Subsidy City: The Real Public Costs of the World Trade Center Towers

In reading all of these subsidies, a disclaimer is necessary. This is a tally, not a mathematical analysis. It was created in the absence of public analyses by those who have the tools to do them in a thorough manner, and thus the raw numbers come with their flaws. They do not, for instance, illustrate the level of risk associated with the various subsidies (e.g., the public sector is planning to backstop $390 million in debt on a $1.1 billion loan for Tower 3, although there are other pots of funding that would first have to be exhausted before the public would begin to start payments). In addition, certain numbers would typically be measured in the current value to the public sector, or “net present value.” (The tally counts the cost over 15 years for leases, for example. By this measure, Silverstein Properties was required to pay $1.8 billion over the next 15 years in rent before the recent agreement, far more than the net present value, given that the whole 99-year lease was valued at $1.5 billion in 2006.)

In examining the mess at the Trade Center and the context for the added subsidies, it is significant to note the context. The rationale, again and again, seems to be that public officials wanted the private towers to rise in the face of a market that would not otherwise allow their construction, as the need to rebuild was the dominant theme. Construction costs rose, financing became more difficult, and many government-imposed factors contributed to the imbroglio as well. The interwoven site design has dictated unrealistic schedules and led to exploding costs, for one. And the mayor and governor centered a revised 2006 financial agreement with Silverstein around the concept of rebuilding all 10 million square feet at the site at once. Just four years later, that concept has been abandoned, yet the basics of the financial agreement were still in place when the latest round of renegotiations took place, adding to the complexities of discussions.

The site is also different from any traditional development site, as Silverstein has pointed out, in that the rent is extremely high, as it assumes the speedy redevelopment of office towers. The rent on the empty sites alone was to be $78 million a year, escalating substantially after completion was anticipated. Silverstein did secure $4.55 billion in insurance, which allowed the rent to keeping flowing. However that amount on its own was by no means enough to simply replace the space that was lost, particularly given the incredibly complex site design.

This has been one of the driving factors of the debate, and particularly in the latest rounds of talks, as without a long-term guarantee of rent from Silverstein, the Port Authority would have suffered a major loss in annual revenue.

Still, scarce public sector economic dollars are generally not spent where they simply can fetch some return, as many investments can claim a long-term benefit. Dollars go to where they can best be utilized. And if anything is clear from the layering of subsidies at the trade center site it is that it has been a vacuum for government assistance. Infrastructure costs have skyrocketed, costing the Port Authority billions in money that would be spent on transportation projects such as new airport terminals or a new West Side bus garage. The public sector is also throwing money at developing its own tower, the $3.2 billion 1 World Trade Center, perhaps the most expensive major skyscraper ever built on a per-square-foot basis given intense security measures.

Each and every component at the site has cost far more than ever advertised, sucking down additional funds to see completion. The latest deal with Silverstein is simply the most recent installment of a recurring series, as the desire to rebuild the World Trade Center has proved a dominant force in public decision-making, often at the expense of rational fiscal policy.


Subsidy City: The Real Public Costs of the World Trade Center Towers