TESTIMONY
by Kathryn Wylde, President & CEO
PARTNERSHIP FOR NEW YORK CITY

New York, New York
August 3, 2006

PDF 113K

New York City Industrial Development Agency Hearing on Hudson Yards Uniform Tax Exemption Policy (UTEP)

Thank you for the opportunity to testify in support of the Uniform Tax Exemption Policy to accelerate development of Hudson Yards. The Partnership for New York City, which represents the city’s business leadership, seeks to promote public policies that contribute to the growth, vitality and diversity of our city economy. We have reviewed the Hudson Yards incentive plan and believe that it will contribute to these objectives.

The Far West Side represents the last significant area for major redevelopment in Manhattan. Based on regional job growth projections over the next thirty years, New York will need to add office space in order to capture market share. As we speak, businesses that want to locate in New York are literally being turned away because of lack of appropriate office space. Housing prices have skyrocketed because demand far outstrips supply. Developing the Far West Side into a robust mixed-use community will help the city address both its housing and office development needs.

The overall financing plan for Hudson Yards represents a significant breakthrough in city land use and fiscal policy. For the first time, the city is poised to capture maximum share of the value created by a major rezoning action. Revenues generated by increased development opportunities that would otherwise go to current property owners, speculators and developers will, under this program, be captured in a public trust and dedicated to improving public infrastructure, including the very important extension of the subway system to 11 th Avenue.

In structuring this novel financing and development strategy for the Hudson Yards, the city is seeking to achieve a delicate balance between imposition of exactions on developers who benefit from rezoning, on the one hand, and provision of tax discounts for those who invest early and take the greatest development risk, on the other. The city has drawn upon expertise from the private sector to create a model that appears to have the right mix of carrots and sticks. Results will ultimately depend on market forces. We believe, however, that the calculations underpinning this plan are based on reasonable assumptions about the marketplace of the future. Certainly, getting this program launched during the very strong real estate market that we enjoy today is the best way to insure maximum returns to the public.

The underlying premise of the city’s plan is to target tax incentives where they are needed the most. Consequently, the PILOT discount program allows for the greatest incentives to go to those who build further from the Midtown business hub and those who are the first to commit to build in this new neighborhood. Since the incentive is for only 19 years, the remainder of the 35-year PILOT at full taxes. The estimated PILOT for locations East of 8 th Avenue, (a 25% discount to taxes) would be about $11.50 psf in 2012. For the first 5M sf developed west of 10 th Ave, the PILOT, (a 40% discount to taxes) would be approximately $9 psf. This represents just over half the discount provided in the PILOT for development at the World Trade Center site, which is $5 psf, reflecting the city’s priority for attracting investment and commercial tenants first to Downtown and secondarily to the West Side.

Critics argue that the City will lose money on foregone tax revenues if this plan is adopted. Because the proposed tax discounts are offset by both accelerated investment and extraordinary payments for zoning bonuses, however, this criticism is based on a misunderstanding of the overall program. Moreover, PILOT payments will generate $8.2B in revenues, as well as sales and personal income tax revenues, which will accrue to the city far more quickly than would happen without the incentives.

While there are certainly risks entailed in financing that anticipates future values and depends upon market forces, these risks are worth taking. The traditional method of financing public improvements through municipal or agency debt has come up against debt limits and budget constraints. The West Side plan captures appreciation in property values created by public rezoning, parks and transit improvements in a way that our city has never done before, launching the model for a new generation of development planning and financing that has enormous potential for the entire city.

Along with the expanded Javits Convention Center, the development of the new Moynihan Station and the proposed relocation of Madison Square Garden, as well as the acquisition of the MTA rail yards for redevelopment under the city’s overall program, the Hudson Yards plan promises to make the Far West Side the most important generator of new economic growth in the city over the next thirty years. This program deserves your support.