The Price of Delay
IT took workers nine months to clear the pit that was once the Twin Towers. Four years after 9/11, the state and city governments (may) finally have settled on how to rebuild Downtown. But it's not just time that's been wasted: Billions of dollars have slipped away as well.
How so? The longer it takes government to do its most basic job - create an environment to attract private construction - the less can be built with the available public subsidies. Post-9/11, federal, state and local governments each had jobs to do.
New York's governments had to rebuild public infrastructure - fix the destroyed streets and smashed train stations; work with utility companies to repair mangled gas and phone wires.
City and state decision-makers also had to settle on designs for Ground Zero and for new public infrastructure in the area. They had to design a street grid and traffic pattern at Ground Zero and around Lower Manhattan to address New York's significant post-9/11 security concerns.
As long as uncertainties reigned on those fronts, private-sector rebuilding - and efforts to attract new investors to Downtown - would stagnate.
The feds had to provide billions to rebuild Lower Manhattan. Washington came through: In early 2002, Congress approved $6.4 billion worth of tax-exempt federal "Liberty Bonds" to be awarded to private-sector office developers.
Good enough. But this incentive has been neutralized by the city and state governments' intractable dithering over what they'd do Downtown.
Consider: The feds authorized the Liberty Bonds nearly four years ago. Most of the money that's to go toward direct Downtown rebuilding - $5 billion in Liberty Bonds for the Freedom Tower and for a tower to be built nearby by Goldman Sachs - hasn't been touched yet.
And the cost to build an office tower in Manhattan has risen 25 percent in the past four years, says Marilyn Davenport of the Real Estate Board of New York. Why? Thanks to local and global demand, steel, cement, labor and energy costs have skyrocketed.
Further: "What we've seen in the past four years is nothing compared to what we'll see in the next two," Davenport told me. Why? As demand stays strong here, the Gulf Coast reconstruction effort will draw materials and workers away from the rest of the nation, further pushing up costs.
Even pre-Katrina, one consulting firm estimated that Gotham building costs would rise 17 percent more over the next two years. (Katrina also means New York can forget about any fresh funds from the feds.)
By mid-2007 or so, when the Freedom Tower and the Goldman Sachs tower might, at long last, be under construction, the Liberty Bonds' value will have eroded as much as 40 percent since they were authorized. That is, it will cost $4.5 billion to $5 billion for a developer to buy in 2007 what cost $3.5 billion in late 2002 or 2003.
Make no mistake: Developers who take advantage of Liberty Bonds (including Goldman Sachs and Freedom Tower developer Larry Silverstein) have lost time, and money, directly to the state-city failure to address post-9/11 transit and security concerns. (Silverstein, the leaseholder of the former World Trade Center, is also relying on another fixed pool of cash that's seeing its value eroded by delays: insurance payouts.)
What delays? Two examples:
* The NYPD repeatedly warned the pols that the "working" plan for the Freedom Tower was unworkable because the tower's foundation - as set on the new street grid and designed by the government's architect, Daniel Libeskind - would be vulnerable to truck bombs. This forced a full reworking of the tower months after construction was to have started. (And even now, a source close to the Freedom Tower has said that the new design may still be impractical.)
* Goldman has been interested in building a tower Downtown since shortly after 9/11 - but delayed a decision because Gov. Pataki was insisting on a tunnel that would have deposited fast-moving cars (and potential truck bombs) perilously close to Goldman workers. Area residents and businesses fought the tunnel from Day One - but the governor refused to declare the tunnel dead until earlier this year, when Goldman threatened to dump its plans.
Months of delay on security and transportation concerns - key responsibilities of government agencies - were partly why city and state officials had to dig deep into their own taxpayers' pockets this year to award new incentives to Goldman: sales-tax and other credits that go beyond what was contemplated after 9/11.
Pataki and Bloomberg didn't do their most basic jobs quickly - and the New York construction market hasn't waited. New Yorkers must ask: Four years on, has the government readied Downtown for the private investment it needs to rebuild?