When it comes to the far West Side’s redevelopment, the numbers and stakes are big. Daniel Doctoroff, New York’s deputy mayor for economic development and rebuilding, says the city sees potential for close to 30 million square feet of commercial space and 12 million square feet of residential space over the next 40 years. All that would be alongside a new Jets stadium and an expanded Jacob K. Javits Center.
The office and residential space would be vital to the area’s survival, according to the city’s financing plan. Much of the needed infrastructure improvements would be paid for by that development through payments in lieu of taxes, known as “pilots.” Pilots would raise $7.2 billion to pay to extend the No. 7 subway line to 11th Avenue, create a platform for a park and new buildings and a street network for rezoning. This $2.8 billion infrastructure would be the basis for future development, and the new tax revenue generated in the 59-block district would remain there, making it financially self-supporting.
But the question about whether the far West Side offices and residential development actually pays for itself ignites debate. Supporters see nothing but potential for an underutilized area. “This isn’t upgrading Jersey City,” said Kathryn S. Wylde, president and chief executive officer of the Partnership for New York City, a business group. “There is significantly more potential value on this site.”
Even if demand for offices proves weak, Wylde said the land has value for residential development. By using the new tax revenue to pay for the area’s infrastructure upgrades, Wylde said this makes it private sector funded. “It’s the only way to do it. We aren’t in a financial situation to do it any other way.”
Critics say otherwise. They say demand is soft now for office space, meaning there’s no need for a huge expansion of midtown. Keeping taxes in the area only hurts other parts of the city that need that money. “You cannot create a central business district by government fiat. There is no market,” said Brian Hatch, who runs a website, www.newyorkgames.org, and supports getting the Olympics to Queens, not Manhattan.
While there may be some demand for office space on the far West Side, critics say it’s mostly for Class B space. “That is not to say there is not demand on the West Side,” said John Fisher, spokesman for the West Side Coalition, an umbrella group opposed to the mayor’s West Side plans. “But how much demand? And how does that demand fit into the region?”
Initially, the idea was to use something called Tax Increment Financing (TIF) for pay for the far West Side infrastructure improvements. Under TIF, the property taxes are frozen and the growth in revenue of taxes stays within the designated redevelopment area. But that plan was switched more than six months ago to pilots, which critics say keeps even more tax revenue in the area. City Hall wants to make the project’s bonds attractive and keep them from “junk” status. Neither TIF nor pilot-backed bonds have ever been sold by New York City.
Robin Prunty, director of the public finance department for Standard & Poor’s, said it’s common to use TIF for projects that are “future growth oriented and there is a limited area that is benefiting from the improvements that are being put in.” Whether the bonds will be junk status depends on how the city structures it, but the TIF bonds are generally less credit worthy.
Between 2005 and 2035, $16.2 billion in revenue would be generated from other sources besides the $7.2 billion in pilots, according to the city’s plan. There would be $5.4 billion in residential property taxes, $1.7 billion from on and off-site developments rights through the platform atop the Long Island Rail Road yards east of 11th Avenue, $111 million from land sales and ground leases, $1.3 billion in bonus density payments and $415 million in payment in lieu of sales taxes. During the early part of the project, short-term debt in the form of commercial paper would fund interest payments.
Doctoroff’s office could not be reached for this article, but he is busy selling the project to investment houses. If he is successful, other parts of the city might see TIF-style arrangements to fund upgrades. “I think it’s really an important step forward in how the city approaches development,” said Wylde.