The New York City Industrial Development Agency on Friday released proposed amendments to its tax exemption program that will pave the way for up to $3 billion of PILOT debt to help finance a subway extension and redevelopment of the Hudson Yards area on Manhattan’s Far West Side.
The proposed amendments establish a framework under which New York City can provide tax breaks and development incentives, including the use of tax-exempt debt backed by payments in lieu of taxes, or PILOTs. The IDA board is expected to vote on the matter Aug. 8 after holding a public hearing Thursday.
The amendments form the parameters of how the city — through the Hudson Yards Infrastructure Corp., which will sell the bonds — will administer tax breaks. The 60-acre Hudson Yards area, which extends from 32nd Street to 43rd Street, mostly between Eighth and 11th avenues, will be divided into three zones. Qualifying projects would be eligible for exemption from property, sales and use, and mortgage recording taxes.
The city wants to extend the No. 7 subway line westward from its Times Square terminal. Additionally, the redevelopment would include up to 24 million square feet of Class A office space, 13,500 residential units, 2 million square feet of hotel space, and parks and open space. City officials estimate the entire redevelopment will lead to the creation of 225,000 jobs by 2035.
The city’s cost-benefit analysis estimates its PILOT incentives would cost $650.5 million in present dollars over the next 30 years. The IDA proposal indicates that officials expect the package of incentives would attract roughly $17.2 billion of private sector investment during that period.
City officials view tax breaks as essential components of the plans.
“Though Hudson Yards land prices are lower than those in the current Midtown business district, construction costs are the same, and Hudson Yards rents are expected to be substantially lower,” according to the IDA proposal. “Under these circumstances, a building in Hudson Yards would not be able to achieve sufficient cash flow to justify the high cost of construction. Accordingly, the Agency financial assistance as proposed under the proposed UTEP amendment is necessary.”
In addition to the tax-break incentives, the city will pay “on an annual by appropriation basis of interest on HYIC debt in any year in which all other HYIC revenues are insufficient to meet debt service requirements,” the IDA document states.
New York City Mayor Michael Bloomberg has long advocated for the development of the Hudson Yards area; it was to be the site of a West Side stadium for the National Football League’s Jets and the home of the 2012 Olympics. State lawmakers last year dashed the Jets stadium plans after the International Olympic Committee spiked the city’s Olympic dreams.
Bloomberg spokeswoman Jennifer Falk said the administration was referring questions to the IDA. Authority officials deferred comment until the public hearings.
While the plan still needs some additional pieces to fall into place — such as the state Metropolitan Transportation Authority’s acceptance of the city’s more than $500 million offer to purchase development rights for a piece of MTA real estate — it has already secured support from the City Council, which last year approved rezoning the area for development. The city hopes to sell the first batch of HYIC debt sometime in the third quarter.
Many say that redeveloping the Hudson Yards is an important component in the city’s overall push to expand its tax base and provide infrastructure from commercial and residential growth.
“It’s important for the city to make sure it pursues the right set of infrastructure improvements,” said Jeremy Soffin, vice president of public affairs at the Regional Plan Association. “We’re looking to add one million people in the city and so you’ve got to think about where they’re going to work and where they’re going to live.”
Soffin said that while some tax incentives may be necessary to get the overall redevelopment moving, he’s concerned about the level of financial support the city is offering private developers.
“The concern is whether we’re setting a precedent on the West Side that’s going to limit the revenue that would otherwise come onto the city’s tax roll in the next generation,” he said.
Fiscal Policy Institute deputy director James Parrott said he generally supports the plan, but does not agree with the proposed financing method or the tax breaks at this point. The non-partisan Institute is hosting an open forum on the Hudson Yards project tomorrow, he said.
“There’s no economic justification for giving the tax breaks years ahead of when the development is going to occur,” he said. “The financing justification is that they have to do tax breaks now to get developers to sign the PILOT agreements. The only reason for the tax breaks is to establish a financing revenue stream. It’s all premised on tax breaks, and we’ve been told the development will grow the tax base, but why again do we have to give away part of the tax base to expand the base?”
