Memo

 To:    Senator George Maziarz and the Senate Energy
             and Telecommunications Committee

Re:     Review of Richie Kessel’s Tenure as CEO of NYPA

A Consumer Advocate or a Consummate Fool?

Since becoming the CEO of NYPA, Richard Kessel has made a score of political hires, many from Long Island and most not having the credentials to do the job in which they were placed.  For example, the Vice President for Emergency Planning and Chief Labor Negotiator, has no Emergency Planning or Labor Relations experience.  The Vice President of Human Resources, was formerly Receiver of Taxes for the Town of North Hempstead.  Many of these positions were created by moving existing approved budgeted positions from other departments to create openings for political hires from Long Island and elsewhere.  In the past year, Kessel has given some of these people promotions and salary increases in excess of 20 percent without informing the Power Authority Board of Trustees or putting out public announcements on the promotions.  This at a time when Governor Cuomo has imposed a wage freeze and may have to lay off thousands of state workers.

Also in less than a year, Kessel’s new assistant, Fran Evans, was promoted to the newly created position of Executive Vice President, Chief Administrative Officer and Chief of Staff and received a $30,000 increase in salary at a time when most employees at the Authority were subject to a salary freeze.

Kessel created an additional position for a Senior Vice President of Government Relations when one already existed.  In addition he has two Vice Presidents, a few staff directors and three outside lobbyists all working on State Government Relations for a state authority.

Kessel also hired a former Power Authority Trustee, four weeks after she stepped down from her position on the Board, to be a part-time employee at $77,500 per year!  Her assignment is to represent the Authority in Buffalo.  It is uncertain what she does or has accomplished.

Kessel has failed to comply in a timely manner with a number of requests for information under the Freedom of Information Law, many of which would confirm the above information as well as reveal expense account filings of his top management.

At Kessel’s direction, the Power Authority has made a number of contributions and grants that did not comply with Attorney General Cuomo’s 2007 Opinion on this subject, were not reported to the Authority’s Trustees and, in many cases, did not follow contributions approval procedures of NYPA.  Many were directed to Long Island organizations having no business relationship with NYPA or state energy issues including thousands to his hometown Chamber of Commerce.

Kessel has pursued the development of a number of new projects that are known by internal staff and external electricity experts to be significant money losers which would threaten the financial viability of the Power Authority and likely result in a significant reduction in the organization’s credit rating.  The following highlights the major projects that NYPA staff is working on developing, with the estimated annual loss in net present value dollars for each one.

 *This project, as now constituted, bears little resemblance to the one that was selected as part of the winning bid by the Power Authority in 2006 following a competitive Request for Proposals process.

In addition, NYPA resources will be further drained by a contribution of $100 million to New York State this year as well as obligations to make annual payments totaling tens of millions of dollars to local governments and projects in Western and Northern New York.  The existence of these commitments makes Kessel’s blind pursuit of money-losing projects all the more reckless.

Finally, in his first two years at NYPA, Kessel’s management had led to significant underperformance in NYPA operating income including an approximate $150 million plus operating income shortfall in 2010 alone.  NYPA’s lagging income threatens its finances, its ability to afford to pursue Kessel’s grandiose projects and NYPA’s double AA credit rating.

The information stated above has come from a number of sources including current and former employees of the New York Power Authority.  Street Corner encourages all who wish to contribute to this effort to write with additional information to further expose Kessel’s incompetence and his blatant inability or unwillingness to conduct himself as a responsible and prudent public official.

The following appears in the March 11-17, 2011 issue of the Long Island Business News:

Because there weren’t any consequences for irresponsible fiscal behavior by Albany’s power brokers during the Pataki, Spitzer and Paterson administrations, state spending over the past decade has increased on average 5.7 percent annually while revenue during the same period rose only 3.8 percent. As a result, the Paterson budget adopted for the present fiscal year that ends on March 31, which included ridiculously unrealistic tax revenue projections and over $16 billion in one-shot revenue (an astounding 30 percent of General Fund spending), is out of balance to the tune of $750 million and has caused the state’s structural deficit to surge to levels that threaten the very solvency of the state.

With a projected deficit for the fiscal year beginning April 1 of $10 billion, Gov. Andrew Cuomo decided it was time to put an end to the fiscal follies that are responsible for New Yorkers paying the highest combined state and local taxes in the nation. Declaring the state “functionally bankrupt” and the budget a “special interest protection program,” the governor exposed a sham budget process that includes codified formulas – designed by lobbyists – that automatically increase Medicaid and education spending every year with no regard to revenue availability, an astounding 13 percent – five times the inflation rate. He pledged to terminate these “deceptive practices” with the same vigor he used as attorney general to end such practices in the private sector.

To address the fiscal quandary he inherited, Cuomo proposed a budget that not only radically changes the way Albany does business, but tackles this year’s deficit and the state’s structural deficit as well.

According to state Comptroller Thomas DiNapoli, the proposed Cuomo financial plan brings “recurring spending into better alignment with recurring revenue” and reduces out-year deficits by $13 billion, $15.4 billion and $17 billion in state fiscal years 2012-13, 2013-14 and 2014-15, respectively.

The comptroller’s report also made these observations:

• The Executive Budget avoids significant new tax increases and largely avoids borrowing for operating expenses to close the projected $10 billion deficit. The budget primarily uses recurring spending reductions (totaling 89 percent of the gap-closing plan) for budget balance.

• The proposed budget is less reliant on temporary and nonrecurring actions than in previous years. The financial plan relies on $7.7 billion in temporary and nonrecurring actions in (State Fiscal Year) 2011-12, a 54 percent reduction from the $16.7 billion used in 2010-11.

• The governor proposes to create or restructure several grant programs to be competitively and/or performance-based in many substantive areas including education, local governments, economic development and energy.

• The current year (SFY 2010-11) General Fund deficit, largely caused by lower than anticipated General Fund tax collections, is expected to be closed with revenue received earlier than anticipated, including an accelerated payment (or spin-up) of existing temporary utility tax revenue, and reduced spending, some of which may include changing the timing of payments.

To eliminate the $10 billion deficit, Cuomo calls for shared sacrifice and spares no facet of state spending. Savings and spending reductions in state operations are projected to be $1.37 billion. This could include 9,800 layoffs and the elimination of 3,500 prison beds. As for assistance to local municipalities and school districts, proposed spending reductions and savings total $7.48 billion.

If the governor continues to stand firm, rallies the overtaxed public to his side and fully utilizes his broad executive budgetary powers, he can change the political culture in Albany, checkmate legislators and their union masters, and put the Empire State on the road to fiscal and economic recovery.

The following appears in the February 25 – March 3, 2011 issue of the Long Island Business News:

For years, the best-kept secret in New York has been the future cost of the unfunded retiree health care liabilities of the state and its local governments. However, thanks to new government accounting standards, the Empire Center for New York State Policy, a fiscal-issues think tank located in Albany, has estimated the total liabilities to be an astounding $205 billion.

Most municipalities pay 100 percent of retiree health premiums and when a 65-year-old enrolls in Medicare, the former government employer generally reimburses those premiums. At present, these “Other Post Employment Benefits,” or OPEB as they are described in audited reports, are more than 30 percent of the annual employee health costs and are expected to consume a greater share of municipal budgets every year. Because municipalities are solely responsible for these retiree benefits, which are paid annually out of operating budgets, many local governments, agencies and special districts may be forced to curtail services to meet these skyrocketing obligations.

The “pay-as-you-go” method of funding these benefits has been characterized by many analysts as an unjust burden on future taxpayers. Here’s what the respected Federal Reserve board of Boston said about the issue:

“Because this accounting method provided no incentive to set aside current funds to meet the growing demands of these benefits, it quietly shifted the true burden of payment to future generations. This burden would rest not only with future employees, who might see reduced benefits, but also with communities, which could see services cut or taxes increased to cover growing benefit payments. Allowing tomorrow’s citizens to pay for the retirement of today’s workers is inconsistent with the concept of interperiod, or intergenerational, equity.”

The Empire Center report reveals that the counties with the largest OPEB burdens, in both absolute and per-capita terms, are Nassau and Suffolk, with unfunded obligations of about $3.5 billion and $4.2 billion, respectively. And among the state’s most populous towns, Long Island’s have the highest per-capita liabilities.

Unlike public employee pensions, however, public sector retiree health benefits are not guaranteed by New York’s state constitution. Hence, Albany has the power to lighten the regulatory and tax burden on local governments by implementing statutory changes. Local governments also have the ability to negotiate reasonable sharing by new and existing retirees of this surging expense. The Empire Center recommends these OPEB reforms: Repeal the 2009 state law restricting the ability of school districts to alter retiree health benefits. Require all active and retired public employees in New York to contribute at least 10 percent to individual coverage and 25 percent to family coverage premiums (the same level as state workers), as recommended in 2008 by the state Commission on Local Government Efficiency and Competitiveness. Amend the Taylor Law to flatly prohibit future collective bargaining of retiree health benefits in New York’s public sector.

Such reasonable reforms are needed now if municipalities are to avoid the ultimate catastrophe: much higher taxes coupled with fewer or compromised public services.

Street Corner Conservative.com has filed a request under New York State Freedom of Information Law with the FOIL officer of the New York Power Authority requesting certain public records of NYPA relating to various activities and policies of the C.E.O. of NYPA, Richie Kessel.

Street Corner Conservative will keep its readers informed of NYPA’s response to the FOIL request.

The following is the text of the letter sent today to NYPA’s FOIL officer:

New York Power Authority
Office of the Secretary
123 Main Street, 15-M
White Plains, NY 10601

Ladies and Gentlemen:

I am a taxpayer and resident of the State of New York and pursuant to New York Public Officer Law and the provisions of the regulations of the New York Power Authority (NYPA) adopted pursuant to the Public Officer Law (21 NYCRR Part 453), I demand access to the following records by email to me if possible:

1. Information and records as to contributions, grants, donations, sponsorships, payments and purchase of tickets (collectively, “Expenditures of NYPA Public Money”) to or from not-for-profit entities, colleges, universities and research centers (collectively, “Recipients of NYPA Public Money”) from NYPA or any subsidiary or affiliate for the period July 1, 2010 through and including December 31, 2010;

2. Information and records as to whether each Expenditure of NYPA Public Money to each Recipient of NYPA Public Money from NYPA or any subsidiary or affiliate for the period January 1, 2009 through and including December 31, 2010 was processed in full compliance with NYPA board or entity policy and procedure for Expenditure of Public Money;

3. For each Expenditure of NYPA Public Money which involved purchase of tickets for an event held outside a NYPA facility, provide the names and relationship to NYPA of each person who used the ticket purchased or acquired by or through the Expenditure of NYPA Public Money;

4. Information and records as to health insurance coverage or benefits or indemnification against health insurance liability or reimbursement of expenses of any such health insurance coverage provided now or at any time in the past to any present or former NYPA Board member;

5. The names, titles and salaries of each person hired by NYPA since September 30, 2008, excluding union members covered under a collective bargaining agreement with NYPA. Provide in addition to name, title and salary for each such hire whether

          a. the hire was to fill an existing vacant position/title as specifically reflected in the annual budget approved by the NYPA Board;

          b.  the vacancy was posted internally and/or externally; and

          c.  the position was newly created and did not exist prior to the hiring of such person;

6. The names, titles and salaries of each person who has been promoted to vice president or above by NYPA since September 30, 2008 and the three year salary history of each such person, excluding union members covered under a collective bargaining agreement with NYPA. Indicate whether each such promotion was considered by or approved by the NYPA Board; and

7. The names, titles and amount of increase in salary of each vice president or higher who has received a raise in his or her salary since September 30, 2008, excluding union members covered under a collective bargaining agreement with NYPA.

If all of the records I have requested cannot be e-mailed to me, please inform me by e-mail of the portions that can be e-mailed and advise me of the cost for reproducing the remainder of the records requested.

If the requested records cannot be e-mailed to me due to the volume of records identified as responsive to my request, please advise me of the actual cost of copying such records onto a CD-ROM, if that is possible.

Please advise me of the cost of providing paper copies of the requested records.

If my request is deemed to be too broad or not to reasonably describe the requested records, please contact me via e-mail so that I may clarify my request and, when appropriate, please advise me as to how NYPA records are filed, retrieved, or generated.

If for any reason any portion of my request is denied, please inform me of the reasons for the denial in writing and provide the name, mailing address, and e-mail address of the person to whom an appeal should be directed. Thank you for your expected cooperation.

Very truly yours,

George J. Marlin