West Side Stories, cont'd

The West Side Jets stadium may be dead and gone, but the greater Hudson Yards development project that was to have the stadium as its centerpiece keeps on lurching fitfully ahead. Tomorrow morning, the city Industrial Development Agency holds a public hearing on the plan, with a vote by the IDA board to follow next Tuesday. If all goes according to plan—and the IDA is just slightly more likely to defy the mayor's wishes than Donald Rumsfeld is to ring up the president and tell him to knock off all this Iraq stuff—the IDA will soon begin selling $3 billion of bonds as part of Mayor Bloomberg's mission to seed Manhattan's Far West Side with office towers.

All of which has budget-watch types just a tad concerned that the only argument the mayor has marshaled in support of his plan--which would hand out hundreds in millions of tax breaks to developers and siphon off tax revenues from a 38-block swath of Manhattan--is a single 20-page PowerPoint presentation handed out by the Hudson Yards Development Corporation last week. The bulk of a standing-room-only briefing held yesterday by the Fiscal Policy Institute, which drew a who's-who of the kind of policy geeks who obsess over things like floor-area ratios and air-rights transfer payments, was spent trying to puzzle out just what's in this plan for the city and its taxpayers.

Making sense of the Hudson Yards financing plan alone seemingly requires the aid of a trained economist, or maybe Rube Goldberg. It goes something like this: The city exempts developers from paying property taxes, instead having them direct payments in lieu of taxes (PILOTs) to the new Hudson Yards Infrastructure Corporation. (This is different from the project-managing HYDC, which mustn't sully its hands with money.) The HYIC would use the cash to repay the $3 billion in bonds, which would mostly be used to extend the #7 subway line across 42nd Street and down 11th Avenue--making it possible for people to get to work at all those new office towers.

Those PILOTs the developers would be paying, though, would be less than they'd pay in property taxes--anywhere up to 40 percent less, depending on a brain-numbing formula involving both geography and when a building's shovels went in the ground. (The total subsidy, according to the city, would be around $650 million--though that's only a guesstimate, as no one knows what property-tax rates will be like in the year 2035.) The reason, explains the IDA: Since rents on the Far West Side would be lower than in Midtown, but construction costs would be just as high, the city needs to kick in a sweetener to make it profitable to build west of 9th Avenue.

All of which makes sense--until you actually think about it. "The economic rationale comes down to this page," James Parrott of the Fiscal Policy Institute, told the briefing, indicating an HYDC chart comparing the costs and benefits of building in Midtown vs. the Far West Side, which left more questions than answers:

  • The whole purpose of Hudson Yards, in the words of one IDA document, is to allow "the City of New York to capture its share of the hundreds of thousands of new office jobs projected for the region by 2035"--in other words, to provide office space for the future corporate throngs who would supposedly otherwise be forced to decamp for New Jersey. But if developers still have room to build in Midtown, why bother with developing the Far West Side? And if Midtown is really filled to capacity, why worry whether it would be more profitable for developers to build there?

  • The HYDC document indicates that land costs would be lower in Hudson Yards than in Midtown—but still too high for developers to turn a profit, which seemingly flies in the face of basic economic rules about price-setting, since it hardly makes sense for landholders to demand a sale price that they have no hope of getting. The city, as Parrott put it, is effectively saying that by extending the #7 line, "we've increased the value [of the land] to where it's not economic to build there anymore."

  • Without explanation, the HYDC chart uses a different "capitalization rate"--the return developers would require on their investment--for Midtown buildings vs. Hudson Yards ones. Use the lower Midtown figure for Hudson Yards, and those too could turn a profit without subsidies, even after accounting for lower rents.

    All of these concerns are likely to be raised at tomorrow's hearing; none are likely to sway the IDA board. The one remaining fly in Bloomberg's ointment, then, would be the MTA, which needs to reach an agreement with the city over just who's going to pay any overruns on the new subway line. (The official cost estimate for the #7 has been "about $2 billion" for years now, and that only includes a single new station at 34th and 11th.)

    Even if the MTA ultimately agrees to take this on, it could set up a potential conflict with the city down the road. The city council has agreed to front about $1 billion in bond payments from the city's operating budget, with the assumption that the new train line, and those PILOT-paying skyscrapers, will be in place by 2012. If the deadline slips--not unthinkable when you consider it took the MTA twelve years and $645 million to build the last 1,500 feet of tunnel connecting the 63rd Street tunnel to Queens--so does the PILOT schedule, which could lead to a scenario where the city was pushing for a quick completion, while the MTA balked at paying rush charges on a project that would earn it no revenues.

    All of which makes it all the more interesting that Mayor Bloomberg chose this week to declare that he'll call off the whole #7 train deal unless the MTA agrees to sell part of the rail yard development rights to the city for $500 million, which the agency sees as a bargain price. "Sell me land for a discount, or else I'll kill this project that I forced down your throat in the first place"? Gee, is that a promise or a threat?

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