Questions raised over city's plan for West Side tax breaks.
Called the Hudson Yards Uniform Tax Exemption Policy, the plan will provide an as yet unspecified property tax reduction for up to 24 million s/f of new commercial development.
The Hudson Yards UTEP is considered an important part of the city's plan to finance major infrastructural projects on the West Side, including the extension of the number seven subway line.
To pay for the project, the city's Hudson Yards Infrastructure Corporation will issue $3 billion worth of bonds that will be serviced by Hudson Yard PILOT payments, the reduced property taxes collected in the district. Although the reduction in taxes that the Hudson Yards UTEP proposes would seem to counter efforts to expand the PILOTs to levels sufficient enough to service the HYIC bonds, the tax break is supposed to be an incentive for development that will in turn markedly expand the tax base.
The Hudson Yards UTEP requires the approval of the Industrial Development Agency's board--whose members include Deputy Mayor Daniel Doctoroff, the city comptroller and the city council speaker--which is expected to convene on the matter as soon as early July. Critics of the plan, including watchdog group the Fiscal Policy Institute, have raised a number of concerns ranging from whether the tax breaks would spark enough development to generate the amount of PILOTs needed to service the bonds to whether the West Side, which has been touted as one of the city's most promising areas for development, needs this level of subsidization in the first place. "The city hasn't made a convincing case for the tax breaks," said James Parrott, deputy director and chief economist at FPI. "I think it could have major fiscal repercussions. And what if, in a few years, there isn't as much development as they anticipated? Will there be an even more generous UTEP passed then to spark development? This is a slippery slope."
Creating another source of potential controversy is the fact that both Madison Square Garden and the Moynihan Station are part of the Hudson Yards District and are consequently entitled to the property tax breaks created under UTEE A partnership between Vornado and The Related Companies is redeveloping the Farley Post Office into Moynihan Station, whose western half the developers are trying to convert into a new home for MSG. Accomplishing such a move would allow the developers to build up to five million s/f of commercial space on the current MSG site, which sits directly above the busiest transportation hub in the nation and is considered one of the most valuable development parcels in the city.
"By all accounts, that's a pretty desirable location, so why would a development like that deserve a subsidy?" Parrott questioned.
An article in the New York Sun last week claimed that MSG's owners, Cablevision, refuse to relocate their arena to Moynihan Station unless they can take their current tax-free arrangement with them, something that Mayor Michael Bloomberg has refused to accommodate. Speaking with REW last week, Deputy Mayor Daniel Doctoroff reinforced the mayor's position.
"They are not going to be able to take that arrangement with them if they move," Doctoroff said.
But it has been said that a more westerly MSG could help spur commercial development on the far West Side. That, combined with the city's obvious willingness to create tax breaks in the area, doesn't make the city's seemingly hard line appear particularly sincere or intimidating.
Questions also remain why the city is structuring the financing of the subway extension through PILOT payments and creating tax incentives to help prompt development when the city could instead simply fund the project through its capital plan, like it does with most infrastructure projects.
"There is not need to create a subsidy for development on the West Side," Parrott said. "Building the subway is the subsidy."
The financing appears to be a relic of the funding structure established when the subway extension was bundled with the West Side Stadium, a project the city couldn't appear to be funding directly because of widespread opposition.
"It was important not to show that the money at that time was city money," said George Sweeting, the deputy director of the New York City Independent Budget Office.
"And that structure seems to have carried over onto this project."
However Sweeting noted that the unique financing structure could carry a consequence.
Bonds issued by the HYIC may not receive as strong a credit rating as those backed by the city, therefore making the financing of the project more expensive.
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|Publication:||Real Estate Weekly|
|Date:||Jun 7, 2006|
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