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New Costs Threaten to Derail No. 7 Extension
While Gov. Eliot Spitzer (D) has focused most of his ire on legislative leaders whom he sees as standing in the way of reform, one of the governor’s new appointees did fire the opening salvo in what might turn into a showdown with Mayor Michael Bloomberg (R).
Elliot “Lee” Sander, the longtime transit expert who Spitzer appointed to head the Metropolitan Transportation Authority (MTA), threw the city’s plans for extending the No. 7 subway line to 11th Avenue into disarray by declaring that the MTA was “under no legal obligation to absorb any additional costs or overruns” for the project.
The question of overruns has been the 800-pound gorilla in the room for over a year. Though Gov. George Pataki’s (R) MTA chair Peter Kalikow assured the city that the project was not in jeopardy, the project’s official price tag of $2.1 billion was set back in 2003, and has not been adjusted since, despite soaring costs in the construction industry.
“You go through this period when there’s this construction boom worldwide—steel prices rising, oil prices rising,” says James Parrott of the Fiscal Policy Institute, who has previously warned that the project’s existing budget would be insufficient. “And you get to 2007 and what’s the city’s estimate of the cost? $2.1 billion. It was playing games with the numbers in a manner that the MTA made famous—and the MTA doesn’t do that anymore.”
Ironically, Parrott notes, if the extension had gone through the normal MTA capital plan, it could have been eligible for federal funding that might have filled the funding gap.
“The city was the entity that said, no, we have to fast-track this,” he said.
As Sander wavers and construction costs rise, price tag worries for new West Side stops
The No. 7 extension was first conceived as part of the Hudson Yards project concocted by Dan Doctoroff, Bloomberg’s deputy mayor for economic development, which would have been anchored by the $2.2 billion stadium for the New York Jets and 2012 Olympics. Under that plan, the No. 7 line was to be extended down 42nd Street to 11th Avenue, then turn south to a new station at 34th and 11th, across the street from the stadium.
To get the otherwise uninterested MTA on board, Doctoroff proposed to fund the new line entirely with city money, raised by levying payments in lieu of taxes (PILOTs) on developers in the new Hudson Yards office and residential district that would be served by the subway extension. City figures show that—in addition to the $2.1 billion siphoned off to pay for the subway line— since the PILOTs are fixed at below the expected property rate, the city stands to lose up to $650 million more in tax revenue because of this plan.
Even that much money, though, is now likely to be insufficient to provide for the astronomical costs of building underground transit in densely built Manhattan. In addition to construction cost inflation, critics have long noted that the city’s plan omits funding for a second proposed station at 42nd and 11th that would be needed to serve new residents of Hudson Yards farther north.
In all, overruns and added costs are projected to run as high as $1 billion—a figure that apparently proved too rich for Sander’s blood.
What happens now is uncertain. The city’s Hudson Yards Infrastructure Corporation sold $2 billion worth of PILOT-backed bonds last December, with another $1 billion planned to be sold later this year. Without the MTA’s approval, though, the project cannot proceed without the train line, and developers are unlikely to start putting up the office towers that are needed to generate the PILOTs.
The City Council has agreed to provide $1 billion in interim funding out of the general fund to pay bondholders until the PILOTs start flowing. If the construction schedule slips, this money could run out, leading to a potential scenario in which the city would be pushing for quick completion of the subway line, leading to even more money in rush charges.
As of now, the West Side war is on a low simmer. Early in March, Sander issued a statement saying that he would put off any decisions until he has a clearer picture of what the project’s cost will be.
Jeremy Soffin, the longtime Regional Plan Association spokesperson who was recently brought on to run the MTA’s communications department, said that “Sander has had positive meetings with Deputy Mayor Doctoroff,” with the result that the authority plans to solicit bids first, and cross the bridge of any cost overruns as they develop.
“Everyone agreed that it was premature to come to an agreement on overruns when no one knew what the costs were,” Soffin said.
Still, with neither Sander nor Doctoroff eager to swallow what could be billions in added costs, and with the MTA’s budget projections reportedly showing massive deficits in the offing while the authority faces likely cost overruns on other projects such as the Second Avenue Subway, the battle between Albany and City Hall over the No. 7 line may have only just begun.
How much of the price the city is ultimately saddled with remains to be seen.
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