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Executive Summary

As reported over the past few weeks, a new financial plan to redevelop Ground Zero was agreed upon by the major players in the rebuilding effort—the Port Authority of New York and New Jersey, Silverstein Properties, and New York City and State.  This report dissects the new arrangement, which reduces the role of leaseholder Larry Silverstein and features a set of new public sector commitments, and lists the various benchmarks that must be met if the terms of the deal are to be officially adopted by the Port Authority at its September Board meeting. 

This report also examines the package of subsidies passed by the New York State Legislature in June, 2005, intended to bolster the Downtown economy and accelerate the redevelopment of the World Trade Center site.  The programs have been dubbed “the Marshall Plan” by New York State Assembly Speaker Sheldon Silver, who spearheaded the legislation and has represented the Lower Manhattan district for 30 years.  GJNY estimates that the total cost of these programs will exceed $300 million in direct subsidies and forgone taxes.

Renegotiated Financial Plan for Ground Zero

On April 25, 2006, Larry Silverstein, who leases the World Trade Center site from the Port Authority, accepted the terms of a new “Conceptual Framework” for redeveloping Ground Zero.  While it is being touted by prominent public officials and much of the news media as a significant milestone in the beleaguered rebuilding process, the new agreement is not final and there is still much to be resolved before the Port Authority board meets in September to consider officially adopting its terms. 

This report breaks down the responsibilities of the various parties involved in the rebuilding effort to help foster a better understanding of what must be accomplished over the summer months.  To broadly summarize, under the new arrangement:

• Silverstein Properties retains the right to build three office towers but relinquishes control of two other buildings, including the Freedom Tower, to the Port Authority.
• Silverstein Properties splits the remaining insurance proceeds and tax-exempt Liberty Bonds with the Port Authority, which would also utilize $250 million from New York State to help finance the Freedom Tower.
• New York City and the Port Authority have committed to occupying a combined 1.2 million square feet of space in Silverstein’s new office towers, while Governor Pataki promised to find at least one million square feet of leases for the Freedom Tower.
• Several construction and infrastructure issues must still be resolved.
• Silverstein Properties is being offered the rights to the lucrative retail portion of the site when another company, the Westfield Group, currently owns the “right of first offer” to build and own this space.

New Commercial Incentives for Lower Manhattan

Instead of cash grants and loans, such as those in the $20 billion Federal package approved shortly after 9/11 and documented in previous Reconstruction Watch reports, the new program provides an array of incentives in the form of city and state tax exemptions, relocation credits, and rent assistance to reward businesses that locate operations in Lower Manhattan. 

This report covers the five components of the legislation and discusses eligibility, benefits, and program costs.  These are as follows:

·        A commercial rent tax exemption for World Trade Center tenants and retail businesses below Murray Street, and a five-year reduction of the commercial rent tax for other eligible businesses in the Liberty Zone, which includes most of Lower Manhattan below Canal Street.

·        A rent subsidy of $5.00 per square foot for the first 750,000 square feet leased at the World Trade Center site, and a $3.80 per square foot rent subsidy for the first 750,000 square feet leased at 7 World Trade Center.

·        A sales tax exemption on build-out costs for businesses leasing space in the Financial District.  A sales tax exemption on office furniture, equipment, and build-out costs for businesses leasing space at the World Trade Center sites and the World Financial Center/Battery Park City area.

·        Expansion of the Relocation and Employment Assistance Program (REAP), which provides a tax credit of $3,000 per job for businesses relocating to Lower Manhattan.

·        Elimination of tax incentives for the conversion of commercial property to residential use in Lower Manhattan.

The legislation was passed in June, 2005, under “a message of necessity” from the Governor, a tool used to bypass the state’s constitutional requirement that the final version of a bill must be on each legislator’s desk for three days before it can pass.[i]  As a result, many legislators were forced to vote on the bill almost immediately after receiving it.

A spokesperson for Assembly Speaker Sheldon Silver said the total costs of the commercial rent and sales tax breaks and changes to the REAP program will amount to approximately $200 million over five years[ii].  This is consistent with the projections of the New York City Office of Management and Budget and the New York State Division of the Budget.  The rent subsidy program itself is capped at $115 million, meaning the cost of the entire set of programs could exceed $300 million by the time the World Trade Center site is redeveloped and partially leased out.

Due to other business incentives that were enacted in 1995 as part of the Lower Manhattan Commercial Revitalization Program, the downtown area now features special real estate tax abatements, sales and commercial rent tax exemptions, rent and energy subsidies, relocation benefits, and tax breaks for the development of energy-efficient office buildings.