Tax VOX

Tax deal helps Manhattan developers in the name of 9/11

The tax deal means taxpayers will keep subsidizing Liberty Bonds, which are going to finance luxury, $3,000-a-month apartments.

By Howard Gleckman

posted December 27, 2010 at 11:06 pm EST

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.