senate aides.

In the end though, all the billions in earmarks account for only a fraction of an often chaotic federal transportation program. In light of that, some are out to overhaul the system altogether. And that could mean big changes for not just the real estate community, but the entire transportation network.

Can the brawl for transportation dollars change?

Missouri developer Richard Baron is another real estate executive with a history of political support and a clear interest in federal transportation policy.

Baron, who has contributed tens of thousands of dollars to Democrats, last month visited Washington to talk to his senators about federal transportation policy. His agenda extended far beyond congressionally-directed funding. Baron instead made a pitch to dramatically overhaul the next transportation bill.

Baron is among a number of developers with significant regional or national clout who signed on to Christopher Leinberger’s LOCUS coalition, a group that operates under the umbrella of the public interest advocacy group Transportation for America. It brought a number of organizations into its tent in the last two years, ranging from environmentalists to the National Association of Realtors. Campaign director James Corless, for one, says the engagement from real estate agents is something he did not see in transportation debates a decade ago.

Another heavyweight member of LOCUS is Forest City Enterprises Inc. co-chairman Albert Ratner, whose company is one of the largest in the industry with nearly $12 billion in assets. Forest City pays multiple federal lobbyists for nationwide projects from Washington, D.C., to Hawaii, and between individual donations and its political action committee, Forest City has showered federal candidate and parties with more than a million dollars since 2005.

In the lead up to the next big federal transportation bill, though, Ratner, Baron, and their colleagues are pushing for a couple of reforms by Congress. First, to provide transportation funding to regions for blueprint planning, so developers can react to comprehensive local decisions, rather than presenting their own vision and chasing the infrastructure funding later. The second idea, and this took some major persuading from Leinberger, is for developers to “share the upside” of land development profits to help pay for transportation.

“We’re not talking about government subsidies,” says Leinberger, “because the government is broke.” Instead, Leinberger, who founded the University of Michigan’s graduate real estate development program, points to businessmen in Minneapolis and Washington, D.C., who he says not only developed large swaths of their cities a century ago but also owned and operated rail lines and streetcars financed by their land development profits.

Many LOCUS members would benefit from their partners’ push for bigger federal transit investments, given the group’s focus on developing walkable, urban communities situated around transit. Just as some LOCUS members lament home builders’ propensity to rely on the government to build roads to sprawling projects, more compact development necessitates other transportation investments that are quite expensive.

LOCUS contends the market has already swung its way. Funding for local planning, Leinberger argues, would let a region decide its own strategic vision. Other transportation experts disagree to some extent. They say decisions should be made within states and not imposed by federal lawmakers, but free market policy thinkers like the Cato Institute’s Randal O’Toole and Demographia’s Wendell Cox argue that Americans will continue to gravitate toward development dependent on the automobile. That requires road funding that, as Reason Foundation’s Adrian Moore recently put it, “made Americans the most mobile people in the world and allowed them to pursue lifestyles they want.” Either way, a broad spectrum of thinkers from the conservative Heritage Foundation to the liberal-leaning Brookings Institution tend to lament the use of a political earmarking process for funding significant infrastructure initiatives.

“The reason the transportation bill is so popular is that it gives politicians ribbons to cut,” says Leinberger, who acknowledges that his Arcadia Land Co. has benefited from that process in the past. Whether those bills do what is best for an immensely complicated network is another question.

Meanwhile, around the country, different actors continue to operate out of sync. Senator Schumer penned multiple letters to the New York Department of Transportation demanding it study the Route 17 widening project that he and many local leaders maintain is of paramount concern. Schumer wants the next federal transportation bill to include hundreds of millions for that road, but New York state transportation officials have not comprehensively measured its cost or addressed where the project ranks among its priorities. So in place of a blueprint, both Schumer and Concord will have to keep fighting.

With all the means at their disposal.