Copy of Letter to Mayor Giuliani From Hevesi RE: Changes to Contract

    COMPTROLLER OF THE CITY OF NEW YORK 

1 CENTRE STREET 

NEW YORK, NY 10007-2341 

(212) 669-3500 

ALAN G. HEVESI 

COMPTROLLER 
October 31, 1986 

Hon. Rudolph W. Giuliani 
Mayor 

City Hall 
New York, NY 10007 

Dear Rudy: 

I am now in receipt of both the draft Agreement of Sublease, 
dated 8/9/96 (the "Old Draft"), and the Form of Agreement of 
Sublease, dated 10/24/96 (the "New Draft"), between the New York 
City Health and Hospitals Corporation and PHS New York, Inc., 
regarding Coney Island Hospital. 

The purpose of this letter is not to re-argue the concerns 
about the unanswered questions the Sublease raises which I 
expressed in my letters of September 13, 1995, November 28, 1995, 
July 30, 1996, and my two letters dated September 19, 1996. In a 
separate letter, I will detail why the current agreement neither 
addresses nor answers the questions I raised earlier. 

The purpose of this letter is to highlight the changes which 
seem to have been made between the 0ld Draft Contract and the New 
Draft Contract. All of the changes appear to be concessions to 
PHS Inc. and PHS-NY Inc. (®“PHS” or the “Tenant”).. I would like 
to know what the City and HHC got in return. This is an 
important issue because the result is a contract which lacks many 
important contractual safeguards for the City and the community 
served by Coney Island Hospital. 

The following is an outline of significant differences 
between the two draft contracts: 

1. §2.02 of the 01d Draft provided a 49 year term of the 
lease with no provision for renewal. §§2.02-03 of the New Draft 
provides to PHS a 99-year lease term with an option to extend the 
term for an additional 99 years. Which party to the lease 
proposed the new term and the renewal term? I am concerned that 
the City has received no additional compensation for the extended 
term. 

Further, the PILOT 
2. §3.04 of the 01d Draft provided fhat PHS would pay an 

1). annual Payment In Lieu of Taxes ("PILOT" 

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Hon. Rudolph W. Giuliani 

October 31, 1996 
Page 2 

was to be an amount equal to the property taxes that would be due 

if the property was privately owned, which we estimate to be 

$2,300,000 per year. Why has this provision been omitted? 

3. 83.06 of the 01d Draft provides that the Tenant provide a 

Security Deposit. This entire section has been omitted from the 

New Draft. Will the Tenant provide such a Security Deposit, and 

if not, why not? 

4. §8.02(e) of the New Draft appears to allow the Tenant, 

under certain limited circumstances, not to rebuild the hospital 

if it is damaged or destroyed by fire or other casualty and that 

the insurance proceeds shall be paid to HHC to demolish, clear, 

grade and fence the grounds, with the Lease terminating. Why has 

this provision been added to the agreement? Have you done a 

study on the impact on the Coney Island Hospital catchment area 

if the hospital was destroyed and not replaced? 

5. §10.01 of the 0ld Draft allows the Tenant to make an 

assignment, transfer or sublease, under limited circumstances, 

but not without the prior written consent of the Landlord (HHC) 

and Fee Owner (the City). The new §10.01 drops the written 

consent requirement, and now appears to provide the City and HHC 

fewer protections. 

6. Both the 01d Draft and the New Draft allow PHS to enter 

into an Assignment, Transfer or Sublease to certain persons who 

submit to a background check or is an affiliate of the Tenant. A 

person who is not qualified to enter into an Assignment, Transfer 

or Sublease is considered to be a Prohibited Person. 

§10.01(c) (i) of the Old Draft defines, in part, a Prohibited 

Person as any person that is in default or in breach...of its 

obligations with Landlord or the City. The New Draft does not. 

contain such language. Thus a person who is in default to either 

HHC or the City is now not deemed to be a Prohibited Person. The 

0ld Draft also includes, as a Prohibited Person, one who has 

defaulted to the City on taxes, sewer rents or water charges and 

any person whose property which was acquired by the City by in 

rem tax foreclosure. Why were these important criteria taken 

out? 

7. §11.01 of the 01d Draft is entitled Mortgages Prohibited 

and provides that the Tenant shall not mortgage the leasehold 

estate. This has been substantially modified in Article 11 of 

the New Draft. Why was the restriction on the Tenant’s ability 

to mortgage the leasehold estate removed? Does PHS expect ‘to 

mortgage its leasehold interest? 

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October 31,1996 

Page 3 

8. The Landlord’s Right to use Field Personnel at 

Construction Sites, to ensure the Construction of the Capital 

Project in accordance with the agreement found in £12.01 of the 

Old Draft has been eliminated from the New Draft.” Isn't it 

prudent to have HHC personnel at the Premises monitor a Capital 

Construction project valued at $25 million? Similarly, §12.05 

gave HHC the right to approve the Plans and Specifications of 

capital construction. This is no longer part of the agreement. 

9. The Tenant's obligation to obtain a performance or 

completion bond for the construction work, described fully in 

§12.06 of the 0ld Draft, appears to have been omitted from the 

New Draft. 

10. The New Draft does not contain important Tenant's 

Representations that were found in §17.03 of the 0ld Draft, such 

as the Tenant’s acknowledgement that it has visited Coney Island 

Hospital, is fully familiar with the physical condition of the 

hospital, that the Tenant accepts the hospital in its existing 

condition and state of repair and that the Landlord is not liable 

in any event for any latent or patent defects in the hospital. 

Also dropped from the New Draft is §17.04 of the 0ld Draft, which 

required the Tenant to perform the mitigation or removal of any 

hazardous or toxic waste found on the Premises during the Term of 

the agreement. Will HHC or the City now be liable for these 

waste disposal costs? 

11. In the event of bankruptcy and insolvency, the Old Draft 

contained detailed remedies in §23.10, which seemed to provide 

some protection of the Landlord's rights. This section has been 

left out of the New Draft. What rights do HHC or the City retain 

under the New Draft in the event of bankruptcy and insolvency? 

12. With regard to public accountability and monitoring, the 

New Draft differs from the 01d Draft in several significant ways. 

§28.03 of the 01d Draft subjects PHS to monitoring by both HHC 

and the City. New Draft §28.03 limits monitoring to HHC, 

relieving the City of any formal role in monitoring of 

performance of service. Taken out of §28.03(a)(i) is "...a 

review of comments from the public;" why would the City and HHC 

agree to the removal of this provision? 

13. We have raised some questions about the composition of 

the Community Advisory Board ("CAB") set forth in the agreement. 

For example, §28.03(b)(i)(B) of the 01d Draft did not allow 

appointment to the Community Advisory Board if that person is 

w. .a director, trustee, executive officer, partner, shareholder 

or employee of, or has any other significant financial interest 

in any provider of acute care hospital services in the City..." 

The New Draft has taken out this particular restriction. Since 

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s 

Hon. Rudolph W. Giuliani 

october 31, 1996 

Page 4 

the appointment to the CAB of a person who falls into this 

category may present a conflict of interest, or at least, the 

appearance of a conflict of interest, is it in the community's 

interest to have such a protection removed by the New Draft? 

14. I also note that access to books and records, for the 

purpose of monitoring PHS’ performance, is now limited to the 

Landlord (HHC), rather than both the Landlord and the City. Also 

dropped was a market survey (the "Survey") provided for in §28.03 

of the Old Draft, which suggested that the City and HHC conduct a 

market survey to evaluate the performance of the Tenant. 

15. As part of the more rigorous monitoring process provided 

by the 01d Draft, §36.03 provided for the audit and inspection of 

the Tenant's books, records, papers and files by the Comptroller 

of the City of New York. This entire section has been omitted 

from the New Draft. The ability for the Comptroller to have 

access to the Tenant's books, records, papers and files is 

essential so that I can carry out in a meaningful manner my 

Charter mandated auditing function, which includes auditing HHC 

and its contractors. 

In conclusion, it appears that the earlier draft sublease 

between HHC and PHS contained a number of contractual safeguards 

that protected the City, HHC and the Coney Island community in 

the areas of law, finance and quality of service. Now, these 

protections have been omitted from the October 24th document. I 

ask that you review each point outlined in this letter and 

respond to them before final approval of this agreement is 

requested of the HHC Board. 

Sin ly, 

an G. Hevesi 

AGH: ew/bs 

cc: Maria Mitchell 

Dr. Luis R. Marcos 

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