The Port Authority and developer Larry Silverstein have filed a
lawsuit against the city in response to the city’s attempt to collect nearly
$100 million in real-estate taxes on the destroyed World Trade Center complex.
The lawsuit caps a long-running feud between the Port Authority and former
Mayor Rudolph Giuliani, whose administration contended that the office complex
should have been taxed like private property once it was leased to a group of
investors led by Mr. Silverstein in July.
The dispute outlived the Trade Center and Mr. Giuliani’s term.
Now it threatens to complicate Mayor Michael Bloomberg’s efforts to play a lead
role in the redevelopment of the 16-acre site.
Filed without fanfare in State Supreme Court in Manhattan last
November, and kept quiet at a time when all the parties are publicly vowing to
cooperate, the lawsuit pits three of the main players in lower Manhattan’s
redevelopment against one another.
The Port Authority, which owns the site, and Mr. Silverstein, who
has plans to rebuild the complex, are asking a judge to rescind the city’s
$95.6 million tax bill and declare the property tax-exempt.
The lawsuit places Mr. Bloomberg in a particularly difficult
predicament. If he abandons the claim on the complex, which was moved onto the
city’s tax rolls after the lease with Mr. Silverstein was signed, he could find
himself with a new hole in the city’s already-battered finances. It could also
damage the city’s chances of collecting taxes on any future redevelopment.
Then again, pursuing the taxes could antagonize the Port
Authority and Mr. Silverstein at a crucial juncture in the redevelopment
project. And winning the lawsuit could deal a blow to plans to build another
large office complex on the site. A tax exemption would allow Mr. Silverstein
to rent out office space at rates cheaper than those in surrounding buildings.
Daniel Doctoroff, the new deputy mayor for economic development
and rebuilding, said that he’d met recently with Port Authority officials, but
that the administration had not yet decided whether it would continue to try
collecting the taxes.
“This [dispute] existed prior to Jan. 1,” when Mr. Bloomberg took
office, Mr. Doctoroff said. “I think it’s something we’re still in the process
Unlike Mr. Giuliani, who often used the Port Authority as a
rhetorical punching bag, Mr. Bloomberg can ill afford to anger the bistate
agency. As the site’s landlord, the Port Authority is bound to have a large say
in how the site is rebuilt. Half of its board is appointed by Governor George
Pataki. One board member, state development czar Charles Gargano, also oversees
the Lower Manhattan Development Corporation, the authority created to design
and fund downtown’s redevelopment.
“It’s obviously a very long and complicated relationship between
the city, the state, New Jersey and the Port Authority,” Mr. Doctoroff said.
“Our commitment is to try and work with them to come up with a mutually
Former Giuliani administration officials, including former
Corporation Counsel Michael Hess and former Finance Commissioner Andrew
Eristoff, did not return calls for comment.
“This seems to be part of this historical schism between the
Giuliani administration and the Port Authority,” said Jack Sinagra, the new
chairman of the Port Authority board. “I think we’re going to make a
concentrated effort to have a better relationship starting from scratch with
the Bloomberg administration. But time will tell.”
The relationship between the
agency and the city could hardly get any worse than it was when Mr. Giuliani
was Mayor. Mr. Giuliani claimed that the authority favored New Jersey and
cheated New York in any number of ways, and he called it “an out-of-control bureaucracy.”
He also sometimes pursued strategies that seemed devised primarily to provoke
Port Authority officials, as when he used photos of the city’s airports taken
from a helicopter to demonstrate the agency’s laggardly pace at plowing runways
after a snowstorm. He tried to hire a private consultant to manage the
airports, which the Port Authority runs under a lease from the city. In 1996,
he released a plan to kill the authority once and for all by dissolving the
1921 compact between New York and New Jersey that created it.
“Giuliani appeared on the stage at a point in history when he had
nothing to lose by baiting the Port Authority,” said Angus Kress Gillespie, a
professor at Rutgers University and author of Twin Towers: The Life of New York City’s World Trade Center .
“Baiting the Port Authority plays well with the New York City voters, and the
Port Authority can’t very well strike back. Having so many facilities in New
York City, it’s kind of held hostage to the teasing and baiting of the Mayor.”
Now, “with the destruction of the Twin Towers, you might say the
tables are turned. It’s a little more incumbent on the city to be nice to the
Port Authority in the hopes that some [commercial development] will be put back
The Port Authority never paid taxes on the World Trade Center
because the city, under long-established constitutional law, has no authority
to tax another governmental body. But the Port Authority always paid the city a
fluctuating amount, called a “payment in lieu of taxes” (or PILOT), based on
the assessed value of other buildings in the area. Last year, the Port
Authority paid the city about $31.5 million.
When the Port Authority announced plans to lease the World Trade
Center to a private developer, city officials immediately announced that they
would tax the complex like any other privately owned building.
“This is not an issue of negotiation for us,” then–Deputy Mayor
Anthony Coles told The Observer in
June of 2000. “If it’s not put back on the tax rolls, then someone is getting
out of paying the tax, and then the city will go to court.”
The tax issue bedeviled the Port Authority as it tried to auction
the property. One bidder, Vornado Realty Trust’s Steven Roth, backed out of the
deal after the city threatened the tax hike.
The Port Authority closed the 99-year, $3.2 billion lease deal
with Mr. Silverstein, its second choice, after agreeing to fight the city’s tax
bill and pledging to pick up the difference between the PILOT and the $100
million in taxes if it lost the case.
Welcome to the Tax
Mr. Giuliani did not attend the July 24 ceremony at the World
Trade Center plaza, at which Mr. Silverstein signed the lease and received a
two-foot-long set of ceremonial keys to the complex. The next day, Mr. Eristoff
put out a press release “welcom[ing] the World Trade Center to the tax rolls.”
The day after that, Mr. Eristoff sent letters to Neil Levin, then–executive
director of the Port Authority, as well as Mr. Silverstein and one of his
financial backers, Westfield America, informing them that they owed $95.6
The tax issue didn’t disappear on Sept. 11. On Oct. 5, the city’s
finance department sent delinquency notices to the Port Authority and Mr.
Silverstein, charging them 18 percent interest on their past-due tax bills. James
Moses, a finance department spokesman, declined to say why the city continued
to pursue the taxes after the Trade Center was destroyed. “All matters
regarding the World Trade Center litigation are under review by the new
administration, so it’s not appropriate for Department of Finance to comment.”
The Port Authority and Mr. Silverstein filed suit on Nov. 21,
alleging that the city acted “in excess of their authority and jurisdiction” in
levying the taxes. They claim that the World Trade Center remained the property
of the Port Authority even after it was leased to Mr. Silverstein, and was
therefore not subject to city taxation.
Even if a judge finds that the property is not exempt, the
lawsuit asks that the assessment be lowered to reflect the fact that the
complex no longer exists.
“It’s not like this was something we wanted to do,” said William
Martini, a former New Jersey Congressman and Port Authority board member. “I
think we had to protect our rights. I think we all hope that this will be
worked out with the city, along with all other issues [surrounding]
redevelopment of the site.”
Attorneys for the Port Authority, Mr. Silverstein and Westfield
declined to comment on the suit, as did a Port Authority spokesman.
Mr. Doctoroff said he’s hoping the two sides will “reach out to
each other and establish a new relationship.”
That may be easier said than done. City officials-and not just
Mr. Giuliani-have long coveted the money that would come from taxing the World
Trade Center. Former City Council Speaker Peter Vallone advocated using the
money to establish an affordable housing trust. But the kitty is shrinking
fast. Mr. Giuliani’s June budget anticipated collecting $74 million in taxes on
the complex in 2002 and $108 million in 2003, according to the Independent
Budget Office. In December, that number was revised down to $28.7
million-essentially the amount of the PILOT-which the Port Authority agreed to
pay Dec. 31.
Next year, the Port Authority could try to reduce the payment to
next to nothing, since the complex itself is gone. “I’m not sure at this point”
how much the agency will pay, said David Rubenstein, deputy director of the
city’s Office of Management and Budget.
In addition, giving up a claim to the taxes could mean that the
city would miss out on a potential future windfall if Mr. Silverstein succeeds
in his efforts to build a new $7.2 billion office complex on the site.
Forsaking the claim could
once again put Mr. Bloomberg in the unenviable position of undoing one of Mr.
Giuliani’s policies. The new Mayor has already backed off from his
predecessor’s last-minute agreements to fund a pair of baseball stadiums for
the Mets and Yankees, citing the poor state of the city’s finances. He has also
announced his preference for some sort of commercial development for the
disaster site. Mr. Giuliani, by contrast, wants all the land reserved for a
Perhaps most importantly, the
dispute belies public pronouncements of harmony among those parties-developers,
elected officials and, yes, even bureaucrats-who will determine how lower
Manhattan is redeveloped. It is the first, but surely not the last, rift among
them. For Mr. Bloomberg, who has little formal power in the process-Mr.
Giuliani appointed the city’s four representatives on the redevelopment
authority’s board-the lawsuit may be an early test of whether he can advocate
for the city while keeping his informal seat at the decision-making table.
The tax issue “is really part of the overall resolution and our
goal of redeveloping lower Manhattan,” Mr. Martini said.