Congress added a provision into fiscal-cliff legislation that passed in the early hours of New Year’s Day that extends the issuance of tax-exempt liberty bonds, authorized for New York in the aftermath of the Sept. 11, 2001, terrorist attacks.
The New York Liberty Development Corp., a division of the state-controlled Empire State Development Corp., issues the bonds, with loan payments from the companies securing them. Congress created the program in March 2002.
Section 328 of the fiscal-cliff bill extends the program to Jan. 1, 2014, and applied to bonds issued after Dec. 31, 2011.
Under the program, up to $8 billion of liberty bonds was made available for housing, office, utility and retail development, primarily in the liberty zone, defined as the area of Manhattan south of Canal Street.
All of the original $8 billion has been used, with December having been the cutoff point. Up $1.6 billion was available for rental housing projects in the liberty zone, and up to $6.4 billion for commercial projects.
“The extension of tax-exempt liberty zone bonds has absolutely no effect on current projects. Bonds for all of these projects have already been issued,” said a press officer for Empire State Development. The press officer provided no information on the fiscal-cliff provision.
Liberty bonds have been used to provide loans at the lower tax-exempt rates to Goldman, Sachs & Co. to rebuild its headquarters. A Goldman press officer said Friday that the firm is not taking on any new liberty bonds. Goldman has $1.223 billion due in October 2035 for two tranches of Series 2005 bonds and $250 million due in October 2037 for Series 2007 bonds.
Only about 60% of the commercial bonds, or $3.8 billion, were for projects relating to the World Trade Center site, according to a New York City Independent Budget Office report in August 2011. Commercial liberty bonds issued for other projects included $52 million in 2006 for the National Sports Museum, which filed for bankruptcy in 2009 after defaulting on the bonds.
Some developers outside lower Manhattan have also tapped into the program to the chagrin of critics.
Bank of America Merrill Lynch, for example, used $650 million of liberty bond money in a 2010 debt refinancing for its tower at One Bryant Park in midtown, subordinating $650 million of 30-year tax exempt liberty bonds to $650 million 10-year commercial mortgage-backed securities bonds.
And outside Manhattan, Forest City Ratner, the developer of the just-opened Barclays Center arena in downtown Brooklyn, got $91 million to develop the Bank of New York Tower at the same Atlantic Terminal location in 2003.
“If you’re well-connected, you could probably benefit from the ambiguity in the definition of ‘zone,’ ” said one New York-area financial consultant.