Hopes for Erie Canal Stuck in Political Bog

Like many questionable political deals, it was cut in secret.

On the table was the right to develop high-end housing and marinas along the historic Erie Canal -- the 363-mile-long man-made waterway connecting Buffalo to Albany that had become a ghost of its former self. If it could be redeveloped, New York state officials thought, the canal might again be a catalyst for an economic boom.

Notice of the plan was published, not far and wide, but in an obscure booklet listing state contracts. Although 33 developers had originally expressed interest in the project, only one responded to the listing: He alone had been alerted by state bureaucrats where to find it.

And while that much of the deal would be enough to raise eyebrows, it was the amount Richard Hutchens paid for the right to develop more than 100 miles of prime waterfront in upstate New York that caused jaws to drop: $30,000.

“Did the state get fair value on this deal?” said Democratic New York Assemblyman Richard L. Brodsky, whose oversight committee is investigating the tangled history of the Erie Canal contract. “The state would sell a used truck for more than $30,000.”

The trouble couldn’t come at a worse time for upstate New York, which has been one of the regions hardest hit by the nation’s sagging economy. The area, home to 7 million people, has been battered by a loss of manufacturing jobs and a steady exodus of young workers.

Unlike other Rust Belt regions, upstate New York has not shared in the nation’s periodic economic booms, and it has been victimized by a development process saddled with questionable ethics and bureaucratic stonewalling.

In the beginning, state officials envisioned an Erie Canal region energized by a construction boom and waves of upscale residents snapping up canal-front homes for $300,000 to $700,000. Now, the officials have frozen the canal development plan in its tracks. Gov. George E. Pataki and Atty. Gen. Eliot Spitzer have launched investigations into possible criminal acts.

“What happened here is stunning,” said Jeffrey Stonecash, a professor of political science at Syracuse University. “Is this a classic case of corruption, or did someone screw up big time?”

Hutchens, who won the contract to develop the canal last year, planned to build 10 communities with 300 to 400 homes apiece -- each one built around a “cut” in the waterway.

Under his blueprint, builders would open up a small tributary for each village and turn it into a marina. The contract gave Hutchens exclusive rights to seek permits for large-scale housing on the best 100 miles of canal property. To proceed, he would have to acquire land from a variety of owners, a process that could cost millions.

While much of the land along the canal is privately owned, the canal and the right to open waterways off it rests with the state.

Originally, the canal was 40 feet wide and 4 feet deep -- designed to allow horse- and mule-drawn barges to navigate it -- but it has been widened and modified so many times since its construction that there is no longer a standard. Today, the waterway flows past grassy banks, parks, sporadic housing and rusting factories.

“For all the controversy, you have to keep in mind that this was a project that could have made a difference in upstate New York,” said Edmund McMahon, an economic expert at the Manhattan Institute, a conservative think tank. “The canal is underutilized, and this is a depressed area. Not many people have been willing to put money on the table there.”

The concern over Hutchens’ now-stymied project is palpable throughout the region. As he stood on the edge of the canal near Clay, north of Syracuse, town Supervisor Mark Rupprecht noted ruefully that Hutchens’ first housing development had been slated for his community -- and he voiced hope that it might still be built.

“When someone promises to contribute millions [in development] and brings jobs to a town like ours, we want them to succeed,” he says, kicking at the weeds of an old asphalt plant that Clay hopes to turn into a separate mixed-use development. “But if you ask me about the status of the canal right now, I think we’re still scratching our heads.”

Soon after New York opened the Erie Canal in 1825, it was hailed as a visionary project, a triumph of engineering. It linked the Great Lakes region with Albany and then flowed into the Hudson River, paving the way for New York City’s emergence as a major international port.

Almost overnight, goods that had taken weeks to be shipped on land from the Midwest to the East Coast could make the trip in a matter of days. And the canal, which was built for $8 million in seven years, also paved the way for heavy travel between the Atlantic Coast and the interior, spurring waves of new American settlements.

The canal declined economically in the late 19th century, however, as railroads gained prominence. Today, it is used chiefly for recreational boating in the spring and summer.

“The state had a chance to do something positive here, after so many years,” said Blair Horner, a senior lobbyist with the New York Public Interest Research Group, which pushes for tougher ethics laws. “It’s astonishing what finally happened.”

Example of Loose Ethics

For some observers, the Erie Canal story is just one more example of the loose ethics and rank favoritism that have long flourished in Albany under Democratic and Republican administrations.

The governor recently nominated Manhattan attorney Robert S. Smith to the state Court of Appeals, New York state’s highest court, amid disclosures that Smith and his wife had raised $140,000 in recent years for Pataki and the state GOP. Several months ago, Pataki promoted Daniel Wiese, his former bodyguard, to state inspector general, a powerful post that pays $160,000 annually.

In October, it became public that a former U.S. senator from New York, Republican Alfonse M. D’Amato, now a lobbyist, had received $500,000 for a phone call he made to a state official on behalf of a client with a major real estate deal that was in jeopardy.

Unlike many other states, New York lacks tough ethics guidelines that regulate the full scope of political lobbying. Albany lobbyists who represent clients attempting to win lucrative contracts from state agencies are not required to divulge their activities -- unlike those who lobby state lawmakers for their votes. Amid heavy criticism from newspaper editorial pages, the Legislature failed this year to close the loophole.

“This kind of behavior has applied to Democrats as well as Republicans, and goes back many, many years,” said Gerald Benjamin, a professor of political science at the State University of New York at New Paltz.

“And because so much of this takes place in secret, with little public oversight, people automatically assume the worst about Albany. This behavior is accepted as part of the political culture of New York.”

The Erie Canal controversy is a good example, Benjamin added, because it underscores the big political clout -- and virtual secrecy -- enjoyed by New York’s quasi-public state authorities. The decision to grant Hutchens a contract was made by officials with the New York State Thruway Authority, which controls the state’s Canal Corp.

Like other authorities -- which regulate roads and freeways, airports, bridges, urban redevelopment, home building and other programs -- the Thruway Authority and Canal Corp. are staffed by political appointees and largely controlled by the governor. More important, critics charge, they are not subject to the oversight of a politically independent regulatory body.

These powerful institutions, which are also found in other states, were spearheaded in New York by Robert Moses, a powerful planner, and by former Gov. Nelson A. Rockefeller.

Unlike the Legislature, which is required by the state Constitution to get voter approval before it incurs public debt, these mega-authorities can borrow far in excess of normal governmental limitations. As a result, experts note, New York’s collective public debt, including its authorities, totals $105 billion -- far more than any other state.

Accidental Find

Brodsky, the state assemblyman, said he discovered the broad outlines of the Erie Canal deal almost by accident. His committee began investigating transactions by the Canal Corp. several months ago and, after reviewing many of the agency’s internal documents, learned of the proposal. The story was also reported by the Post-Standard in Syracuse.

During a contentious Assembly hearing in October, neither Hutchens, his aides nor state officials in charge of the project could say where the $30,000 figure had come from -- or why Hutchens got crucial inside help, while other firms were excluded.

They noted, however, that a consultant group hired by the state to review the project had recommended the figure because the canal deal was thought to be highly speculative, and developers might shy away from a more expensive contract fee.

Michael R. Fleischer, executive director of the Thruway Authority, said the hearing was “pure political theater” and an “insult to the loyal and dedicated employees of the Canal Corp.” He and others insisted that they had done nothing wrong, and they blasted Brodsky for conducting a witch hunt.

The officials also pointed out that they had only recently been appointed, and that those directly responsible for the canal-approval process were no longer on the job.

For their part, Hutchens and his aides denied allegations that they had gained an improper advantage over the decision through campaign contributions, saying they had played by the rules. The developer told Brodsky’s panel he was “no more than just a citizen” in his political activities.

According to state records, Hutchens had contributed $6,000 to Pataki in recent years. He hired an influential Albany law firm with ties to the governor to help him in the early stages of his canal proposal.

Hutchens also disclosed several months ago that he was subcontracting development rights along a portion of the canal to Michael Bragman, a former Democratic majority leader in the Assembly who is now an upstate developer.

The canal controversy heated up on Oct. 23, when Alan G. Hevesi, the N.Y. state comptroller, revoked the approval his predecessor had given to Hutchens’ contract.

Hevesi, whose action essentially invalidated the deal, said the process had been possibly illegal, suggesting that Canal Corp. authorities had showed excessive favoritism to Hutchens.

In a damning report, he said: “Hutchens had inside information that other firms did not have access to, and it appears his proposal was the model for the Canal Corp.’s 1999 solicitation” when it finalized state guidelines for canal development.

Hevesi noted that in 1996, the Canal Corp. notified about 200 development firms -- including Walt Disney Imagineering, Marriott International, McDonalds Corp. and Six Flags Theme Parks -- of plans to encourage housing development along the Erie Canal. The state received 33 responses from interested developers, but officials got back to only 18 firms.

And, within a year, Hevesi concluded, it was apparent from internal records that officials had unofficially settled on Hutchens as their favorite firm. After the state published the official notice of its plans, the Canal Corp. sent a special fax to Hutchens, alerting him where to find the proposal. No one else got the notice, Assemblyman Brodsky said.

Amid the cross-fire, the status of plans to develop the land along the canal is in question.

Thomas Bystryk, Hutchens’ general manager, insists the company is “going full speed ahead.” Hevesi has said the only way to revive the deal is to start the process all over again.

In Clay, Supervisor Rupprecht said the upstate town continues to hope for new housing.

“Same old Albany, same old political mess,” said Benjamin, professor of political science at SUNY New Paltz. “But you have to admire the audacity of this developer: It’s like he was dining out in a five-star restaurant -- and he paid for a hot dog.”