Silver Seeks Probe of Aqueduct Casino Deal

Asks New York state inspector general's office to look into the bidding process.

With federal prosecutors already poking around the recent Aqueduct casino award, one of the three New York state officials who approved the Aqueduct Entertainment Group deal is now calling for a state probe of the bidding process.

Assembly Speaker Sheldon Silver, a Manhattan Democrat, has asked the state inspector general’s office to look into the process by which AEG was eventually tapped for the lucrative casino deal over four other bidders. The request is significant because it comes from the Assembly’s top Democrat asking for a probe of the Democratic governor.

The latest development makes one thing certain: The Aqueduct casino’s future is now far from certain.

The call from Silver comes as federal prosecutors have issued subpoenas to the state Lottery Division for what sources say is an expanding probe into the Aqueduct contract. Gov. David Paterson insisted Feb. 11 that the federal probe is targeting a Queens charity group and its ties to several influential Democrats, and not the Aqueduct deal. But several government and industry sources say Paterson is wrong, and that prosecutors are examining AEG.

Earlier in the day, Senate Republicans called on Democratic leaders of the state Senate to convene a public hearing into the Aqueduct process. “The winner of this multi-billion dollar project should have been determined by a fair and open process, instead of by secret talks and backroom deals. It is unfortunate that the openness and transparency must come after the bid has been awarded,’’ Senate GOP Leader Dean Skelos wrote in a letter to Senate Democratic Conference Leader John Sampson.

A Senate Democratic spokesman said Democratic lawmakers will discuss the request and “give it all due consideration.’’

The request by Silver for an inspector general's probe is unusual because his signature was required -- with Paterson and Sampson -- for AEG to get the award for the long-stalled casino, which was first approved as a VLT site in 2001. Before agreeing, Silver insisted on several conditions, including conviction-free backgrounds for those involved in AEG and that the consortium pays, as promised, a $300 million up-front franchise fee to the state.

But an Assembly source said Silver raised numerous concerns throughout the past months with how the Paterson administration was running the casino selection process. “We raised questions throughout this whole review about the process,’’ the source said.

When he agreed to the deal last week, Silver wrote Paterson to note that the governor has “personally and strongly recommend’’ AEG.

In his letter to state Inspector General Joseph Fisch, the Assembly leader said that "serious questions have been raised regarding the selection process for an operator of the video lottery terminal facility at the Aqueduct Racetrack.''

Silver asked Fisch to review the procedures used by the Lottery Division and other agencies to evaluate the bids "and determine which bidders were recommended pursuant to such process.'' He also wants the review to include whether state procurement laws were followed by the Paterson administration in the awards process, and to determine if AEG will be able to meet conditions he demanded in agreeing to the deal with Paterson and the Senate Democratic leader.

The inspector general's office declined comment.

"We are confident that any review will find AEG was selected because our bid represented the best value for New York's taxpayers and the best plan for the residents of Queens," said Jeffrey Levine, CEO of Levine Builders and partner in Aqueduct Entertainment Group.

The Paterson administration noted that it was Silver in 2008, along with former Gov. Eliot Spitzer, who were the "architects'' of a law that created the process used to select the Aqueduct casino winner.

Peter Kauffmann, a Paterson spokesman, said the governor "welcomes'' Silver's request and will urge the IG's review.

"There is nothing to hide and all of these documents were shared with the legislative leaders during the selection process,'' he said. He noting that Silver provided his "full endorsement'' to the AEG selection just two weeks ago.

A day earlier, state lottery officials -- citing confidentially agreements with the bidders -- said the bids for the casino deal would not be released. But Paterson now says all documents relating to the selection process, including bids, will be made public by Feb. 16. Kauffmann said Silver, too, should cooperate with any review of the bidding process.

The IG has sweeping investigative powers, including the ability to issue subpoenas. It is charged with looking into allegations of wrongdoing involving state officials.

Bidders have complained since last year that terms of the process kept changing, and that they were given at least two chances to present what they thought were “final’’ offers to the administration. The administration has declined to release any of the bids, citing a promise made to bidders to keep the financial details secret.

The U.S. Attorney’s office in Manhattan this week subpoenaed documents from the state Lottery Division, which regulates casinos in the state and was responsible for vetting the bidders. Lottery officials last year raised concerns about AEG and some of its partners, but the head of the agency this week said those concerns disappeared when some individuals (he declined to name them) separated from the AEG team.

A lottery spokeswoman said the agency would not release the federal subpoena.

The governor said federal prosecutors are looking at New Direction Local Development Corp., a Queens charity that has ties to U.S. Rep. Gregory Meeks and state Senate President Malcolm Smith; the charity also has some at least indirect ties to Rev. Floyd Flake, who owns a less than 1% stake in AEG. Flake is an influential Democrat and Paterson, who is in an uphill climb to win the party’s 2010 nomination, met with Flake just a couple days after the AEG award to discuss politics.

Two sources say the federal prosecutors have also informally asked Senate Democrats for details about pork barrel spending related to the New Direction charity group.

“It has nothing to do with the bid process, nothing at all,’’ Paterson said Feb. 11 on a radio interview of the federal investigation.

But several sources, who spoke on condition of anonymity, say the federal probe has expanded in recent days to go beyond just the Queens charity to include the Aqueduct matter. The U.S. Attorney’s office is not commenting.

The clock is ticking on the deal. Among Silver’s condition is that AEG make its $300-million franchise payment to Albany by March 31, the last day of the 2010 fiscal year