When Mayor Bloomberg promised to pay for the 7 line extension to 34th St. and 11th Ave., he did so in part on the basis of tax returns. Tax revenue from the Hudson Yards development will help pay off the $2.1 billion in bonds the city has outstanding for the subway project. What happens though if the city intentionally depresses that tax revenue?
Already, New York’s Independent Budget Office has raised some concerns over tax revenue from the project. Due to the Great Recession and a sluggish market, tax returns have not been as high as expected, but development is set to grow in the coming months. Now we get word of more tax breaks.
Here’s Daniel Geiger on the funding scheme:
The city’s Industrial Development Agency is expected to clear the way for a big tax discount for a portion of the Related Cos.’ vast Hudson Yards project on Tuesday. The anticipated thumbs up has raised eyebrows among some fiscal watchdogs.
The agency, a subsidiary of the city’s Economic Development Corp., is considering a 20-year long 40% property tax break for a roughly 1 million-square-foot retail mall and the 2.4 million-square-foot office spire that the retail space will be attached to that is being built over the rail yards west of Pennsylvania Station. According to a recent report on the discount, published by the city’s Independent Budget Office, Related could realize $328 million in savings from the exemption over the period…
Fiscal watchdogs say that the break is especially problematic given that the city plans to use tax revenue from the Hudson Yards to pay off the over $2 billion cost of extending the No. 7 subway to the site. That extension is set to open in mid-2014. According to the IBO, the city’s tax collections have fallen short of projections, forcing it to reach into municipal coffers to cover the shortfalls.
Between 2006 and 2012, the city spent $137 million servicing the bonds for the No. 7 line, and is girding itself to spend more. According to the IBO, the city has set aside $155.6 million for that purpose in 2013 and 2014.
Various government watchdogs have questioned the appropriateness of the tax break, and it certainly doesn’t seem completely necessary to encourage development in the area. Meanwhile, the city has given out a subway extension and will now sacrifice more revenue that could have gone toward the station at 41st St. and 10th Ave. That’s not a particularly good look.