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Speeches
Thank you, Chairman Weprin and my colleagues in the City Council for allowing me to testify today.
Everyone agrees that the Hell’s Kitchen/Hudson Yards area affords an important opportunity to realize the development goals and ambitions of New York City . However, I reject Mayor Bloomberg and Deputy Mayor Doctoroff’s misguided plan, which ignores the needs of residents and puts their tax dollars at great risk. I ask that you do the same.
From the beginning, I have raised questions about the soundness of the administration’s financing plan, but the Mayor and Deputy Mayor have been unable to provide any credible assurances. Financing a project of this scale through an LDC—in this case, the Hudson Yards Infrastructure Corporation—is, at the very least, an unprecedented and troubling move.
The Hudson Yards Infrastructure Corporation will pay for the infrastructure related to the West Side plan—the boulevard, the extension of the 7 line, and so on—by floating at least $4 billion in bonds. According to the administration, it will take over a decade for commercial development on the West Side to generate enough revenue to cover the debt service on those bonds. So in the meantime, the Hudson Yards Infrastructure Corporation will issue commercial paper to cover the debt service. In other words, it will rack up short-term debt to cover the immediate costs of its long-term debt.
This past summer, I commissioned the Independent Budget Office to analyze this arrangement. The IBO found that the Mayor’s proposal will cost city taxpayers $1.3 billion more than it would if we used a standard plan based on general obligation bonds. This additional $1.3 billion does nothing to benefit New York City taxpayers, but it buys the Mayor the ability to move forward as he pleases.
But the problem runs deeper than the additional costs. By avoiding the standard capital budget process, the Mayor avoids any conflict between his plan and other capital projects like housing and schools. He also avoids having to submit his plan to City Council oversight and leaves the burden of paying for it to future administrations and future generations.
In last Tuesday’s New York Times, there was an article about the MTA ’s policy of paying off old debt by amassing new debt. This strategy made a number of lawyers, consultants, and financiers very rich, but it also landed the MTA in a deep and dire hole with nothing but fare increases and service cuts in sight. It is easy to imagine a similar article in the future recounting the dealings of the Hudson Yards Infrastructure Corporation.
If Mayor Bloomberg and Deputy Mayor Doctoroff were confident in the financial soundness of their plan, they could pay for it with money from the City’s capital budget. But, of course, they’re not doing that.
In fact, their financing plan is so speculative that the financial community has demanded credit backing for the commercial paper the Hudson Yards Infrastructure Corporation intends to issue. Mayor Bloomberg and Deputy Mayor Doctoroff are looking to the Transitional Finance Authority to act as a credit backer.
The TFA was originally created to help finance the very capital program that the administration is now avoiding. It would have to change its rules to approve the Mayor’s request. But the greater problem is that the TFA’s association with such a reckless plan would jeopardize its reputation and its AA rating and possibly expose it to lawsuits from aggrieved bondholders.
And, if the members of the TFA—three mayoral appointees plus the Council Speaker and Comptroller—don’t vote unanimously to back the Hudson Yards Infrastructure Corporation’s commercial paper, it will send a message that they don’t have full confidence in the Doctoroff plan. Investors will lose confidence in turn, and the City itself will be stuck with a debt service it can’t afford to pay.
The plan is risky enough already. To finance it, the administration is counting on an aggressive program of office development. As I pointed out in my testimony before the land use committee on Monday, the Mayor and Deputy Mayor are calling for an artificial limit on housing development instead of listening to the demands of the marketplace. They’re doing this because they need all the extra revenue they can get to pay off the bonds that the Hudson Yards Infrastructure Corporation intends to float. And office development has a higher revenue-generating potential than housing.
But the key word is “potential.” Commercial developers will not build on spec. The plan for 26 million square feet of office space on the West Side is based on the most optimistic estimates of projected demand, estimates that pre-date September 11 th , 2001 . Since 9/11, the vacancy rate has hovered around fifteen percent. More units are on the way for Lower Manhattan , Downtown Brooklyn, and Long Island City . No office construction or empty offices on the West Side will mean billions in debt that the City will be unable pay.
The Mayor and Deputy Mayor may not be fazed by this risk, but investors will be. The Hudson Yards Infrastructure Corporation may not be able to find takers for its commercial paper and we’ll find ourselves facing a debt service that we cannot pay. When the LDC can no longer issue commercial paper, the burden of paying the debt service shifts to the regular budget, and suddenly the City finds itself unable to pay for its most urgent needs. A similar scenario brought on the fiscal crisis of the 1970s.
The Doctoroff vision of the West Side includes another major risk factor: a stadium that will inhibit commerce and is clearly unattractive to business.
The Mayor and Deputy Mayor argue that the stadium has nothing to do with the rest of the West Side . They claim that the success or failure of the stadium will have no impact on the City’s ability to pay for the plan as a whole. Their argument is hollow.
The problem is not how or if the Jets stadium will pay for itself, but what effect it will have on the redevelopment of the entire West Side .
If businesses don’t want to move near a big, unattractive football stadium that creates massive traffic and cuts off access to the waterfront, what will happen to the Mayor’s West Side plan?
If 26 million square feet of office space are not filled, the financing for the plan will collapse like a house of cards.
If the administration can’t attract anchor tenants, developers will be hesitant to build office space. And if little progress is made on the commercial development front, the Hudson Yards Infrastructure Corporation won’t be able to sell the commercial paper it needs to pay off the bonds. And tax-payers will be left holding the bag.
The TFA, like the City Council, is being asked to weigh the merits of the administration’s West Side plan without weighing the merits of the football stadium that is at the center of it all.
The idea that the TFA and the City Council should consider the administration’s financing plan for the West Side without considering the stadium is outrageous. It’s risky. And it’s an affront to the authority of the Council and insult to tax-paying New Yorkers.
New York City ’s economic future is now in the City Council’s hands. The Council must not let the Mayor side-step the capital budget process simply because it’s inconvenient for him. Mayors are supposed to submit to the capital budget process for a reason: it enables the City to set priorities that are in the best interests of the people.
If we in government do not act responsibly, it isn’t Mayor Bloomberg or the Council who will face the consequences. It is future administrations and future generations of New Yorkers. Our children and our children’s will be paying the price for our mistakes.
Thank you.
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