Tag Archives | Tax abatement

Tax Abatements Down by the Riverside

Hundred of millions of dollars were awarded unnecessarily to developers

By Sydney H. Schanberg 

Originally published in Newsday, June 13, 1986

Six years ago, when all the heavyweight builders, architects, real estate lawyers, financiers and public relations men were fighting each other for the right to develop a chunk of prime East River waterfront property known as the “Billion-Dollar Gold Coast” one of the competing lawyers, Charles Moerdler, a former city buildings commissioner, told a reporter: “We’re talking here of potentially the most meaningful dollar investment in the City of New York in many a year. That’s why there’s so much competition.”

One would not have thought with so many biggies painting to be picked by the city to develop the juicy tract, that the city had to put any sweeteners in the pot. Why offer tax incentives when the tongues are already hanging out? In fact, the same newspaper story that recorded the Moerdler comment also said of the $500-million project that “no city or state money is expected to be involved.”

Newspaper archives, it’s been noted before, are always good for a laugh. The private project will now receive tens of millions of dollars in city tax abatements.

Awarded in 1980 to a group of bidders who called their design River Walk, it is still going through the city’s permit process but is slated to go into construction late next year.

How it came to receive this major tax forgiveness is an instructive lesson in the fine-print skills of the Koch administration.

The state statute governing the tax gift is known as 421-a — short for Section 421-a of the Real Property Tax Law. It was enacted in 1971 to stimulate the building of apartments on economically unattractive sites in New York City where housing would otherwise not be built; sites defined in the statute as “vacant, predominantly vacant, or underutilized.” (The developer pays no taxes during construction and then only partial taxes for 10 years afterward.)

Over the years, the program became a giveaway. Hundreds of millions of dollars were awarded unnecessarily to developers who were building luxury projects and would have carries them out anyway, without the tax concessions. Almost all the projects were done in the better neighborhoods of Manhattan.

No one imagines in 1971 that the Trump Tower, on “underutilized” Fifth Avenue, would qualify for these tax gifts, but it got them– $40 million to $50 million worth.

These distortions of the law’s original intent led to a crescendo of protest and pressures against the Koch administration, which finally agreed, after years of foot-dragging, to put limitations of 421-a.

The mayor acknowledged that much of Manhattan had become so attractive and lucrative for developers that tax indictments were no longer needed. So he agreed that from 96th Street southward to 14th Street, and also in parts of Lower Manhattan, 421-a was dead. (He did push through certain geographic exceptions, however — such as the the Times Square redevelopment area, Union Square and the Lower East Side. The critics of 421-a had wanted more of Manhattan covered by the ban, with no exceptions, but this was the best they could negotiate.)

The next step was enactment of the restrictive language — first through enabling legislation in Albany and then in a detailed, implementing statute in the City Council. The new rules when into effect last Nov. 29; projects in the proscribed areas that had not broken ground for their foundations by that cutoff date could not receive 421-a abatements.

Which brings us to River Walk, a project that will run from 16th to 24th Streets along the East River and therefore would seem to fall inside the 96th-to-14th-Streets area of denial.

But then we are told by city officials to look closer at the council’s implementing legislation. River Walk will be built mostly on a concrete platform, supported by pilings, that will extend 500 feet into the river. And the river, if you read carefully, qualifies for 421-a goodies.

Some very clever Koch administration types inserted language that defined the limits of the ban as “the bulkhead line” on both the Hudson River and the East River. And “the bulkhead line” means the water’s edge. So anything built over the water becomes automatically eligible for 421-a.

Nothing was said publicly at the time about this loophole. There was no open discussion. The 421-a critics simply weren’t aware of it, and many of them — like me — have just learned about it.

What it comes down to is that at the very moment when the mayor was conceding that real estate tax inducements could no longer be justified in a large portion of Manhattan because it had become so desirable, he was, virtually by subterfuge, keeping the tax gifts alive for the most desirable tracts inside that portion: the waterfront.

River Walk is the first over-the-water project to benefit from this ruse. But the Koch administration has given a high priority to waterfront development, so more these tax gifts are certain to follow.

River Walk, for reasons beyond the tax abatement, is vigorously opposed by the residents of the neighborhoods around it, who say it is too huge and will overwhelm the moderate-income, low-rise community. They are asking that it be drastically reduced and reshaped.

The project consists of six acres on land and 24 acres to be constructed over water. Its structures will include five residential towers — ranging from 25 to 45 stories — with 1,888 apartments, all of them to be sold or rented at luxury rates. Also in the plans are a 245-room hotel, 2,075 parking places, and office building, retail space and two marinas.

Officials at the city’s Public Development Corp., which late last year took over responsibility for waterfront development from the Department of Ports and Terminals, say the 421-a “bulkhead” language was written before their time by they insist there will be no windfall for the builders of River Walk or any other over-the-water projects.

These officials say they will closely scrutinize the project’s financial plan before setting the final annual rent of the developer’s land-lease with the city.

What they’re suggesting is that if the 421-a tax gift raises the developer’s profits to excessive levels, they’ll raise his rent. We look forward to reading the fine print.

0

How Big of a Bundle Does Trump Require?

By Sydney H. Schanberg

First published in Newsday, May 8, 1987

Chutzpa (noun) — Gall, brazen nerve, effrontery, incredible “guts”; presumptions-plus-arrogance such as no other word, and no other language [but Yiddish] can do justice to. The classic definition of chutzpa is, of course, this: Chutzpa is that quality enshrined in a man who, having killed his mother and father, throws himself on the mercy of the court because he is an orphan. — Leo Rosten, “The Joys of Yiddish”

Nice try, Donald. Gotta hand it to ya. You had the brass to offer to sell the government your version of the Brooklyn Bridge. You say that for the price of one thin dollar, you’ll give us your whole 100-acre Television City tract on the Upper West Side. All you want in return is a 30-year tax abatement, a 99-year lease and a clause that says you get ownership of the land back after 30 years. What a steal for the community! Or should we say a steal from the community?

You would get tens of millions of dollars in tax forgiveness and, because government would be the landowner, you could build any megalopolis you wanted on the huge site — without having to go through zoning review or public scrutiny.

What would we call this gargantua of concrete on the Hudson? You’ve already used Tower and Castle and Parc. Maybe you could call it Trump’s Kingdom — that has a nice ring. Myself, I prefer Trump’s Dump.

Before I say anything else, Donald, I want to offer you my sympathy on your orphanhood and wish you the best of luck in this attempt to snooker the city. You realize, of course, that while Mayor Edward Koch has been generous to real estate titans like yourself who have contributed big bucks to his campaigns, he is nonetheless not a schnook.

So, as you’ve noticed, Donald, City Hall has responded to your delicious scam by saying that the proposal “appears to go well beyond what’s necessary” and that although “we’re willing to put city assistance on the table, we’re not going to subsidize a private developer” to that extent.

The city assistance they’re talking about has to do with the nine acres of the 100 that you’ve hopefully set aside for the National Broadcasting Co. in order to induce the network not to move its headquarters and operations to New Jersey when its leases at Rockefeller Center expire in 1997. 

These big companies are always talking about moving to Jersey or Connecticut. Some of them even do it. It’s got something to do with country clubs and golf courses. For example, General Electric, which bought NBC a while ago, moved its headquarters to Connecticut back in 1974.

Just recently, the American Telephone & Telegraph Co., only a few short years after receiving a $40-million-plus tax abatement to put up its new headquarters building on Madison Avenue, announced that it was moving most of the 1,300 headquarter employees to leafy Basking Ridge, N.J., and would rent out the vacated office space. Koch exploded at this ingratitude and threatened to sue for the return of the abatement. AT&T then modified its stance and said it would put the decision on hold pending negotiations with the city. What AT&T didn’t tell us was that a number of headquarters people, maybe a substantial number, had already been shifted to New Jersey before the announcement was made. Asked about this, AT&T will not comment.

So you see, Donald, while you’re the premier chutzpanik in this town, you’re not the only one. 

Maybe your critics are being unfair to you. Could it be that you’re just a big-hearted, civic-minded robber baron who wants nothing for himself but the warm feeling he’ll get from doing the good deed of bring GE back to Gotham and staying its child, NBC, from leaving? That’s why, you said, you needed those tax abatements and the rest of the sweetheart deal for Television City: because then you could pass on the goodies to GE/NBC in the form of low rents and other subsidies.

City Hall says that it’s not interested in subsidizing you, Donald, but that it does want to provide “what is necessary” to NBC to keep the network here. It’s a little confusing. If the city gives concessions to NBC, the company you’re wooing to be your “anchor tenant,” doesn’t this help you get the entire megaproject moving? In short, won’t you profit handsomely from this subsidy?

I know it’s tasteless to discuss money matters, but do you really need this handout? Haven’t you been cleaning up lately with manipulative trading on the stock market? Didn’t you make $80 million last week when you sold your stake in Allegis Corp.? And wasn’t that in addition to the $70 million you rang up in stock profits a few months ago in takeover attempts involving Atlantic City casinos?

Isn’t that enough dough to get Television City off the ground? Or is that a questions only a churlish critic would ask? Let me ask another: How much money does one person require to get by on? I can see you needing a little something once in a while to tide you over a big weekend at your manse in Palm Beach, but why not just hit up one of your flush friends for a short-term loan? They know you’re good for it. Asking the city for welfare is just not seemly. And I know the thing you most desire not to be, Donald, is tacky.

The last time I wrote to you in this space, I suggested that you could put all the unkind talk to rest with one simple act: Build some housing for the homeless or for low-incoming working people. I agree that the rich are blesses and wondrous tenants, but they don’t need your help or your subsidies anymore. They’ll understand if you don’t build another glitzy castle for a while and shift your talents instead to those who really need them.

Come on, Donald, put your money where your chutzpa is.

0

Powered by WordPress. Designed by WooThemes