Leo Kayser:  I'd like to speak just as my own opinion, personal opinion, and the weight it should be given is based upon the merits and logic of whatever I have to say.

If I could just back up a bit before I answer...  I came in and started making an analysis of the problems out at Roosevelt Island. One of the problems is that there's basically a disconnect or disenfranchisement of the population out there, the people who live on the Island, from the traditional mechanisms of government within the City of New York. That exists because of the current unique structure.  Just for purposes of putting that in context, we have a Lease from the City of New York, which owns the Island, under a [99-year] Lease [with 68 years remaining] which, through a series of assignments, now exists in the Roosevelt Island Operating Corporation, which is RIOC.

There's been a waiver, under the legislation that set up RIOC, and under the terms of the Lease arrangement, with respect to zoning, a waiver with respect to Uniform Land Use Reviews prior to development.  There is a tax-exempt status that exists with respect to the land out there.  There are provisions for payments to the City in lieu of taxes under certain circumstances, theoretically, provided you're making certain levels of money.  There is debt outstanding between RIOC and various entities of the State of New York.  There have been renegotiations in the past with respect to that indebtedness, the latest one being under something called an Allocation Agreement, which I've not seen yet even though I've asked for it.

People have not paid much attention to that indebtedness because there has not been the ability or facility of the Island to pay it.  But it's certainly out there, to the tune of several tens of millions of dollars.

There has been a deterioration in the capital structure of the Island.  I don't know how many millions of dollars of work need to be done, but it's in the millions of dollars.  And the people out there don't have a say with respect to how any of this stuff is treated except indirectly, through some residents who are appointed by the Governor to the [RIOC] Board, confirmed by the Senate, and that's basically it.  People have a right to articulate their positions but, as you know, I've not been satisfied with the degree of give and take and responsiveness that exists there, but we are making some movement, I hope salutary in nature, to opening things up to more of a dialogue, restructuring those relationships.

So we are beginning to look at all the different problems.  We're trying to address them.  You can't do it all at once, you've got to look at each area sort of discretely.

Coming back now to this resolution, another one of the problems that I've looked at is the way in which the Island has been developed up to now.  Some of these projects which are afoot have been very controversial, but it's too late for us to act on [them].  The way things have been done is that they've put out RFPs [Requests for Proposals] and negotiated with developers and selected the projects they thought fit best, for whatever reason, and negotiated lease payments over a long period of years.  At Board meetings I've raised some questions, at the last meeting or two when developers testified, as to where the risk really lies...  I think there's much too much risk still retained by Roosevelt Island Operating Corporation, and not enough risk being put upon the developers, giving them too much flexibility, too many options to opt out and not perform.  And there's no assurance that the price we're getting is full market value for the properties when you negotiate the nature of the project and what the Lease payments are going to be.  I'm critical of that.  I know other people on the Island have been critical of whether we're getting full value.

So this resolution was to retain a marketing agent.  We're going to do it in a competitive manner and in conformity with the law.  We're doing it the same way that Battery Park City has done it, so that's the parallel that we're using in terms of retaining a marketing agent, basically to sell our 68-year sublease in discrete areas.  In other words, anything that is not already encumbered, we have a right to sell, all subject to the General Development Plan (GDP).  The Board still has to approve that.  There'll be public hearings with respect to any project that ultimately comes out of this, these sales of sublease...

Let me say "sales sublease." It's a sublease we're letting out.  When I say "a sale," the idea is to take a lump-sum payment up front.  We're capitalizing it.  It's still a sublease, and we have full authority to do that under our Lease with the City, but instead of taking payment over time, we're going to take the capitalized stream of income and take those payments up front.  Now there's a great advantage to us, several advantages, to doing it.  One, the risk shifts entirely to the developer.  Two, the Board or administration is not making a subjective review of who is appropriate and not appropriate to be a developer, because you don't need to; it takes the politics out of who can come in to do it or not do it.  You have an objective standard, which is cash.  Three, the administration and the Board does not make a determination as to what is the best project or is not the best project, subjectively.  Whoever's going to bid on the particular projects will have their conception of what they can do.  They will do their calculations as to what net incomes will be, and returns on capital, and so forth.  They will do it in terms of a neutral market-based approach.  They [will] know it's going to have to be in conformity with the General Development Plan, and they [will] know that ultimately it's going to have to be approved, to meet Environmental Impact Review.

DL:  You sit on a number of Boards.

LK:  Well, I started out on the United Nations Development Corporation Board.  About five years ago the Governor appointed me to that, and I have been involved in the privatization efforts there.  In other words, the idea is that this is just a real estate holding company.  There was no reason for any of that real estate to be held in a governmental entity.  We've sold off the United Nations Plaza Hotel – that was for $102 million.  We've sold off 633 Third Avenue, there were about eleven floors sold for 50- odd million dollars.  We've sold off buildings on First Avenue, and we're in the process now of trying to sell off the balance of three buildings.  Then we'll be out of the business of managing real estate over there.

And when you sell these buildings off, they go back on the tax rolls, you broaden the tax base.  That property becomes a part of your economy in the private sector.  When you have too much of your capital resources owned by the government, it really puts a dampening effect upon the vibrancy of your economy.  One of the reasons, in my opinion, why the economy in the northeast, and particularly in the New York-New Jersey area, has not been as exuberant as in the South and other parts of the country is because so much of our capital structure is owned by government – just billions of dollars of capital structure owned by government – which could be privatized and used as collateral for other projects if it were in private hands.  Government people are not that creative.  They don't have the incentive.  They want to see to it that things are run honestly and well and that they don't get criticized, but risk-taking and risk-reward evaluations and things like that – those equations just don't happen in a great natural fervor.

DL:  So you're applying the same kind of philosophy as the UNDC work to RIOC to a certain extent.

LK:  Well, I would not want to say it's the same.  It's quite distinct and different.  There are very different considerations.  One, you don't have a constituency within the United Nations Development Corporation.  This is pure bricks and mortar.  There's not the issues of living conditions and quality of life and any of those things that you have [on Roosevelt Island], so that's very distinctive.

There are some general principles which I do bring to the analysis.  I still hold to Jeffersonian ideas that while you need government and government brings order to the relationship of people, government has a cost and you have to have taxes, and those taxes generally filter down and hit lower-income people the hardest.  No matter how progressive your taxes are, it's still a tax on capital, a tax on labor, and it ultimately falls upon the poor people.  You can try to redistribute it to keep it from hitting those lower-income people so badly, but as you begin to recycle percentages of the economy through a governmental filter with all sorts of social planning and the best of ideas and the best of objectives, there are inefficiencies which creep into that process: bureaucracy, all sorts of costs that get into the structure, and then a terrific amount of infighting and controversy as to how you divide up that pie.  In the socialist countries in Europe, where so large a percentage of the economy is in government, you have these ethnic groups at each other's throat, and the political process becomes, really, taking bread out of somebody's mouth and putting it in somebody else's mouth.  That's why you have so much of the ethnic conflict in places like Yugoslavia, which is a highly socialized part of the world.

This country has been able to avoid a lot of that by trying to keep the private sector as large as possible and keeping the public sector as small as possible.  But in this part of the country, in New York, we have a large public sector, and it does get into the public structure of the system.  You see it in the ethnic politics we have in New York, and you see it in Roosevelt Island in the issues that people raise out there – what their concerns are.  So I think there are going to be all sorts of benefits that come from people knowing that there's going to be a private-sector solution – non-discriminatory, not arbitrary, [in which] people who have the initiative [can put forth their ideas].  You don't have to have the capital yourself.  If you have the ideas and the initiative and it makes economic sense, you can get the capital through putting your deals together.  People on Roosevelt Island will have that opportunity, as will anybody else.  It's open access.

DL:  Is it fair to conjecture that your economic and political philosophy on this is pretty parallel to Governor George Pataki's?  You're seen, to some extent, as Governor Pataki's shock troops, sent in to straighten things out, and I'm just wondering to what extent you'll own up to that.

LK:  Well, I think that the Governor is going to have the ability to review the realities as they occur.  So he hasn't approved of anything that I'm doing, nor has he disapproved.

DL:  But your guess is that he would approve...

LK:  If we were successful in satisfying the interest of the people on Roosevelt Island, and the people on Roosevelt Island on balance are pleased with what happens, I don't know that the Governor would want to disappoint people out there, if they were pleased.  If they were displeased with what's going on, you have a Governor who's very open-minded and will listen to all sides.  I'm probably much more of a purist, in terms of theory, than the Governor is.  I'm not an elected public official, and I'm not balancing all the interests of the State and I don't have the degree of complexity and concerns that the Governor has to have.  I don't know where I fit in with respect to the Governor's overall balancing of a very complex job.

Robert Laux-Bachand:  You haven't really gone into the specifics of this proposal with the Governor?

LK:  No, all the Governor knows is that the...  I've had like two seconds of comments with him to let him know where we're headed.

RLB:  But he does have an interest in general terms in what should happen on the Island.  Have you talked, just in general in terms of what the future should be with Roosevelt Island?

LK:  Well, in terms of what specific discussions I've had or haven't had with the Governor, I would think it would not be appropriate for me to discuss that here.

Let me say that these things that we're doing here are not going to occur if there is any rationally-based objection that somebody can bring.  Everything we're doing here is open, and if somebody has an objection to this, I would be the first to want to hear it.

We have two people on the Board who are head of State agencies.  The Chairman of the Board of the State Department of Housing and Community Renewal (DHCR), and the State Budget Department.  So you have two people on the Governor's Cabinet who are on the Board.  In addition, I have made reports to appropriate people within the chain of command, as well as whatever I may have said directly.  Nothing is being done without people being aware of it.

RLB:  It seems like this is the first step in a process, and I was just wondering if you could lay out in succinct terms what you see as the steps of what this is supposed to lead to.

LK:  The overview is to bring the Island back into the City of New York, to [eliminatge] this RIOC ultimately, at least as cutting people off from their normal rights as citizens of the City and the protections they normally would have as citizens – so they're not disenfranchised any longer – they have the same enfranchisement as any other citizen of the City of New York.

The City has a reversionary interest at the end of the 68-year Lease.  In other words, for 68 years the City of New York has been divested of ownership by way of a Lease, but at the end of that Lease, ownership reverts to the City of New York.

That reversionary interest has some value now.  And if it were held in private hands, as opposed to government hands, it would broaden the tax base of the City and the City would get some tax revenue on that reversionary interest, whatever it is, 68 years out.  It would be discounted to present value, which probably would be a fairly small value at this point, but nevertheless some value, and the highest value that reversionary interest would have would be in those people who have a 68-year leasehold interest in front of the reversionary interest, so that they have some degree of certitude as to who will have title of the underlying ground 68 years hence.

We have not done this yet, but I am going to propose at some point that we open up a negotiation with the City of New York so that they can sell off their reversionary interest and the City would receive some money out of that.  It would enhance the value of those 68-year subleases to some extent, I should think.  It would give us a cleaner transaction.

It's not an impediment if the City does not want to do that, but there's no reason I can think of why the City would not do that.  There's no great benefit to government having title as opposed to the title being in the private sector, because government then receives a tax on what's owned in the private sector.

All you're really doing is changing where management comes from and where decision-making is, and all of the decisions in the private sector are subject to laws which are passed in a democratic way.  So people who have private ownership still are subject to public regulation and laws and they pay taxes.

The 68-year Lease right now is tax-exempt.  So whoever bids on that 68-year sublease pay[s] no taxes for 68 years.  Now they compute that into the value of what they're getting, and that gets capitalized, and that benefit goes to RIOC, because RIOC owns that 68-year [primary] Lease.

I'm suggesting there's no reason for the government to own any of it.

DL:  So at the end of that 68 years it's all private.

LK:  I would make it all private within the next two or three years, if I had my way, except for the City hospitals and so forth...

DL:  And the streets [and infrastructure].

LK:  Yes, of course.

You'd make a deal with the City of New York to keep the streets [and infrastructure.  And] for example, we have a budget right now on Public Safety: We're paying over $2 million a year in Public Safety.  We have almost 40 people on payroll for a population of [about] 8,000.  People [are] paying for that.  Half of it comes out of their rents.  If we could reduce that cost and still keep the quality up, we could get some rent reduction for the people on the Island.  We also would increase our cash flow within the RIOC budget.

These are things that need to be looked at.  I don't know where you come out.  But they certainly are worthy of scrutiny.  But whether or not you need a separate Public Safety unit, or whether or not we could make a deal with the City, with that $2 million, where part of it goes to the City to give us additional police protection, and we can beef that up, so that you get a better quality...

I don't know how people perceive the current arrangements and so forth, but all of this needs to be looked at.  And then maybe it's all rejected, but not to look at it, and consider this stuff, when you see a $2 million budget, with 40 people on the payroll, for 8,000 people.  I mean, facially, it seems to me out of line.  But I could be very wrong on this.  But I'd like to hear about it.

Also, you have things falling between cracks, between jurisdiction of the City of New York Police Department and Public Safety, and sometimes things don't get adequately administered to because one throws it off on the other, and therefore you don't have an evenness of jurisdiction.  So there's a flaw in the structure out there, so that although you're paying $2 million a year, keeping your rents higher than they otherwise would be, and draining off other resources, you may not be getting as good Public Safety response as you would get if you had a unified jurisdictional system.

I'm not saying anything in absolutes here.  I'm just saying it's worth scrutiny.

DL:  Let me ask how you would do that scrutiny, because this issue is going to come up.

LK:  With a subcommittee of the Board, probably composed of all three people who live out there, plus maybe one other Director who doesn't, and let them work with the administration to let them devise the way they would look into it as a subcommittee.

You'd also negotiate with the City, see what your alternatives are... see how many additional police the City would assign if we were to pay them a million dollars a year, plus what they're currently giving us, and we take a million dollars a year and pass half a million a year, if we could, along to rent reduction.  Now, you'd need to negotiate with the housing corporations and make sure that it just doesn't go into their pockets, so that you get a pass-through to the tenants, or make some deal with them where they save a little bit and the tenants save...  But all those are subject to negotiations.

It's a matter of bringing people together to reach agreement, where it's win-win-win all the way around.  If you can get efficiencies, it's the same as expanding a larger pie.  It makes agreements easier.  If you have created efficiencies in the way things are done, there's more that you can give to everybody, and parcel it out in some way.  It's a much better way of handling things.

RLB:  Is there any comparable situation where you've taken a so-called utopian or planned community, and tried to change things in this way?  Of is this in a sense a unique situation and sort of a market experiment?

LK:  Well, in the past the planned communities have been private, most of them in this country.  If you go to other places like – you know Reston, near Washington?

RLB:  Yes.

LK:  Most [planned] communities around this country have been private, so what's unique here is that you had the government starting out to do it this way to begin with.  And one wonders, really...  You know, it was done because they tried to have a certain mix of income levels and things like that, and there were certain governmental objectives to do that, and I'm not going to comment as to the wisdom of that.  That was a political decision, but when you get those political decisions then you end up with some fairly convoluted structures, and you live with them or don't live with them, but you also begin to see the downside to the structures in terms of inefficiencies, people being disenfranchised, debt being accumulated in the public sector, as opposed to the private sector, risk being on the taxpayers.

These are things that aren't debated so much in this part of the country.  You notice we just had an election in this country.  And it has been evident, a difference in perspective in populations in certain parts of the country, which have shown up fairly dramatically in the way certain states went and other states went and where things were close.  Things were not close where we are here, but if you were to take the popular vote, in the United States, and basically exclude New York City and its environs from it, you'd have an overwhelming popular vote for Bush.  But only by putting in the population here do you get the large shift in popular vote.  It's because [here] there is not much discussion as to the accepted principles by which government occurs in this part of the country, as opposed to the rest of the country.

[DL:  On the U.S. Constitution, it sounds to me like you are a strict constructionist.]

LK:  Of course... You've got to construe the words to mean what they say and not judicially legislate, or it all becomes subjective [and] you don't have any rights.  It all becomes illusory.  And then the courts have usurped the initial protections that you have.

DL:  Economically, it seems to me that you're square in the center binding of Adam Smith.

LK:  Yes, I am.

DL:  And that you believe very strongly that the power, the decision-making power, of the marketplace should be relied on as the primary decision-making – perhaps after the rule of law, perhaps after the rule of contracts – but in any case it should be the primary guide for the economic decisions that we make.

LK:  It's the natural law principles.  The law of supply and demand, things like that.  Because I was an honors divisional major when I was at Yale in politics and economics, I'm somewhat schooled in this stuff...

To the extent that Roosevelt Island Operating Corporation had been sort of through a command influence, reviewing what they had considered with this little group of elite people, reviewing what they considered to be the best projects, and then approving the developers and then trying to sell it from a P.R. point of view to the population, but if the population doesn't buy it, too bad for the population out there – that's where you're disenfranchised, that's what's been going on.  That's not market economics.  That's a political decision-making process which has obviously created a lot of consternation among a large group of people on Roosevelt Island.  They're not happy with it, but of course they don't analyze why it is they're not happy with it.  What's the origins for their not being happy with it?

DL:  You say it's because it's not market economics.

LK:  Yes.  And I'm not a pure...  We still have democracy [and] government regulation.  We still have review processes with respect to environmental impact.  [But] you [want to] start with a platform, a fundamental basis for market economics, which are your basic efficiencies, then you want to interfere as little as possible there, but nevertheless there is interference through certain review processes because you want to smooth off the harsher edges which may occur from pure, unbridled competition.

We're talking about a framework of certain parameters that are enunciated in advance, subject to a General Development Plan, which we have to work with, subject to environmental impact review, which we have to work with.

The opportunity for people to come in on a non-discriminatory basis, subject to the parameters, [is] there.

DL:  Are you a strict constructionist with regard to the General Development Plan?

LK:  Yes.  Now, I've read the GDP with some care.  And the Lease, and I think you have to read everything strictly.  But there is a lot of flexibility built into those documents with regard to the words themselves.

For example, there seems to be some misconception...  There are provisions in the GDP for open-space.  That means those were open-space areas that were not specifically planned for.  You have these open space areas such as Southpoint, Octagon Park.  Those open-space areas are not "parks." That's a different definition for "park." There's an express provision in the Lease for the Board to develop [the] open-space areas.  When you read it you'll see that there's a mandate to develop open-space areas.  Open-space areas are not parks.

But yes, very much I subscribe to reading the document for what it says, but not misconstruing it, either.  It should be construed, and not distorted, and read accurately and fairly.

DL:  You're saying Southpoint, for example, the 10.3 acres, are open space, not strictly parkland.

LK:  I've got to go back and look at the document, but I can tell you that the whole thing is not a park.

DL:  So with regard to the Marriott plans...  I was trying to pin down...

LK:  Let me read the language to you, that I'm referring to.  On page 47 of the General Development Plan, Schedule 2.  It reads as follows:

The open-space areas will be developed to serve residents of the City as a whole, as well as residents of Roosevelt Island.

DL:  And you would interpret that to mean, for example, that it could be commercialized...

LK:  Sure, it could be anything.

DL:  ...and it would be serving the residents of the City if, for example, there were a hotel there available for people to visit.

LK:  Sure.  Also, I think you're serving the City as a whole if it's residential, too, because there's a shortage of residences.  The City, economically, needs more space.  Anything which adds to the economic viability of the City as a whole would meet the open-space provision of the General Development Plan.  Still, that does not suggest that you don't make it subject to environmental-impact considerations and things like that.

DL:  There are some people who would say that they interpret that language to mean parkland.

LK:  But it doesn't say parkland, so what they're doing is they're reading something that is not there.  It's just not there.  And there are other express provisions for parkland.  If you want your protection for parkland, don't start merging parkland in with other things that can be developed, because then you lose your parkland.  That's the other side of not being a strict constructionist.  You lose your rights if you want to try to expand, encroach, through a more nebulous construction.  Parkland is parkland.  You want to start saying it's open space, then maybe it can be developed, too.  I'm not saying that, of course.

DL:  [What about] the GDP calling for a six-acre park between Northtown and Southtown.

LK:  Yes, I've read the lower-Court decision on that.  The lower court basically uses an old legal doctrine which goes back to Louis Brandeis, which had to do with encroachments...  The encroachment which occurred the court found was in the north side.  The court was not going to use its injunctive power to cause those buildings to be torn down, which is what the Brandeis philosophy was: It's too late, because when you look at the balance of the burden, balance the equities, and who's going to be dislocated, you're not going to cause those buildings to be torn down.  What the lower court said was, it may be that you have some encroachment up there, and therefore you have reduced the size, but that has long gone and it went without criticism at the time, and that should not be used now as an argument to impede the Southtown plan which in and of itself does not encroach.  It only encroaches by way of what's happened in the past, on the north side.  Well, anyway, that was a court making that determination.  Fortunately, I wasn't there as a Director at the time...

I didn't approve the deal.  I would have done it differently.  I would have done it the way we're trying to do these other sites, which is lump-sum payments up front, risk on the developer, let anybody come up with the plan after the fact.  Let them pay their money, buy the thing, buy the sublease, and factor in all the economics of it, and they know what the General Development Plan is, and they have to be in compliance.  And we might give some guidance, but...

DL:  Take the Southtown situation as a model.  What are your criticisms of the way that deal was done?

LK:  Well, I don't think I want to go beyond what I've said in the Board meetings, which is that I think there's too much risk that has been assumed by the Corporation; there is no certitude with respect to other phases of the development, the time frame is totally in the hands of the developer.  I mean, the deal, in my opinion, wasn't...  didn't protect the Corporation as much as it should have been protected.  And what we're getting in terms of payment, under the ground lease...  there was a negotiated deal instead of a bid situation.  Therefore you don't know if you're getting your full value there that you would have gotten if you had bid it out.  I would have bid it out.  I would have done it differently.  The way they did it was the way things had been done previously.  There was a consistency with respect to the way that government agency had worked since its inception.  And it's a mentality which is endemic through the governmental process, I might say... everywhere.  It's one of the things that makes government suspect to me, because it makes it subject to political influence, and it's why people get all upset about political contributions and influence within government...

DL:  Let's say some group wanted all of Southpoint to be a park.  How could they do it?

LK:  They could bid for it.  But from an economic point of view, I'd suspect if you could raise $30 million, or $25 million, or what we expect the thing might bring, cash up front, you buy it in, you make it a park.

DL:  OK, then the question is, since that's economically very difficult to make feasible, do you see a proper role for government in setting aside land like that, or for RIOC, for that matter, in setting aside land to make it a park?

LK:  That's a purely legitimate political decision that can be made, but those people making the decision in government have to look at it in terms of the overall financing requirements of the Island.  And there's a trade-off there.  Yes, it could be set aside as park.  You could be foregoing 20, 30, 40 million dollars [in up-front money]... (that's what I think it would bring).  I mean, you're talking about this current [Marriott Hotel] plan here, these folks are talking about paying $2 million a year over 38 years, or $2.5 million, on that plan with the Convention Center and so forth.  Well, that puts you immediately at a discounted present-value basis of about $22 or $25 million, somewhere in there.  So we know already somewhat without bidding it out what a current proposal might bear if we change the structure of it.  So people on the Island if they were to say, we have all these capital needs that need to be addressed on the Island, we can solve this, we have the facility of solving it simply by bidding out these subleases.

We're going to be able to raise, as I mentioned, tens of millions of dollars was what I said in the Board meeting the other day, if you noticed.  And we would like the input of people on the Island as to how to allocate this money, this capital, and then the rest of it can be put in trust funds, to get an income stream out of it in the future, of what you don't spend immediately...

So you've got to look at what your trade-offs are.  So people who want to set things aside and put it in a vacuum, without looking at the other side of the equation, it's like reading The New York Times – you only see one side.

DL:  [So] if a group wanted that to become parkland, what do they do?

LK:  Bid for it.  The Board's made a determination to market the stuff.  If somebody wants it to be parkland, go out and talk to a charitable foundation or somebody who would be prepared to...  Get the grants to bid it in.  Museums, by the way, when they want a piece of [art] work, bid for it, to put it in the museum.  They put a painting in there.  They go in the marketplace and they're bidding as private bidders, and they put the painting in the museum.  People make contributions to museums so they can bid for the paintings.  It's the same concept.  I would be delighted to see it as a park if people could raise that money and people saw that was where it went, and we'd still have the capital for the other purposes on the Island, so people would not suffer on the other side of the equation.  If you can raise that money for a park, and that's what people want...  I'm not against parkland.

The opportunity is there.  And that's all we can offer, an opportunity... a fair, even opportunity, and we'll see what happens.  The theory, for classical economics, is that you get much better results than you can even envision at the beginning, because you've opened it up – you have not put blinders on to start with with respect to use and outcome and how different people balance utility.

It was important for me to enunciate that at the Board meeting, in public, because that gives a certain amount of notice to people, that they can begin the process now, if they choose to, to compete, and we're talking about several months before there would be an actual marketing or bidding process.  So the gun's gone off, and people have notice.  And I wish the best to everybody in this.  And I think we're going to get an excellent result in terms of the other side of the equation, too, in terms of our finances, because we need the capital.

RLB:  I guess it's not altogether clear yet to me, some components of this plan.  Subject to all thes hearings and bids and this sort of thing, these properties are marketed and sold.  The money would go to RIOC.

LK:  Yes.

RLB:  OK, so RIOC is the repository of this capital that can then be used for whatever the purposes of fixing things on the Island...

LK:  Or setting up a fund...

RLB:  ...setting up trust funds.

LK:  It probably would be both, by the way.

RLB:  Eventually, though, if the City...  Eventually if this then leads to Roosevelt Island then becoming just an ordinary part of the City, and RIOC disppears or whatever, what happens to this capital?

LK:  It all would have to be dedicated to Roosevelt Island, one way or another.  The form of which that dedication takes place, whether RIOC as an entity remains in existence simply to hold the money as a stakeholder, those things are yet to be focused on.  One of the better things to have to worry about is in what form and who should hold, for the benefit of Roosevelt Island, several tens of millions of dollars.  That would be a "terrible problem." That's something we certainly will address, and we'll have their input on it, and I don't know what the result would be.

Roosevelt Island will never be just an "ordinary part" of New York City.  The political structure could be rationalized so that Roosevelt Island is integrated into New York, but I think it's going to have a special status.  I've already had discussions.  I've had a number of meetings, which by the way, last time I met with the Maple Tree Group, it was before we'd had any discussions with people.  We've now met with the staff [and] General Counsel of the Manhattan Borough President, who are in principle, fully supportive of where we are headed here – integrating this Island back in[to the City of New York, administratively], and we have to do it in a way which will make the people on the Island feel good about it.

I've met with the City Councilman for the Island, Gifford Miller (and that was with Patrick Stewart), and Gifford was the only person who was relatively noncommittal, and he basically wants to see how this goes with the people out there, and I think if the people are supportive of it, Gifford would be.  I told Gifford that we're going to need him.  We need him as a political point man to get some of the benefits... in other words, we need some zoning variances and things like that, if we were to go back and integrate back into the City, we need Gifford to be our man to make sure that we can maintain some beneficial status as an Island out there with certain self-government aspects, which by the way the Borough President's office is supportive of, which have to do with the Community Board, which is in Manhattan, which Roosevelt Island is part of, but they indicated support of having a special sort of home-rule status for Roosevelt Island within the Community Board.

And then there are other things that we've discussed which have to do with self-rule operations out on Roosevelt Island, which has to do with Business Improvement Districts [BID] and Residential Improvement Districts [RID] out there.  And there's been sympathetic approach to give Roosevelt Island its own BID or RID so there would be the ability to see to it that things are maintained at a certain level.  I'm pleased to say that there's been a sympathetic response by everyone that we've spoken to on this.

RLB:  You've really been doing a lot of lobbying already.

LK:  Well, I think you need to...  I would not use the word lobbying.  I think you need to inform people of what our thinking is, and what we think our needs are, in order to bring about this fairly rapid evolutionary change, to integrate the island back into the City and to provide the capital that we need to provide the energy to people, the protections that people have, and the protection for the unique features that exist out there, and to enhance the quality of life of everybody.  I don't see it suffering at all, eroding, on any of this.  But that's for people that live out there to determine.  I don't live out there.  You do.

RLB:  What sort of timetable do you think is likely in this process?

LK:  Well, I've been asked that by various folks, and I've said three years.  I picked a number out.  I thought maybe we could do it in three years.  But that's utterly speculative.  Also, when you deal with the government, everything takes longer...

RLB:  So in theory it might be possible that there wouldn't be any RIOC in three years.

LK:  Well, it would take an Act of the Legislature to dissolve RIOC.  There's another aspect which I haven't mentioned to you, which is an allocation agreement with respect to debt, where everybody's left us alone up to now.  If we had come up with a potful of money, which I anticipate we will have, I do not want the State to suddenly be coming down on RIOC and siphoning off our capital to pay off that debt.  Right now the way things have been managed up to now there's been no realistic expectation that there's going to be any repayment of that debt.  Now, we've come up with some mechanisms for raising substantial capital.  Now, I want to renegotiate with the State with respect to the [Revenue] Allocation Agreement and with respect to that debt, so that we can get a significant forgiveness of debt.  We might make some payment to the State in exchange for that significant forgiveness, but I want to get us out from under the debt.

In other words, I'd like to free up those people out on Roosevelt Island from tens of millions of dollars of debt as part of this, also.  So if you want to talk about a total balance-sheet improvement of the finances out there.  Of course, I'd have to persuade the Governor to do that, and the people in [the State] Budget [Office].  But I've already been thinking about that negotiation and getting going on it.  As I say, I've asked Barbara Espejo to give me the Allocation Agreement; she still hasn't done it.  I need that document before I can begin thinking about how we want to negotiate the debt forgiveness.

RLB:  This is the money that was used to build Roosevelt Island and put all the facilities and things there.

LK:  That's correct.

RLB:  Is that like a general obligation of the State or is it revenue bonds?

LK:  These are revenue bonds, I think, through the Urban Development Corporation, initially.  But I'd like to read the agreement before I...  I have some impressions, [but] I like to read documents, and I'm at a disadvantage currently from being able to move on that front.

DL:  [You mentioned the Maple Tree Group...] One of the things MTG has been trying to move toward is professional management of the Island, as opposed to political appointees.  What's your feeling about that, in general?

LK:  I know that there was another vote just recently with respect to self-rule again, with the idea of electing the [RIOC] Board, and presumably if the Board was elected [professional management is] what they're talking about.

We also met with Pete Grannis because he had sponsored some of the legislation relating to self-rule issues.  [That's] not viable, as I mentioned to the Maple Tree Group when I first met with them, as long as this debt is outstanding, that the Corporation owes to the State.  The State cannot cede to the people out on Roosevelt Island the ability to elect Directors, as opposed to the Governor appointing them, because you have debt on the Island, and there's a fiduciary obligation by the elected political leadership to protect those bondholders.  It's unrealistic to think that you can be a debtor and [unilaterally] change the rules in midstream with respect to protection of the creditors

Now, that's one of the reasons that I'd like to get a forgiveness of the debt as part of this entire process, get this Island out from under that debt, and have the Island have trust funds, and then integrate it back into the City, where you have full political rights and protections, which is a clean way of going, and you still have the uniqueness of the Island, its special status, its special situation with respect to community planning boards, protections, your own BID and/or RID, and all of these features that will permit that Island to become more vibrant.  You'll be economically sound.  In fact, that Island will be the only significant community in the City with its own trust fund – endowment.

And there will be the ability, maybe, at that point, for people to elect their representatives as to how that endowment is to be used later.  But you've got to get rid of the debt first, and set it up within some other structure.  But my effort is to see to it that there is self-determination out there.  And you don't get it unless you are economically independent.  You need the economic independence just to have your own group of people who are in control.  If you're subject to the debt and you had to recognize that debt, and didn't have the other resources available to you, what good is your self-election anyway if you can't do anything with it because you're in an economic bind.  It's illusory.  See, I'd like to deliver something that's real to people out there.

DL:  Just ratchet back, if you would, to this subject of professional management vs. politically-appointed...

LK:  Oh, yes.  Well, I think the BID, or RID, at that point, will hire management.  That's what they do.  You have professional management.

I want to get rid of the political.  I would like to see all political appointments, to the extent there is any out there, non-paying...  I don't want to see the million or two million or whatever it is for political appointees go...  That's another skimming off of taxpayer money, or economic resources.  I'd like to get rid of political patronage, altogether, that go with features of government.  And I see it done within the structure of a BID or a RID.  That's where you get your management.  What are you managing?  You're seeing that the streets are kept, that the potholes are filled, that everything gets a paint job, that...

RLB:  Lights.

LK:  Lights... But that's what BIDs do.  And RIDs, in other parts of the City.  And of course you also, to the extent that we sell the reversionary interest and get a little tax revenue out of that, the City of New York takes over more of the upkeep, because everything's back in the City again, and the City really pays for a lot of this stuff again, too.  There are all sorts of benefits that are derived from more efficient use of your resources out there.  Fair use.

DL:  Do you see any downside at all in this plan?

LK:  No.

DL:  That's a very direct answer.

LK:  Let me say what the downside is.  It's not in the plan itself, but anyone proposing change is a target.  You raise your profile.  But somebody has to be a catalyst to enunciate these ideas.  Somebody has to defend them from poeople who rightfully have the right to question. Everything should be questioned.  In fact, I welcome the scrutiny that should be given to any proposal for change, and the ability to defend it.  You have to lay it out, let people see the vision, and then get into nuts and bolts, and adjustments have to occur.  This is a work in progress, and there will be all sorts of modifications coming about based on objections and criticisms that people have that I anticipate.  That's the democratic process.  So that one is flexible here, and you try to meet people's legitimate, rational concerns, and the way you get those legitimate, rational concerns articulated is meeting with members of the press, laying out the ideas, disclosing them in the Board meetings that are open, having the more open forums that we're planning to have, and being available to the Fourth Estate, which serves a vital function in anything of this nature.

RLB:  I can't speak for the people who have been on the Island for a while, but it sounds fairly radical compared to a lot of the things that, previously, over the last couple of years, have been going on.  It's just sort of a fresh way of approaching the whole thing.

LK:  Well, keep in mind, when the United States was founded, with our Declaration of Independence and our Constitution, these were radical ideas at the time, and they still are.  They're the most radical ideas in the world.  But we're talking about in terms of individual freedom and liberty and marketplace concepts, totally, and democracy were, 220 years ago, totally radical.  And for Europe, until just recently, it's been radical for the last 200 years, all this stuff.  This is radical, really.