How the Tax Deal Helps Manhattan Real Estate Developers In the Name of 9/11
Why is Congress continuing to subsidize lower Manhattan real estate developers nearly a decade after the 9/11 terrorist attacks on the World Trade Center? While the Senate continues to squabble about whether to provide medical care to first responders, lawmakers have had no second thoughts about continuing special tax-exempt bond financing for high-end builders. A provision that gives developers yet another year to put together these bond deals is buried deep in the just-passed $858 billion tax cut and unemployment bill.
The Liberty Bond program was supposed to be temporary when Congress created it in 2002. It authorized up to $8 billion in special tax-exempt bonds for a designated neighborhood south of Canal Street on the tip of Manhattan. Nearly all the financing has been used to build high-end commercial and residential projects. For instance, one-bedroom apartments in one bond-financed building—10 Liberty Street–rent for $3,695-a-month. “Modern living meets classic charm” at Two Gold St—another Liberty Bond project—where an 819 sq. ft. unit rents for $3,000-plus. The cost to taxpayers for continuing the subsidies that make deals such as these possible—more than $100 million.
You might think that these bonds are being used to rebuild structures damaged on 9/11. And some are helping to fund construction at the site of the Twin Towers. Indeed, the controversial developer of that project, Larry Silverstein, received an allocation of $3 billion in Liberty bonds. But much of the money is going to projects whose connection to 9/11 is tenuous at best. For instance, the 10 Liberty Street building went up on what had been a vacant lot. Goldman Sachs, which surely needs the money, got $1.65 billion in bonds to build a new headquarters. And another $650 million somehow went to Bank of America to build an office tower on West 42nd Street, miles from the Liberty Zone.
It is awfully hard to make the case that lower Manhattan still needs federal assistance. Within a year of 9/11, residential occupancy rates in the neighborhood had returned to 95 percent. Commercial rents had also rebounded. However, in part due to massive bond-funded building in the financial district, both commercial occupancy rates and rents are now falling. According to one estimate, one-fifth of lower Manhattan’s top-tier commercial space could be vacant by 2012. So why is Uncle Sam subsidizing construction of more see-through office buildings?
And while federal taxpayers continue to subsidize these projects, New York is reducing its assistance. It should hardly be a surprise that the state is allocating its bond financing authority to other projects while Uncle Sam picks up the tab for these.
We can all stipulate that 9/11 was horrible, and that it was important for the entire country to pull together to help the residents and workers of New York who suffered that catastrophe. But 9/11 was more than nine years ago. And continuing to pass out massive tax subsidies to real estate developers does nothing to honor the memories of those who died. It is a shame that Congress, yet again, mindlessly extended the Liberty Bond project.