Watchdog Questions Financing of Penn Station Development Deal in Testimony to ESD Board

Reinvent Albany advocates for transparent and accountable government. While we appreciate the ability to submit written testimony for this Board meeting, the public should be given additional opportunities to comment on this project before it is approved, including on its finances.

The Penn Station Redevelopment project under consideration by the Directors is important to the City and the State. Reinvent Albany supports improving Penn Station and New York’s major transit hubs to better serve transit riders.  

Unfortunately, Empire State Development refuses to release basic information to Legislators and the public about the Penn Station deal’s financing. The newly-released Final Environmental Impact Statement notes that “Project financing is not part of the EIS scope” and further states that “the terms of potential payment agreements or other financing options are yet to be determined.” 

Does ESD not know how it intends to fund the project? Why can’t ESD make it clear why it wants to fund state transportation infrastructure using an opaque scheme that essentially steers future New York City property tax revenue to the State via a Payments in Lieu of Taxes (PILOT) deal and puts all the risk on taxpayers?

Further, this deal could result in a real estate firm and big political donor, Vornado, getting a tax break worth a billion or more dollars. It is ironic that a state public authority – an entity that exists to act independently of politics – is securing subsidies for a major donor to the Governor. 

There are many unanswered questions about Penn Station Development finances that should be answered before the Directors approve any aspect of the project:

1. What is the logic of this financing approach given that there are frequently cost overruns on mega projects? PILOTs won’t be able to adjust to cost overruns, nor will the real estate market, meaning the State will have to pay for any increases in costs. An RFP for the design was only issued by the MTA on June 9th, and costs can increase as designs change. The FEIS now lists Penn Station reconstruction costs at $7 to $9 billion, an increase from the announcement made by Governor Hochul last fall when it ranged from $6 to $7 billion. The MTA’s East Side Access, which ballooned to an unfathomable $11 billion cost, is a cautionary tale for mega projects.
2. What is the total cost to city and state taxpayers of this financing scheme, versus the State using conventional borrowing? 
3. What is the impact on city real estate tax revenues, given the proximity to Hudson Yards? The Penn Station area does not exist in a vacuum, but rather in the center of midtown Manhattan. 
4. Exactly how much is the development expected to raise in support of the renovation project? It is a gamble to base revenues off of development that is speculative and would occur over multiple decades. 
5. How much does the State intend to give the developer in tax breaks via discounted PILOTs? If the Hudson Yards model is used, there could be $1 billion or more in tax breaks (see research from the Schwartz Center for Economic Policy).
6. How long will taxpayers pay interest payments on project bonding before Vornado properties generate any revenue? PILOTs don’t begin to generate revenue until the completion of construction, which ranges from 2028 to 2044 for all the buildings (see page 12 of IBO’s report for details).
7. How much will the State be paying in credit enhancement mechanisms? Because borrowing based on PILOTs is considered risky by bond raters, the State must guarantee the bonds.
8. What are the risks to the taxpayers if development does not go as planned, and Payments in Lieu of Taxes (PILOTs) come in at lower levels? (See IBO’s research about city payments made in Hudson Yards.) Given that subway ridership remains at 60% of 2019 levels and the return to office is slow, there are concerns about the resiliency of the real estate market in the post-COVID world. 
9. What assumptions are going into making the City “whole” in terms of projections from current tax revenues as well as increased costs for city services?
10. As part of this redevelopment project, why is the State not proposing to end Madison Square Garden’s $44 million annual tax abatement, which has cost New York City over $875 million in lost tax revenue since 1982 (See IBO’s testimony to the State Senate)? 

Approving the Penn Redevelopment would be Irresponsible
NYS taxpayers will be on the hook for at least a portion of bond payments from PILOTs and possibly much, much more if the development doesn’t go as planned decades from now. It would be irresponsible for ESD Directors to sign off on any aspect of this project without a clear financing plan and understanding of the PILOT agreements.

The State needs to go back to the drawing board and fund this project through traditional, transparent funding. Why can’t we just fund transit projects with traditional capital grants from the State or City? Then there would be real honesty about exactly who is paying and who is benefitting.

Thank you for the opportunity to submit written testimony. Please send any questions to Elizabeth Marcello at elizabeth [at] reinventalbany.org.