February 3, 2013 5:59 a.m
A plan to rezone a large swath of midtown east to allow a new generation of super-skyscrapers could cost the city dearly unless the plan can be delayed, according to critics of the project who cite threats to the redevelopment of the Hudson Yards area west of Penn Station.
The city is counting on new development around the rail yards to generate hundreds of millions of dollars in taxes and fees to pay part of the cost of extending the No. 7 subway line to the area.
City Councilman Dan Garodnick, whose district encompasses midtown east, raised his concerns last week at a breakfast panel hosted by Crain’s. He said that more time should be taken to weigh the potential impact of the midtown east rezoning on West Side subway financing. He also suggested that the starting date for the rezoning could be delayed from the current target of 2017 to allow a commercial district to take shape in the Hudson Yards area.
“I would ordinarily let the market decide where commercial development takes place on its own time frame, but the city is on the hook here,” Mr. Garodnick said.
To help pay for the extension of the No. 7 subway line to the West Side rail yards, the city devised a mechanism in which real estate tax revenue from new development and proceeds from the sale of local air rights would service the billions of dollars in debt needed to build the extension.
The recession, however, forced many developers to delay or even cancel their projects, curtailing their payments to the city. According to a recent study by the city’s Independent Budget Office, $170 million in taxes and air rights were collected in the Hudson Yards area from 2006 to 2012. That was $113 million—nearly 40%—less than the city’s initial projections.
The money was used to pay a portion of the $517.5 million in interest payments due on the bonds through 2012. Because the revenue fell short of expectations, the city, which has guaranteed repayment of the debt, had to pay more to make up the difference. In total, the gap-filling effort cost the city $137 million during the six-year period.<!– $r("(\s*?|\r*?)(<ul|<bl|<ol||block>|ol>|ble>)(\s*?|\r*?)
The city’s liability is only growing. Interest payments on the debt have risen this year by more than $20 million, to more than $150 million, requiring the city to set aside more funds to keep the bonds from defaulting. According to the IBO, the city put up $155.6 million in advance to service the bonds in 2013 and 2014.
Meanwhile, work has begun on only one major office tower west of Penn Station, a 2 million-square-foot-plus skyscraper to be anchored by high-end handbag maker Coach.
Mr. Garodnick and other critics fret that the rezoning in midtown could shift the focus of development back toward Manhattan’s core just when construction on the West Side is still struggling to achieve critical mass.
“The city has said they won’t compete, but are we really certain about that?” asked Raju Mann, an executive at the Municipal Art Society, which has criticized aspects of the midtown east rezoning push, including its impact on potential landmark buildings in the central business district. “Can anyone guarantee that five years is long enough to get Hudson Yards started and that the city won’t have to keep plugging these holes in the financing for another nine or 10 years?”
Winning over the skeptics, including Mr. Garodnick, will be crucial to the Bloomberg administration’s hopes of gaining approval for the rezoning, which it has identified as key to maintaining the city’s long-term competitiveness as a global business center. <!– $r("(\s*?|\r*?)(<ul|<bl|<ol||block>|ol>|ble>)(\s*?|\r*?)
At the Crain’s gathering last week, Deputy Mayor for Economic Development Bob Steel, a chief architect of the rezoning plan, gave no hint of ceding any ground on the midtown east effort before the mayor’s term ends Dec. 31.
“Mayor Bloomberg has told us every single day that … we’re going to run to the finish line and finish our responsibilities,” Mr. Steel said.<!– $r("(\s*?|\r*?)(<ul|<bl|<ol||block>|ol>|ble>)(\s*?|\r*?)
A version of this article appears in the February 4, 2013, print issue of Crain’s New York Business as “East vs. west battle brews”.