PAUL GRONDAHL Staff writer
Section: CAPITAL REGION,  Page: B1

Date: Monday, February 9, 2004

Albany Finally, New York state owns the Gov. Nelson A. Rockefeller Empire State Plaza.

And Albany County is no longer the state's landlord.

At least, unofficially.

It took almost 40 years and nearly $1 billion to clear the books on the state debt for construction of the largest and most costly state government complex in the nation's history.

A construction project of almost mythic proportions for Albany and the region, which began with a public hue and cry in the early '60s, ended without so much as a whimper.

``People were outraged and agitated when it was proposed, but it was paid off three years ago, and nobody noticed,'' said Albany County Comptroller Michael Conners. ``It was a 40-year controversy that ended quietly.''

Signed in 1965, the 40-year lease between the state and county of Albany authorized the county to issue bonds to cover construction costs. In return, the state paid the county rent on the new buildings in an amount equal to the cost of retiring the bonds.

It was a fiscal sleight of hand, shuffling funds from one account to another so voters could not kill the project.

The mechanics of the scheme were almost comical. The handoff occurred twice each year, beginning in 1966 when the first bonds were issued, on April 1 and Oct. 1.

An official with the state Office of General Services a few blocks up State Street hill at the Alfred E. Smith Building -- later at the Corning Tower -- would call the county comptroller's office at 112 State St.

The state official would then walk a live check ranging from $2 million to $17 million to the county office. A county staffer would take the handoff and deposit it across the street at the Fleet branch, so the county could make payments on the bonds. Electronic transfers later did away with the need for couriers.

The agreement was originally scheduled to end Dec. 31, 2004, when the county would deed the Plaza back to the state. Refinancing in 1994 to take advantage of lower interest rates -- at a savings of $3.2 million -- accelerated the schedule.

Although the final check was cut Oct. 1, 2001, for $1.3 million, cleaning up the legalities and immense paperwork continues. That's why Albany County still remains on the title to the Plaza, and a three-year process of deeding it to the state is ongoing.

Does the paperwork matter?

``As we have no intentions of selling the property, there is no legal reason that this must be expedited,'' said Franklin Hecht, director of administration for the state OGS. Hecht has worked on Plaza financing for 25 years, starting when it was still known as the South Mall.

Those responsible for keeping track of the payments marvel at its nature. ``The simplicity of the financing on something so massive was part of its elegance,'' said Conners, whose staff oversaw the payment schedule from the county's side and stores tens of thousands of pages of documents related to the financing.

County officials saw no risk because the bonds were backed by the full faith and credit of the state of New York -- which never failed to make a payment on time, it should be noted.

``There was always some risk, I suppose, that the state wouldn't be able to pay, and we'd be on the hook for the amount of the bonds. But it was very, very remote,'' said John Branigan, executive deputy county comptroller.

Branigan was in high school when the 61-page legal document was signed by long-deceased political giants -- state Comptroller Arthur Levitt Sr., Budget Director T. Norman Hurd, Commissioner of General Services Cortlandt Van Schuyler and Mayor Erastus Corning 2nd.

``It was an interesting financing plan, but there wasn't any financial impact on the county because we were just basically used as a pass-through,'' said Michael Hoblock, who was county executive from 1992-94 and now chairs the state Racing and Wagering Board.

Hoblock was an Albany Law School student when the deal was struck in 1965, and he remembers how it raised eyebrows.

Albany County issued the bonds in chunks, series A through P, the largest being $70 million in 1976 -- $985 million in all. Interest rates fluctuated from a low of 4.5 percent to a high of 9.7 percent over the 40-year agreement. Initially, the South Mall was to cost $250 million.

Then-Gov. Nelson Rockefeller's grand vision for a Brasilia-style complex and a monument to his legacy as a master builder almost didn't get off the drawing board. The Republican governor knew he couldn't get downstate Democratic legislators to go along with the huge expenditure for an Albany facility. He also knew it wouldn't fly as a referendum.

Enter Mayor Corning, a leader of the Democratic machine and a Rocky foe, who is credited with concocting the pass-through financing scheme. Corning later said of Rocky's reaction to the plan he dangled: ``He took to it like a trout rising to a fly.''

Public anger was another obstacle. The state took title by eminent domain to 98 acres in the heart of the city, beginning in March 1962. In all, 1,300 buildings were demolished and 3,700 families -- an estimated 9,000 people -- were displaced.

Construction was a headache of its own. The site contained clay 120 feet deep in places, requiring piles to be driven 150 feet to anchor them in bedrock.

Work was late and over budget, with frequent allegations of corruption. Comptroller Levitt's expanded investigation of South Mall contractors in 1977 was itself tainted because it was financed by $400,000 from the controversial county bonds -- which Levitt had criticized for more than a decade because the deal avoided voter approval.

The still-unfinished plaza was dedicated in November 1973.

Corning's fiscal end-run attracted perennial rebuke. In 1977, the New York Public Interest Research Group went to court, arguing that the financing agreement violated the state constitution because it saddled state government with long-term debt never approved by voters.

Supreme Court Justice Edward S. Conway tossed out the case, NYPIRG appealed, and the Court of Appeals affirmed Conway's ruling and declined to hear the appeal because the statute of limitations had passed.

The financing scheme was still controversial in 1995, when Levitt warned that Albany County might not be able to market $35 million in South Mall construction bonds because of fiscal problems and a large state budget gap. The bonds were floated and the scheme lumbered on to a quiet conclusion.

Corning's idea lives on, though.

It was so ``interesting and unique,'' according to Hecht, that the state used it as a blueprint in financing office buildings in Utica, Watertown, Binghamton and Suffolk County.