$650m in Liberty Bonds center of controversy.

The Bank of America's decision to request $650 million in Liberty Bonds to build a new midtown HQ has prompted a complaint from a downtown group that says the Bonds were intended for the struggling areas of the City, not booming midtown.

Like many other companies in New York, the bank has chosen to take advantage of a post September 11 form of financing in order to construct a 55-story building in midtown, to be used as the bank's headquarters. The Liberty Bonds are exempt from federal, State, and City income taxes,

Douglas Durst of The Durst Organization is developing the 42nd Street tower, which will be a 50/50 joint effort with the Bank of America. Although Durst declined to comment on the deal, which is still in very preliminary stages, there are no immediate plans to go any further with it until the Bonds are approved, said the bank's spokesperson, Tara Burke.

Burke couldn't comment on whether or not the bank expected to receive approval, or even whether the joint venture, called Bryant Park, LLC, would continue if the request wasn't approved.

Out of the $8 billion in available Bonds, 20% is allocated for non-Lower Manhattan properties.

Other areas in which properties may be eligible for Liberty Bonds are the outer boroughs, which according to Bettina Damiani, project coordinator of Good Jobs New York, need it the most.

GJNY is an organization that monitors the use of public resources. It has opposed the bank's request, saying midtown, doesn't need financial assistance. Damiani intends to argue against the issuance of the Bonds at a September 29 hearing at which the Bank of America will plead its case for approval.

She said, "September 11 affected the vitality of the entire city. A certain percentage of the Liberty Bonds was allowed for areas outside Lower Manhattan, presumably for back office space in Queens and The Bronx, not a major developer in midtown. Companies in midtown don't decide where to go based on tax breaks."

GJNY shares the same goal as the City and those involved in the Bond Program: to prevent the loss of New York's businesses to New Jersey. However, by only aiding commercial development in Manhattan, Damiani says, the City keeps missing other opportunities to "diversify the economy" in other parts of New York.

However, according to the Real Estate Board of New York's Senior Vice President Michael Slattery, choosing who gets the benefit of the Bonds is mainly a matter of supply and demand.

"I think you've got to look where the projects are being developed," said Slattery, also the head of REBNY's research department.

"It would be wonderful to say, let's put all the Bonds into The Bronx, but what if there are no projects? It's where there's a demand for funds and where the projects are more likely to happen with that assistance, and can be done within the timeframe."

If it is successful, the tower will consist of 2.1 million SF of space, with the Bank of America occupying 1.1 million SF, slightly over half the property. The use of the rest of the space and whether it will be for sale or rent is yet to be determined.

In order for a firm to receive the Bonds, the request must go to the New York Economic Development Corporation (EDC). However, since the request has not yet gone to the board, Janelle Patterson, spokesperson for the EDC, declined to comment.

The guidelines for approval include all non-residential properties within the city's "Liberty Zone" (south of Canal Street and east of Broadway and Grand Street), as long as specific conditions are met.

For areas outside of the Liberty Zone, there are two established criteria, said Deputy Mayor for Economic Development Daniel Doctoroff. "The first question is, does the project have borough-wide or citywide significance?" said Doctoroff.

"The second is, would the project be financially feasible without the Bonds? We do analysis to evaluate the return to the investors by rental or lease-holding expectations and, in the case of this building, it just pushes the project over the limit, where [without the Bonds] it's not economically feasible. So it passes the second test."