The Island Sinks: Moynihan’s Deal Getting Pounded

The deal to turn Governors Island over from federal to state and city control is foundering, sources close to the negotiations say. According to legislators who have worked on the deal, there is no obvious way to overcome divisions between the federal government, which currently controls the 172-acre island in the Upper Harbor, and the state and city, who have been negotiating the turnover for seven years.

At issue is New York’s insistence that it be allowed to set aside 70 acres-more than 40 percent of the island-for “economic development,” a term the city’s Economic Development Corporation has declined to flesh out. But the 1997 federal appropriations bill that gave the city the right to make the first offer on the island specifies that the handover can be done for a “nominal” sum only if the island is made into a public amenity-not a profit-making endeavor. The deal was first endorsed by then-senator Patrick Moynihan in 1996.

“It’s a conundrum,” admitted one source close to the negotiations. Officials had said that the deal would be completed by Nov. 5, in time to deliver a goodie to Governor George Pataki on the eve of the elections. But with Election Day behind him and no deal on the table, the Governor no doubt will be reluctant to point to Governors Island as one of his accomplishments. That’s precisely what he did on Oct. 14, when he responded to attacks from Democratic challenger Carl McCall that he offered no “vision” for the city’s future. Mr. Pataki countered by pointing to the imminent conversion of the island into a campus for the City University of New York.

In fact, negotiations had stalled as much as two weeks before Mr. Pataki’s statement, sources familiar with the discussions said. The breakdown took place shortly after federal officials gave Capitol Hill staffers who had been working on the deal a tour of the island-intimating that it had to happen fast because a handover was imminent. That’s when the staffers learned that the city was pressing for large-scale economic development on the island.

Spokespersons for the Economic Development Corporation, which is spearheading the negotiations for the city, wouldn’t comment, asserting that public remarks could “jeopardize the sign-off.”

A spokesperson for the General Services Administration, which is handling negotiations on the federal side, denied that an impasse had been reached.

“At the moment, the objective of everyone is to negotiate a transfer to the state and the city,” said Renee Miscione of the G.S.A. “We are negotiating productively.”

The city and state are balking at the huge price tag of operating the island on an annual basis. Estimates for the annual maintenance costs range from $20 million to $40 million.

Either way, it’s an annual line item the city is not eager to add to its already depressing budget for the coming fiscal years. Originally, according to published reports, the city and state were asking the federal government to turn the island over for a nominal sum-and to sweeten the pot with $20 million to $30 million, to make the cost of running the island more palatable.

But more recently, a different approach has crept quietly into the negotiations. Legislative aides to Carolyn Maloney and Jerrold Nadler, who worked on the 1997 legislation that set the terms for the handover, were surprised last month by the information that the City University of New York would not be the only tenant on the island. In fact, 70 acres-the largest single parcel on the island-would be reserved for “economic development.” What particular uses that category would include were not disclosed.

In April, Mayor Bloomberg surprised the city-and even many CUNY administrators-when he announced that the island’s turnover was imminent, and that CUNY would develop a teacher-training facility that would be the core use of the island.

The CUNY idea was developed in part to ensure that the federal government could legally transfer the island to New York for a “nominal sum.” Since CUNY is a public school, it does not generate profits, and therefore does not improve the property value of the island.

The 1997 appropriations bill estimated the fair-market value of the island at around $500 million, which is the amount the government would expect to receive if it sold the island to a private developer. That sum was and remains far too high for City Hall. Keeping the island’s profitability to a minimum would guarantee that the feds would not be losing out on an opportunity to make money from the sale, since they would be providing a public amenity to the city and state.

But in order to enforce the zero-value of the island, the feds are negotiating what kinds of restrictions they might put on the deed when it’s handed over to the city: If those restrictions are very stringent, the city may find itself with an island that can’t make money, and therefore can’t pay for itself.

“The key to the future of Governors Island is the deed restrictions that are being negotiated among the federal government, the city and the state,” said Ms. Maloney. “We don’t know what those restrictions are going to be-but they will determine the shape of development on Governors Island. Unfortunately, this is a process that’s being negotiated without any input from the public-and by the time the terms are made public, the restrictions will be in place and the public will have no ability to influence them. Something that is so important to the future of New York harbor should not be negotiated behind closed doors without any public input.”

A Hotel Space?

In fact, there was always going to be some revenue-bearing use on the island. While former Mayor Giuliani’s idea of placing a casino there was roundly rejected and is now thought to be unlikely, and while Mr. Bloomberg has rejected the island as the site for a TV tower that would serve local network affiliates (that tower will now be built by developer Douglas Durst above 4 Times Square), E.D.C. studies resulted in a request for proposals (R.F.P.) to build a hotel and conference center. According to sources familiar with the R.F.P., Corcoran Jennison Companies, a Boston-based company, presented an attractive plan for development. Meanwhile, other independently conducted studies showed that there would have to be more attractions on the island for the hotel and conference center to work.

In 1999, Tivoli International, the company that runs the Tivoli Gardens in Copenhagen, presented a plan to develop a fantasyland of restaurants, canals, artificial lakes and even an artificial mountain with amusement-park rides on the island. The idea quickly outraged preservationists as well as members of Congress, who couldn’t understand why the federal government wouldn’t simply sell the island to Tivoli rather than turn it over to the city, which would then make a profit by leasing the land to an amusement park in its turn.

Since then, studies conducted by Cushman & Wakefield have shown that the hotel and conference center could attract significant patronage from downtown firms near the Whitehall Ferry Terminal, where the ferry to Governors Island would depart. But the hotel and conference center might not be sufficient to underwrite the maintenance of the island on a yearly basis.

According to Michael Arena, a spokesman for the City University, CUNY has not been directly involved in the current negotiations between the federal government and the city and state. But in addition to teacher-training facilities, he said a steering committee at CUNY is considering partnerships with biotech-research firms that could pay rent to the city for space on the island, and would provide synergy with a CUNY-led science center on the space.

Whether deed restrictions imposed by the federal government would allow for a biotech hub on Governors Island is not yet clear. Sources said lawyers for the city were working to come up with a profitable use of the space on Governors Island, like biotech, that could arguably be allowed even if the city gets the island for a nominal fee, and even if the biotech corridor on Governors Island makes a profit.

The negotiations may have to move fast. Members of Congress are eager to see some profit from the island if it is not to be deeded over to New York; the 1997 law calls for the handover to happen before the end of 2003.

Ms. Miscione of the G.S.A. said there is no “strict deadline” for completing the transaction, though she conceded that the law does stipulate a deadline for next year.

But aside from President Bush’s publicly stated goal of completing the transaction with New York, there is nothing now to prevent the G.S.A. from putting Governors Island on the market.

According to one Congressional source, while no time limit was imposed on the city to make an offer, “there is a ‘reasonableness’ element here.

“If the federal government feels that a reasonable period of time has gone by and they haven’t gotten something that constitutes a first offer,” the source continued, “sure, the federal government would be well within its rights to do whatever it wanted.”

Mr. Bush may want to keep his word, but some members of Congress have never been happy about the deal, which could have put $500 million into Washington’s coffers rather than the city’s. If the 1997 law has to be rewritten to give the city more time to come up with an offer, there could be daunting opposition for Representatives Maloney and Nadler.

“There’s a concern that New York City would end up with an expensive island and no way to pay for it,” said a Congressional staffer who recently toured the island with a representative of the G.S.A. “I have a feeling that’s one of the reasons we haven’t heard about a deal yet. The issue becomes then, how do you make the island self-sustaining? If you have restrictions that make the value zero, do they leave room to make the island self-sustaining? That’s a real problem.

“Then the other issue is, to what extent is the island going to serve the public?” the staffer continued. “These 40 acres that are supposed to be park-what does that mean? And how are people going to get onto the island? To have 75 acres available for development-what are they going to be putting up there? Every time you ask, they say, ‘We don’t know; we’re talking to people; we’re open to anything.