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Weekly UpdatesNEW YORK, JULY 4, 2006: in a ceremony forged of three equal parts-- solemn remembrance, hard-won solidarity, and confident vision--New Yorkers gathered today to lay the cornerstone of the first of the new towers rising on the site of the former World Trade Center. Fittingly, the head of the Regional Reconstruction and Economic Recovery Authority (RRERA), Rudy Giuliani, wielded the symbolic trowel cementing the stone in place. The governors of three states--New York, New Jersey, and Connecticut--were in attendance, testimony to the regional collaboration credited with sustaining the long, arduous work of the Authority during the protracted local recession that followed the terrorist attack of September 11, 2001. As the Tall Ships paraded past the Battery, on the 30th anniversary of the original Op-Sail event, representatives from both the public and the private sectors spoke of the actions that propelled the city from the first dark and gripping days five years ago to this moment of pride and hope.
Perhaps the greatest catalyst in those final months of 2001 was the stunning decision on the part of New York's Real Estate Board to convene a tristate executive conference to explore a potential regional strategy. Including top elected officials from a 75-mile radius emanating at Ground Zero, the real estate leaders reached out to heads of banks and insurance companies, corporate executives, the media, top universities, religious and civic groups, and representatives of the blue-collar community: police, fire fighters, transit workers, and the construction trades. The Group of 35, convened in the year 2000 by Sen. Charles Schumer to prepare a commercial development strategy for New York City, was invited to be part of the core of the executive conference, but its reach was deliberately expanded. The World Trade Center had been the symbolic center of a wide region. The victims had lived throughout the tristate area. The direct economic effects of the disaster ranged indiscriminately across state lines. The R eal Estate Board of New York signaled a courageous commitment to transcending conventional constituencies in announcing the conference, calling for a united effort in a time of crisis.
As one veteran of New York economic cycles put it, "This was not the first time New York had been hammered. In a way, we did ourselves even worse back in the early '70s when we brought New York to bankruptcy, burned down whole neighborhoods, lost jobs by the hundreds of thousands, and generally gave ourselves a big black eye. The feeling around the country and around the area this time was totally different: people were ready to rally around New York. But there were still some lessons from the Fiscal Crisis that were worth remembering. One was that we don't need to go it alone. Another is that the whole region prospers when we flourish, but gets sucked down when New York struggles. And the third was that seemingly unlikely partners can actually make a powerful team. All of us are smarter than each of us. Fragmented efforts were going to be inefficient. We all understood that pretty quickly. So it was in everyone's interest to pull in the same direction."
FINANCING THE RECOVERY
The organizational roots of RRERA, in fact, can be traced to a fiscal crisis agency, the Municipal Assistance Corporation (MAC). Like MAC, RRERA was established to provide an off-budget source of bonded debt capital, with a sterling credit rating and low borrowing costs. With a $4 billion to $6 billion fiscal deficit looming in the year after the Trade Center Attacks, New York City could not itself foot the bill for all the work that needed to be done. With RRERA, the city's own credit rating could be protected and a long-range capital plan developed to rebuild the region's physical infrastructure and support its economic redevelopment as well. RRERA was able to issue tax-free bonds, supported by federal guarantees but primarily funded from two sources of recurrent revenues. The first was the cash flow coming from a re-instituted commuter tax for non-resident employees in New York City that was matched by an equal tax on non-resident income imposed by New Jersey and Connecticut to level the playing field and recognize the effects of job dispersal in the region after the WTC calamity. The second was a series of Payment in Lieu of Taxes (PILOT) agreements negotiated with property owners affected by the terrorist attack, that provided predictability for both the landlords and RRERA in the uncertain fiscal and economic climate of 2002 and ensuing years.
RRERA bonds were primarily sold into the institutional market, but benefited both symbolically and actually by a special issue of low-denomination bonds marketed to the general public in the manner of War Bonds or U.S. Savings Bonds. Besides being of practical benefit in the short term, the sales of the popular bonds helped focus attention on households' need to bolster their savings rate by setting aside periodic payroll deductions to purchase the bonds. The program was enhanced by allowing repaid bond principal to be rolled, dollar for dollar and tax-free, into IRA accounts. With economic recovery now accelerating in the nation and the New York region, the bonds are being repaid ahead of schedule, without having had to call on the federal guarantees.
STARTING WITH THE BASICS
Most of the RRERA funding was devoted to infrastructure projects, making up for shortf ails in Federal Emergency Management Agency (FEMA) capital and in insurance coverage for damages. Segregating the reconstruction projects from the region's normal capital needs for infrastructure allowed New York to skirt the mistakes made in the 1970s, when on-going capital maintenance was strapped to close budget gaps. This time, subways, bridges, tunnels, highways and streets, water and sewer systems, and the other elements of the municipal central nervous system were kept in good repair with orderly budgets, while the emergency funds from FEMA and RRERA were focused on the specific WTC-related rebuilding effort.
Some of the projects were fairly simple and comparatively low-cost. For instance, the decision to integrate the New Jersey Transit and Long Island Rail Road systems operations, allowing for easier regional commutation access to Long Island City, Jamaica, and Secaucus was largely a scheduling exercise, as the tracks were already linked in the Penn Station rail yards. But the integration has already created a powerful axis of new employment centers running through Queens, West Midtown, and the Meadowlands.
Other projects were more costly, but integral to the effort to make the New York region a more efficient location. Work is already underway on the much-debated extension of the Number 7 train to the Far West Side of Manhattan. The rebuilding of the downtown PATH line and the damaged 1/9, N and R subways allowed for a second regional link, providing uninterrupted access from Newark through Lower Manhattan into downtown Brooklyn. New York's central business districts have effectively been buttressed by improved access, while businesses have a wide choice of lower-cost locations for their back-office functions. Furthermore, the greater locational flexibility meets corporate strategic needs for greater redundancy, de-centralization, and crisis management alternatives, subjects that were on the top of boardroom agendas in the fall of 2001.
We now take for granted one of the least expensive and most pervasive changes of the early 21st century. New York's water transportation network is more active now than at any time since the Second World War. Ferries and high speed water taxi service grew exponentially over the past five years, as alternatives to bridge, tunnel, and highway congestion exacerbated by security measures as well as the plethora of orange "under construction--expect long delays" signs that sprouted throughout the region.
It will be another 10 years before we see the completion of the largest of the infrastructure projects: Big Dig II, in Brooklyn--the replacement of the Gowanus Expressway by a new tunnel connecting the Brooklyn-Battery Tunnel to the Verrazzano Bridge approach road. But this project is already opening up waterfront development opportunities, both commercial and residential, in neighborhoods from Red Hook to Sunset Park, and pouring massive amounts of money into the city economy through the thousands of construction workers employed in this effort.
OFFICE MARKET STUMBLED, BUT NEVER FELL
The deployment of blue-collar workers into the infrastructure effort surely carried an important segment of the economy during a period when new office construction was slack. Although Manhattan's office inventory was reduced by millions of square feet in September 2001, the following years also saw the loss of more than 100,000 office jobs from the city economy. Part of this was due to relocations into suburban submarkets, but the greater number represented layoffs in the steep national recession of 2001-2002, and its aftereffects in New York, which saw local job declines all the way into early 2004.
Wall Street's cutbacks were particularly severe, unsurprising in response to the bear market of 1998 to 2001. It took the investment banks and brokerages time to retool but as 2002 brought a 20 percent rise in the Dow Jones Industrial Average and economic recovery took stronger hold in 2003, the conditions were established to rebuild these powerful financial empires. With the Dow now at 14,000, staffing, salaries, and bonuses on Wall Street are expected to set new records this year.
That has meant that, for the first time since the Trade Center attacks, new office construction is economically feasible on an unsubsidized basis. Wisely, incentive programs to encourage development in the post-attack years were kept modest, oriented to long-range market economics, predictable, and sustainable. Of course, the tight fiscal situation at both the municipal and state levels virtually mandated this approach, but it proved very healthy, whatever the reason. Zoning revisions upped the development densities in several targeted areas, yet the slack land market was slow in re-pricing sites. The extension of ICIP (Industrial and Commercial Incentives Program) benefits to Far West Side and WTC-impact area sites helped bring project costs to more affordable levels. Streamlining the Uniform Land Use Process (ULURP) helped by reducing time and bureaucratic requirements. The political climate for this was vastly improved when RRERA enabling legislation was promulgated, outlining its extraordinary redevelopm ent mission. The city's decision to tax new construction improvements upon issuance of the certificate of occupancy further reduced office costs and brought down Manhattan rents in new offices to more affordable levels, improving the New York's business retention efforts.
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