Developer Larry Silverstein and the Port Authority are struggling to reach a resolution over the fate of three planned office towers at the World Trade Center, entering a stalemate that could further delay completion of the site.

On April 3, the Port Authority, which owns the World Trade Center site, delivered to Silverstein Properties a proposal to remake the existing agreement for the three towers, mostly rebuffing an earlier request by Mr. Silverstein for the agency to finance his towers, according to multiple people familiar with discussions. The agency called for new restrictions on the amount Mr. Silverstein could make from constructing the towers, and for the immediate construction of just one building, Tower 4, which the Port Authority would help finance and in which it would take an equity stake.

That proposal, which would leave the other two towers—more than 4.4 million square feet combined, with no tenants—to be built when the market will allow, puts the two sides miles apart. The Port Authority was apparently less than enthusiastic about Mr. Silverstein’s request for it to back financing on multiple towers, and in turn, Mr. Silverstein has scoffed—though not officially—at the Port Authority’s counter-proposal.

The agency’s proposal would likely push development of the other two towers off for years down the road, using up any insurance money now, an offer that frustrates Mr. Silverstein, according to a person familiar with his thinking.

“No way Larry’s going to agree to that,” the person said of the proposal.

The result: The site where two of Mr. Silverstein’s towers are to be built will likely remain a pit until there is a resolution, as the 77-year-old developer has no incentive or legal obligation (yet) to build without a financial agreement. Given that site-wide infrastructure such as the HVAC system is to be housed there, a long standoff could further delay numerous other portions of the site, including the PATH hub and the Freedom Tower.

The two sides are approaching the problem—that the economy will not allow for Mr. Silverstein to build his towers by 2014, called for in the current lease—from quite different positions, and it shows.

Mr. Silverstein, along with his deputy, Janno Lieber, has put forward a proposal that emphasizes the completion of private development of the site—part of a vision that had city and state government support when the master plan was crafted. He had hoped to get the Port Authority to back the financing on at least two of the three towers—Tower 4 and perhaps Tower 2—allowing the developer to build and then realize profits on the buildings (though the bistate agency could have captured the buildings if he ever defaulted). From this viewpoint, public-sector involvement—through assuming billions in risk—was justified, as rebuilding the World Trade Center is seen as a common goal for Lower Manhattan, the public and Mr. Silverstein.

The Port Authority’s counter-proposal is centered on shielding itself from more financial commitments while still building out the site’s infrastructure and filling the hole that was ground zero. If it had backed financing on multiple towers, the agency would have needed to cancel, delay or substantially stretch out its other major projects, which include airport improvements and $3 billion toward a rail tunnel under the Hudson River. (In a statement, a Port Authority spokesman said the agency’s responsibility is to keep the site moving forward, “as well as helping ensure the office buildings meet a severely constricted marketplace.”)

In its proposal, the agency called for Mr. Silverstein’s $900 million or so in remaining insurance money to both build out that common infrastructure for all three towers and to help construct Tower 4, which has two major tenants: the Port Authority itself and the City of New York. That tower would, in turn, produce some revenue with which Mr. Silverstein could pay rent. The Port Authority would back financing of Tower 4 with its own assets, though it would take an equity stake and insist that Mr. Silverstein forgo a developer’s fee in the current agreement worth around $50 million.

With the two sides quite displeased with the other’s offer, the next steps are unclear. A litigation battle could conceivably ensue, with both sides charging that the other missed the timetable for its commitments (infrastructure, for the Port Authority, and, for Mr. Silverstein, completion of the towers). This scenario would seem likely to play poorly before a public already fatigued with changes to the timetable at the site, though that’s more a problem for the elected officials involved than for a private developer like Mr. Silverstein.

All opens the possibility for someone else to come in and broker a compromise. Governor Paterson ultimately has a seat at the table, though he has remained mum on the issue. His top economic development official, Marisa Lago, avoided the issue when asked about negotiations at a New York Building Congress breakfast forum Tuesday.

And then there’s Mayor Bloomberg, who has been staying rather quiet for now. He must sign off on any changes to the site’s lease, and officials in his administration have been briefed on discussions and have studied the finances of the project.

In a statement, Deputy Mayor Robert Lieber said the city wants progress at the site and on-time completion of the memorial: “Both sides need to accept the reality of where things stand and to reach an agreement so that can happen.”

ebrown@observer.com

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