Cuomo’s Penn Station Plan Is Actually a Taxpayer-Funded Mall

by and

Last Tuesday, on the heels of his worst week as governor, Andrew Cuomo unveiled yet another new plan to renovate the catacomb of misery known as Penn Station. On the surface, Cuomo’s announcement to build a new station using the Farley Post Office building across 8th Avenue looks a lot like his January proposal, but in fact the details have changed significantly. Taxpayers will now be on the hook for at least triple the original $325 million price tag, and in exchange will receive yet another state-funded mall that could end up costing the government billions of dollars in untaxed revenue. The current plan also creates no infrastructure for the upcoming Gateway tunnel project, and does nothing to increase track capacity at Penn Station.

It turns out that Cuomo’s original scheme to charge developers $2.7 billion for the right to turn the post office into a new station entrance and retail mall proved massively unrealistic. The new plan now includes up to $600 million in upfront expenses from developers Skanska, Related, and Vornado to build out retail space in the Farley post office. According to the governor’s office, the three developers have also committed another $600 million to the project — but $370 million of that will be paid “in lieu of taxes” (PILOTs, in planning jargon) for the next thirty years.

That means at least three separate, incredibly profitable companies have now committed to front $370 million that would have been public money eventually, anyway, in exchange for not paying taxes on the eventual, and presumably wildly profitable, retail enterprise.

On top of that, Cuomo has thrown in $570 million in new funding from the Empire State Development, the state-run quasi-public agency that managed the development of the Barclays Center, Brooklyn Bridge Park, and the renovation of the Javits Center. The Cuomo administration now tells the Voice that much of that $570 million will come from the sale of the air rights of the Farley Post Office to private developers (the air rights would be transferred to property across the street from Farley). Whether that money will be enough to cover the entire $570 million remains to be seen.

Cuomo was unable to find a taker for the reconstruction of the LIRR concourse in the existing Penn Station, where most of the railroad’s entrances will remain. The MTA, already deep in a financial hole (and raising fares next year), has agreed to pay an estimated $170 million to renovate the existing LIRR concourses in Penn Station, money that will come from its capital plan.

The state, in addition to the Port Authority, and Amtrak, have contributed $425 million to help with construction costs at Farley, although the source of that money hasn’t yet been identified by the government. That means, at a minimum, the state itself is on the hook for over a billion dollars, in addition to whatever the state isn’t able to recoup in air right sales and lost revenue from taxes on the retail space.

The PILOTs in Cuomo’s Penn plan could mean one of two things, either of which would be problematic for the governor’s plans. If it means payments in lieu of property taxes, this would be genuine new revenue, since the Farley building currently pays none; however, it does sit within the Hudson Yards redevelopment area, meaning any property tax PILOTs are already committed to helping pay off the city’s $2 billion extension of the 7 train to 33rd Street. If Cuomo intends to rebate sales taxes, on the other hand (and please stick with us here), then that’s a kickback of money that would otherwise be flowing into state coffers, if not at the Farley mall, then wherever commuters chose to spend their money if it weren’t built. So that’s not really a private contribution. On top of that, siphoning off sales tax revenues would almost certainly require legislative approval, something that not even Cuomo can guarantee.

Several requests to the governor’s office for clarification on this point remained unanswered when we published this article.

James Parrott, Deputy Director and Chief Economist at the Fiscal Policy Institute, has studied the use of PILOTs in the city for years, most recently testifying in front of City Council about the need to look at just how much money these tax giveaways are costing the city over the long-term.

“Over the lifetime of these PILOT agreements, the cost to taxpayers will eventually become astounding. That’s billions of dollars of lost tax revenue to the city,” Parrott told the Voice. “This comes at a time when Related [one of the developers of the Farley project] is having great success with the office buildings it’s putting in at Hudson Yards. They’re doing so well in fact that they announced a mammoth piece of art, this multi-million dollar staircase. The New York Times said Related is paying for the staircase. But really, New York City taxpayers are the ones footing the bill, thanks to the reduced property taxes New York City granted them.”

Even with the huge public investment in the space (which might cost in the billions when all is said and done), missing from the plans entirely are arguably the most important infrastructure projects associated with the new Penn Station – the expansion of the existing station to accommodate Amtrak’s proposed and currently unfunded Gateway Tunnel (opening sometime in the 2020’s), which would increase capacity for both Amtrak and New Jersey Transit underneath the Hudson. Cuomo announced he’d be partnering with Amtrak on putting out an RFP for its portion of the new Penn Station, which Amtrak would lease to whomever wins the bid. It appears however, that NJ Transit had no seat at the table when it came to considerations for the Farley project.

“I’m somewhat puzzled by the absence of any benefit to New Jersey,” said Martin Robins, a former NJ Transit executive who currently teaches transportation policy at Rutgers. New Jersey Transit has been plagued by a lack of leadership and a decimated budget. But Robins believes that leaving New Jersey out of the Farley plans was still shortsighted. “I don’t buy that it came down to money, because if it was as important as alleviating platform crowding in the existing Penn Station, it’s something that the citizens of New Jersey are owed. Did this process go forward functionally, or was there some shortcircuit?”

Meanwhile, the Municipal Art Society and Regional Plan Association continue to push for the state and city to evict Madison Square Garden from its spot atop the platform to make way for that new Penn station. In a joint statement, the two organizations implored the governor and stakeholders to refocus efforts on the construction of Gateway, and look into longer-term solutions for Penn, that would “focus on critical track and platform improvements,” instead of the changes Cuomo has proposed, which mostly focus on creating more space for people to breathe and move (and buy things).

“[Gateway] is the single most important infrastructure investment in the nation, and needs to move ahead immediately. As part of the Gateway project, Amtrak and the Port Authority of New York and New Jersey must examine operations at Penn Station and study alternatives — such as through-running trains from New Jersey to Long Island and Connecticut and integrating routes, scheduling and frequency — that could improve efficiency at the station and provide greater regional connectivity,” the statement urged.

Booting the Garden once its ground lease expires in 2023 would enable the construction of a new station atop the actual Penn platforms — perhaps something along the lines of the hollowed-out World’s Most Famous Arena that the Times commissioned ex-Bloomberg planning official Vishaan Chakrabarti to sketch out. But even if that could be accomplished, it would come with an unknowable price tag.

Cuomo’s current plan leaves MSG completely intact. His plan from January called for, at the very least, the removal of the Theater at Madison Square Garden to make way for a roomier Penn Station. Cuomo’s former top aide and close friend, Joseph Percoco, who was indicted last month for taking bribes from upstate businesses, is currently employed at Madison Square Garden, a job he took after leaving the Cuomo administration in 2015. Cablevision, Madison Square Garden’s parent company, has donated more than a quarter of a million dollars to Cuomo’s campaign since 2014.

“Joseph Percoco left the governor’s office well before the Governor made any decisions regarding Penn Station – he had nothing to do with the process whatsoever,” a spokesperson for Cuomo told the Voice.

Asked yesterday about criticism by the MAS and RPA about the decision to leave Madison Square Garden intact, Cuomo replied, “It’s called Madison Square Garden, and it’s private and they own it and they want to leave it there.”

David Fernández, a public finance attorney for Buchanan, Ingersoll & Rooney PC who has worked on financing for the new World Trade Center complex, as well as bond issues for the new Yankees and Mets stadiums, has been following the project closely. Fernández said he’s not surprised that Cuomo chose to scale back his ambitions.

“It’s a wonderful economic development project,” he said of converting the Farley building to a grand entrance hall lined with shops, but “what this does not fix is the actual program below ground.”

Without new tunnels to bring in more trains, as well as expanded platforms to handle the flood of commuters that is currently bursting Penn Station at the seams, he said, “you could have the Taj Mahal on top of it, and it’s not going to fix the problem.”

For commuters more interested in getting home on time than how high the ceilings are, meanwhile, Cuomo’s Penn redo, whenever it’s eventually completed, is likely to be a disappointment. “At the end of the day, I don’t care if I can sit in a pretty bar and wait while my train’s been cancelled,” Fernández told the Voice. “All the things that are currently giving the commuters daily headaches down there is not being addressed by this – and that’s a problem.”