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When problems like SolarCity hit, Albany looks to ‘all purpose slush fund’

ALBANY – When the embarrassment of unpaid contractors working on the SolarCity project hit the headlines last week, the Cuomo administration turned to a quick and ready source of money to remedy the $82.4 million problem: SAM.

The state has used a discretionary money pot formally known as the State and Municipal Facilities Program, or SAM, since 2013 to pay for everything from an outlet mall on Staten Island to dog parks to renovating the Ed Sullivan Theater in Manhattan before Stephen Colbert took over the CBS late-night time slot.

But SAM and other discretionary pots of money have come under mounting criticism from government watchdog groups who describe them as legal slush funds that Cuomo and lawmakers tap with barely a hint of transparency.

Instead of specific projects approved in the state budget each spring, SAM is a kind of financial placeholder that Albany’s politicians use for politically popular projects, or in the case of unpaid contractors on the SolarCity project, to resolve a sticky problem quickly.

Even if the use of SAM solved the problem in the SolarCity case, critics say discretionary pots of money like SAM are open to abuse. Dozens of these discretionary funding pots containing more than $2 billion in new and reappropriated money are expected in this coming year’s budget.

Disgraced former Assembly Speaker Sheldon Silver tapped into one of those discretionary pots for an individual who then steered work to his law firm, and that helped lead to Silver’s indictment, conviction and downfall as leader of the state Assembly.

“The problem with this program is that it gives the governor and the Legislature far too much discretion to pick capital projects they like based on political considerations, even while statewide infrastructure priorities are neglected and fall behind,” said E.J. McMahon, president of the Empire Center for Public Policy, a conservative budget watchdog group that has condemned what it calls a shadow funding mechanism.

“The tapping of the fund to catch up with payments due on SolarCity highlights the way this has become, and will remain, an all-purpose capital slush fund,” he said.

Moreover, all of the money that goes out the door for SAM’s projects is borrowed, pushing the eventual costs of any project far higher over the years.

Using state disclosure laws, McMahon’s group has a list of projects funded by SAM on its website. Among the projects that have been financed through the special fund are playgrounds, private hotel renovations, zoo exhibits, emergency vehicles in Rochester, $2.5 million for sidewalk and other work in Lackawanna, renovation of basketball and handball courts at a park in Manhattan, a pedestrian bridge over the Erie Canal and a performing arts center at Hobart and William Smith Colleges, McMahon’s group found.

Cuomo’s defense

Critics of SAM ignore the realities of governing, the Cuomo administration says.

Not all potential spending items in a $150 billion state budget are known when the budget is crafted each year in March. Asked after an event last week why he is not more specific in advance about items that get funded through discretionary accounts, Cuomo responded: “They wind up being specified.”

The governor said lawmakers approve the overall spending targets for these funds, such as SAM, as part of the budget. Later, when specifics are known, state agencies or authorities give a final OK.

“I don’t consider that quote unquote discretionary,” Cuomo said.

And the financing problem that occurred with the SolarCity project is an example of why SAM is needed, administration officials said.

“It is imperative that the state have flexibility to react to needs that emerge during the fiscal year, such as this situation,” said Morris Peters, a Cuomo budget division spokesman. “We used a fund that provides for such flexibility for transformative economic development projects that was enacted in last year’s budget. This project met all legal requirements to use the fund and after a rigorous agency grant diligence process, funds were released and the problem was solved.”

SAM to the rescue

SAM became the chief bailout source last week to pay contractors working on the SolarCity project in Buffalo. They had not been paid since October, leading them to lay off workers in various construction trades until the money began flowing.

The affected workers are employed by subcontractors of the project’s main construction firm, Buffalo’s LPCiminelli, which gets its money from the state.

State financing for the project takes a circuitous route, and Cuomo administration officials have not explained why the Empire State Development Corp., the main state economic development agency, was not provided with the authorization in February to release another round of money for the project at RiverBend.

Howard Zemsky, the president of the development agency, said in January that his board would move $100 million at its Feb. 18 meeting for additional funding at the SolarCity project. That money was to pay for work going back to November. The item was taken off the agenda because no funding had been OK’d to back up its release. Soon after, subcontractors began laying off workers.

Then on Tuesday, the Cuomo administration confirmed contractors, and thus the workers, would be paid with $82.4 million from the state Dormitory Authority. The money was sent to Fort Schuyler Management Corp., the not-for-profit entity that SUNY Polytechnic Institute created.

Where did the Dormitory Authority get the money? SAM. Administration officials initially said that the money came from cash that the Dormitory Authority had on hand. But when asked Thursday to confirm what other sources said was SAM’s role in financing the SolarCity project, Cuomo officials acknowledged the funding pot.

SAM’s origins

Cuomo, former Senate Majority Leader Dean Skelos and former Assembly Speaker Silver created SAM quickly and quietly at the end of 2013 budget. (Silver and Skelos were both convicted in December on federal corruption charges in separate cases and are no longer in office.)

Critics say SAM was created as a way for Cuomo and lawmakers to pay for pet projects with a new accounting system that plays on an old Albany rewards system: pork barrel funding. The overseers are the governor and legislative leaders, though it’s all a bit murky.

“The budget language does not explicitly mention a role for the governor and Legislature, though it is clear that they have discretion of its distribution,” said Citizens Union, a state watchdog group.

In all, Cuomo in his proposed budget in January called for $2.4 billion in discretionary spending through 78 different funding pots. That amount is before whatever lawmakers are all but certain to add in their own discretionary funds during budget talks now underway. Assemblyman James Tedisco of Schenectady last week proposed a bill to put restraints on such discretionary spending, as well as controls such as requiring recipients of discretionary money to disclose campaign donations to lawmakers making requests.

But the Republican assemblyman’s idea has little life. Those who control Albany – Democrats in the Assembly, Republicans in the Senate and Cuomo – created SAM and stand to benefit politically by its current structure.

Silver went to one such discretionary fund that prosecutors say he used to reward an individual steering business to Silver’s law firm. Silver is looking at prison time if his appeals are unsuccessful.

Dormitory role

In all, officials say $1.16 billion has been appropriated to the SAM program since its inception in 2013, which includes a new flow of money totaling $385 million in the current fiscal year that ends March 31. A total of $141 million has been spent since 2013, meaning the remainder is still set aside for unknown, or undisclosed, programs in the future.

SAM is not divvied up in any specific formulas earmarked by Cuomo or the Legislature, officials said. Cuomo, the Senate and Assembly “nominate” projects – a process that critics say has been left intentionally vague.

Nominations for SAM spending are sent to the Dormitory Authority, an agency the governor controls. The Dormitory Authority reviews each funding request, officials say, to make certain it complies with the language in the SAM statute, including that they be limited to capital projects and involve certain uses, such as economic development, storm and safety matters, municipal-owned recreation facilities and roads.

Once the Dormitory Authority process is completed, there needs to be a final consensus of the governor and legislative leaders of both houses, officials said. There is no vote on the floor of either legislative chamber for a specific SAM funding recipient. Nor do specific funding requests go before the Public Authorities Control Board, another stopping point for many state projects.

In the SolarCity project case, all that happened in lightning speed for Albany, just a matter of days.

McMahon, the fiscal watchdog, said the definitions of eligibility for SAM program funding were intentionally made wide-open when created in 2013.

Based upon a review of SAM language changes made each year since 2013, Cuomo and lawmakers keep adding more eligible funding categories – from street sweepers to not-for-profit entities that invest in public parks.

McMahon called SAM an example of undisciplined state government. If there is to be such a fund, it should be earmarked for basic infrastructure programs, such as municipal water or sewer systems or road construction projects based on needs identified in advance by certain state agencies.

As for the flexibility argument by state officials of the need for SAM, McMahon called them “greatly exaggerated.’’ He noted Albany has the means to act in true emergencies, as it did following the 2001 terrorist attacks. “It’s an all-purpose slush fund that’s been steadily increasing for three years,’’ McMahon said of SAM.