Hudson Yards Bait and Switch: Taxpayers socked

The IBO has come up with a new report on the massive Hudson Yards development and has discovered-what a shock!-that the projections and estimates offered when the deal was originally struck have changed; and Related (yes, them again) is asking for a large tax abatement for the 1.1 million square foot retail mall they are building:

“When the Industrial Development Agency, which is administered by the quasi-public Economic Development Corporation, announced its plan for making tax incentives available to spur construction at Hudson Yards, the discussion focused on making the construction of new office space more affordable. Residential and retail components of the Hudson Yards plan were ancillary.”

“Providing a property tax abatement for the mall means the city will need to pump more money than previously expected into Hudson Yards to meet the development’s debt service obligations. It also undercuts a shift in city policy away from showering retail projects with tax breaks.

Now, however, we see a new focus:

When the Industrial Development Agency, which is administered by the quasi-public Economic Development Corporation, announced its plan for making tax incentives available to spur construction at Hudson Yards, the discussion focused on making the construction of new office space more affordable. Residential and retail components of the Hudson Yards plan were ancillary."

Let’s not forget that the Bloomberg administration changed its tax abatement policies to downplay subsidizing retail development:

“The Bloomberg Administration sought to lessen the use of property tax breaks for retail projects with the revamping of the city’s Industrial and Commercial Incentive Program in 2008. But the Industrial Development Agency has substantial leeway to provide tax breaks to the mall if the agency sees fit.

Under the tax exemption policy for Hudson Yards approved by the IDA’s Board of Directorrs, the mall can qualify for tax abatements if it’s of sufficient size (at least 1 million square feet) or furthering the commercial purposes of the office tower.” (Emphasis added)

Does this sound familiar? It does to those of us at Willets Point who are forced to listen to EDC claim that they need to build an even bigger mall in order to fund the other-more publicly desirable-aspects of the original Iron Triangle development. But, as always, the tax payers are (and will be) on the hook for more than was assured to us by the gonifs at EDC:

“A tax break for the mall means there will be somewhat less money flowing to the Hudson Yards Infrastructure Corporation from new development within the 26-acre Hudson Yards site. The infrastructure corporation, created by the city, issued $3 billion in bonds to pay for the extension of the 7 subway line and to make other improvements aimed at spurring development in the Hudson Yards area.

Under the financing plan for Hudson Yards, all of the money that would typically flow to the city from property tax on the new developments at the site is instead directed to the infrastructure corporation to help pay debt service on the bonds. Because debt service would begin to come due before there was sufficient new revenue to pay the bondholders, the city was temporarily on the hook to make the payments. As the project proceeded and development picked up, city officials expected that Hudson Yards would increasingly generate the funds needed to make the annual debt payments on the borrowed money.”

So, what has happened instead?

“It hasn’t worked as planned. The pace of new development has been slower than expected, forcing the city to spend more of its own funds. A report by IBO’s Sean Campion found that from 2006 through 2012, Hudson Yards produced only $170 million in tax and fee revenues from development—$113 million less than anticipated by project planners. In the early years, interest earnings from investing the bond proceeds offset some of the shortfall but those have now dried up. Over the seven-year period, the city has provided the infrastructure corporation with $374 million in funding for debt service and other needs. 

Giving up tax revenue that would have come from the shopping mall means the city’s tab will continue to grow.” (Emphasis added)

This is what happens when crony capitalism drives the policy train - and Hudson Yards is the mirror to the Willets Point future if the current crazy give away is approved next week by the city council. This is just another reason why the new mayor should come in and revisit any deal that the lame duck city council approves for a lame duck mayor.

And while he is at it, he might want to take a second look at all of the failed promises at Yankee Stadium and the Gateway Mall (The former Bronx Terminal market). The legacy of cronyism and corporate welfare is a disgrace that has gone unnoticed by most of the main stream media in this city.