N.Y. Calls Off Controversial Deal to Develop Land on Erie Canal

New York state officials, citing procedural problems, have canceled a controversial contract that would have granted a politically connected developer the exclusive right to develop land along the historic Erie Canal for $30,000.

The lucrative arrangement, which was initially approved by Gov. George E. Pataki’s administration, was rescinded this week after months of criticism that developer Richard Hutchens had won the building rights with no competitive bidding.

In a letter faxed last week to Hutchens, officials with the New York State Canal Corp. -- a subsidiary of the New York State Thruway Authority, which controls development along the canal -- criticized him for bringing another partner, a former state assemblyman, into the arrangement without the state’s approval.

The letter also said Hutchens’ firm had “not satisfied material provisions” of the agreement entered into three years ago, and noted that the Erie Canal development pact would officially terminate on May 20, state officials said.

The decision concludes a story that had cast a harsh light on the power of New York’s large, quasi-public state authorities. These agencies, controlled by the governor, are often staffed by political appointees and are not monitored by any politically independent regulatory body.

During legislative hearings last year, Canal Corp. officials defended their decision to approve development along the 363-mile artificial waterway, saying that they hoped to spur a housing boom in the economically beleaguered region stretching from Buffalo to Albany. But as details of Hutchens’ contract surfaced -- including the price he paid to develop 100 miles of prime real estate -- the deal came under fire.

In particular, legislators criticized the Canal Corp. for sanctioning a bidding process in which a notice about the contract to develop the land was buried in an obscure state journal. They pointed out that Hutchens had received a special communication from the state alerting him to the ad.

The developer, who contributed $6,000 to Pataki in recent years, had hired an influential law firm with ties to the governor to help him with the proposal. Hutchens and his representatives have insisted, however, that they won the contract without favoritism and should be given a chance to build.

“This was a prime example of loose ethics, and even looser regulation of public land,” said Democratic Assemblyman Richard L. Brodsky, whose oversight committee held hearings concerning the contract. “It was a bad deal from the start, a real embarrassment to New York.”

After the hearings and negative media reports, New York State Comptroller Alan G. Hevesi withdrew approval for the contract as part of his investigation, and the state attorney general’s office began an inquiry into possible criminal acts linked to the deal.

Those investigations continue, state officials said.