W.T.C.-Airports Swap Unsheathes Conflict With Gargano, City

All New York seems to be gushing about a land deal that promises to save Ground Zero from one of the six miserable redesigns presented last month, while emancipating the city from an increasingly raw deal on the lease of its two airports to the Port Authority of New York and New Jersey.

But even as the deal-proposed by Mayor Michael Bloomberg’s city development czar, Daniel Doctoroff-is being greeted with cautious optimism from Albany to the New York Times editorial desk, at least one powerful figure is fuming: Charles Gargano, who is not only the state development czar and a close ally of Governor George Pataki, but also the vice chairman of the Port Authority.

The proposal is to buy the Port Authority out of the World Trade Center site, which it owns and which provides the bistate agency with some $130 million in annual revenue even after the Sept. 11 terrorist attack. As payment, the city would deed the agency the land beneath its two airports-La Guardia and John F. Kennedy-which the Port Authority currently operates through a lease that is becoming cumbersome on all sides.

Behind the scenes, the swap proposal has raised the stakes in a rapidly escalating battle between Mr. Doctoroff and Mr. Gargano over who will control development at Ground Zero and beyond.

Referring to Mr. Doctoroff, one state official said, “It’s a common thing [in this city] for different people to try to be king-but when someone’s at the prince level and tries to be king, it draws people’s ire.”

One measure of the tensions is the Gargano camp’s belief that the Bloomberg administration leaked details of the swap proposal to pre-empt the state from criticizing it. One Gargano loyalist said “we’re 99 percent certain” that Mr. Doctoroff’s office “went ahead on this.” It’s a charge that Mayoral spokesman Ed Skyler denied “categorically,” and that a City Hall source said was “ridiculous.”

There’s no question, though, that the leak generated positive buzz. Publicly, Mr. Gargano appeared warm to the idea, saying it “could be a serious first step.”

“The Port Authority would be open to discussions of such a plan if the city intends to pursue it,” Mr. Gargano said in a statement over the weekend, though he added later, “There are substantial issues that would need to be resolved …. “

Privately, Mr. Gargano’s supporters were eager to point out that this apparently simple deal is tremendously complicated-so complicated, in fact, that it might never happen.

By all accounts, the politics of proposing such a deal are complex, and while the idea of the land swap has been attributed to Mr. Doctoroff, it’s not clear he came to it first. One top Port Authority source told The Observer that the idea had been kicking around at the Port Authority for some time, but was rejected because the already-battered agency might appear to be cashing in on the World Trade Center site by using it as barter to gain control of the city’s lucrative airport business.

Nevertheless, the proposal bears all the hallmarks of a Doctoroff idea: It’s bold and simple on its face, but technically complicated and politically sensitive just beneath the skin. What’s more, it’s an idea that fits comfortably with an infant Mayoralty that is scoring points for boldness and simplicity.

Whether that fits in with the needs of a Governor who faces a re-election bid in November-or with the needs of Mr. Gargano, who has a lot at stake in that race-could be another matter. That is one possible reason why sources in Albany are starting to elaborate on the “complications” of the deal Mr. Doctoroff has proposed.

For one thing, Mr. Gargano’s allies pointed out, the restrictions on redevelopment imposed by the leaseholders on the Port Authority may be minor compared with the development regulations that would kick in if the city owned the property. A redevelopment of the site would have to go through the tortuous process of land-development approval known as the Uniform Land Use Review Procedure, and provide variances for any uses or building heights that deviated from local ordinances.

For Mr. Doctoroff and the Bloomberg administration, time may be an ally rather than an enemy: Even a long-drawn-out process might redound to their benefit if it were perceived as one with built-in public input from community boards and local leaders as well as City Hall. And if they can continue extracting steep rents from Mr. Silverstein as the process grinds onward, all the better.

But at the state level, a different pace is imagined. It was Mr. Gargano, after all, who clashed with the leaders of the Lower Manhattan Development Corporation over the pace of redeveloping 7 World Trade Center, initiating a debate about how fast the redevelopment should proceed.

But if the city edges Mr. Silverstein out, or if the developer can no longer pay the rent without generating revenue from the site himself, the deal could become a lemon-and one with a high opportunity cost, given the revenues the city will have lost from giving up the airport leases, which are likely to become significantly more lucrative after the current negotiations between the Bloomberg administration and the Port Authority are complete.

In the earlier redevelopment of Times Square, the city was able to overcome many of its own cumbersome procedures by ceding parts of the redevelopment to Empire State Development, which faces fewer restrictions on its projects than city agencies do. Insiders said it was this obvious prospect that had Mr. Gargano and Mr. Pataki initially interested in Mr. Doctoroff’s proposal-though nobody knew whether it was part of Mr. Doctoroff’s plan: Empire State Development is, after all, chaired by Mr. Gargano.

And while Albany sources said that Mr. Gargano had floated the idea informally past Mr. Pataki only days before the “swap story” broke and met with interest, they pointed out that the state had a significant stake in the deal that would have to be closely considered first-a luxury they can perhaps no longer afford.

“The Governor looks like a hero,” gushed one insider to the Daily News on Aug. 3. “It’s a win-win for everybody,” Robert Yaro, president of the Regional Plan Association, told the Post . But now, if the state tries to increase its own stake in the redevelopment process-which many say that Mr. Pataki will do, especially after the November gubernatorial elections (assuming he wins another term)-it may look like Mr. Gargano’s doing the land-grabbing.

Money Game

Even if the deal never goes through, it’s already having effects on the money-wrangling at Ground Zero. Mr. Silverstein-currently in negotiations with his insurers, led by the Swiss Reinsurance Company, to settle his insurance claim-has said they were close to an agreement. But now Swiss Re is saying the swap idea could change things. The Port Authority has been loath to say anything publicly that would jeopardize Mr. Silverstein’s claim that he is owed over $7 billion in insurance money-and no wonder, since, according to Swiss Re, a chunk of that money would revert to the authority as the owners of the land and Mr. Silverstein’s partner. But with the city in the picture, the authority’s attitude on a settlement might be different.

“If the city and the Port Authority can somehow orchestrate it that they are in charge solely, then Swiss Re would be more accommodating, because we would recognize that the proceeds are going to the people of the city of New York,” said Swiss Re America Holding Corporation chairman Jacques Dubois. “That’s why I think the proposal floated by [Mr.] Doctoroff makes sense.”

They’ll all have to get along if this deal is going to happen, since it introduces complex bargaining points for the city and for the Port Authority, for Mr. Silverstein and his insurers, and for Governor Pataki and his allies. A source at the agency said the Port Authority pays the city to run the airports by tithing out a portion of its yearly revenue-and subtracting the cost of any capital improvements. But that subtraction doesn’t happen until the improvement comes “online.” This means, essentially, that the city would pay for Port Authority projects like the upgraded “train to the plane” the year it comes online, if the current contract is maintained. If the Port Authority no longer made payments to the city from which it could subtract the cost of that project-estimated at $2 billion-it’s not clear who would put up the money.

Regarding the World Trade Center site, sources at City Hall and the Port Authority agree that the 99-year lease held by Mr. Silverstein for the 11 million square feet of lost office space would likely be turned over to the city. It was this lease that committed the Port Authority to re-creating all of the lost space-which led to the plans that were regarded as too heavy on office space, and too light on both cultural amenities and respect for those who died at the Twin Towers.

Negotiations between the city, the Port Authority and Mr. Silverstein have not gone smoothly since Sept. 11. Last November, the authority and Mr. Silverstein sued the city to stop it from collecting on a nearly $100 million tax bill they’d received; it was a Giuliani administration mantra that the office complex should be taxed like private property once it was leased to the group of investors led by Mr. Silverstein in July of 2001.

While the swap is being regarded as a way to ease Mr. Silverstein out of the redevelopment, it’s not clear that he’s any more likely to budge whether the city or the Port Authority owns the site.

“[Silverstein] is not going to walk away from his obligations or his rights,” said Mr. Silverstein’s spokesman, Howard Rubenstein. “Nobody is suggesting that if there is a swap, it would wipe him out of his position.”

Under the Doctoroff plan, it’s Mr. Gargano who looks like he’s being wiped out at Ground Zero. He was already the loser in a bid to control the Lower Manhattan Development Corporation, and was reportedly feuding with the man who became its head, John Whitehead. But a measure of Mr. Gargano’s influence could still be felt throughout the process-as a loyal Pataki soldier, as the executive vice president of the Port Authority’s board and as the state development czar. But with the city taking control of the site, it appears the balance of power on the LMDC would shift toward the Bloomberg administration-and the Port Authority would be removed from the process altogether.

Is that something Mr. Gargano can allow?

“It’s never gonna happen,” said the source close to Mr. Gargano.