The owner of the World Financial Center is seeking an exemption from city and state sales taxes on a $250 million project to turn its Battery Park City retail complex into a “hip luxury” shopping and dining center.
The Battery Park City Authority is considering a request by Brookfield Office Properties for roughly $10 million in city and state sales tax exemptions for materials to be used in the company’s construction of its glitzy new retail hub. The request comes less than a year after the Authority granted a rent reduction worth $22.3 million for the developer on the same project.
The proposal could be considered as soon as Tuesday’s meeting of the authority’s board, though an agenda was not immediately available.
Such exemptions are typically granted to companies relocating to an area or constructing a new building. Breaks for retail, like the one Brookfield is requesting, are unusual, experts said.
“It’s harder to make a case that retail projects deserve a subsidy,” said Jonathan Bowles, director of the Center for an Urban Future, a public policy think tank. “Retailers generally go where the market is, where the customers are. If there’s customers there, they’re going to do it whether there’s a subsidy or not.”
A spokeswoman for Brookfield declined to comment, though the company has said that the retail renovations are designed to lure tenants to its eight-million-square-foot supply of office space at the World Financial Center. Three major tenants — Nomura, Deloitte, and Bank of America — are making moves uptown, leaving Brookfield with big vacancies.
The benefits of the proposed tax break would redound to a company that is well connected politically. Over the last six months, Brookfield affiliates have spent more than $50,000 lobbying the Authority on “issues of concern to Brookfield” and “lease improvements,” according to state filings. At a recent meeting, authority staff said that Brookfield’s current leases — which grant it use of the land underlying World Financial Center buildings — prohibit new sales tax exemptions.
Over the past five years, the company’s lobbyists, chairman and a related donor have also showered the campaign of Governor Andrew Cuomo, who has sole authority over appointments of the authority’s board’s members, with more than $100,000.
The authority’s board and staff discussed Brookfield’s proposal at its June meeting, at which President Gayle Horwitz pegged the cost of the sales tax exemption at about $10 million, based on what she called “back-of-the-envelope” calculations. (Horwitz has since announced she will depart the authority for the private sector, effective Oct. 1.)
Those taxes would otherwise accrue to city and state coffers, an authority official said at the meeting.
A spokesman for the Battery Park City Authority did not respond to a request for comment. The office of Mayor Michael Bloomberg declined to comment on the proposed tax break, half of which would be incurred by the city. A request for comment is pending with the state Office of Taxation and Finance.
Since 2005, the city and state have offered several different sales tax exemptions for purchases made by companies downtown. Brookfield is “looking to be able to access the same set of tax benefits and tax advantages that other entities are getting in lower Manhattan,” Horwitz said at the June authority board meeting.
Typically, though, those exemptions have been for taxes paid on supplies used in new construction, or for outfitting office spaces for companies relocating to the area.
Incentives for retail projects are uncommon, according to Michael Bailkin, a real estate lawyer with experience in negotiating tax breaks. Other entities with the power to grant them, like the city’s Industrial Development Agency, rarely do so, he said.
”The IDA never does retail unless there’s a public policy reason for it,” said Bailkin.
Bailkin added he thought the Authority should accept Brookfield’s proposal, since the renovation project would “stimulate both the office market and the residential market.”
Bettina Damiani, project director for Good Jobs NY, a watchdog group that monitors government spending on development projects, contends the proposed Battery Park City break is an unworthy use of city and state resources.
“Subsidizing retail is generally a wasted subsidy, unless it is in a neighborhood that is devoid of any types of services. And I don’t think, by any stretch, you can say that about lower Manhattan,” said Damiani. “I find it really hard to believe that business is so bad at the World Financial Center that taxpayers need to subsidize it. It doesn’t seem to fit any of the boxes that you would check off.”
Battery Park City Authority staff were set to review the proposal prior to its consideration by the board. The minutes from the authority’s June meeting state that the authority’s staff would make a recommendation to the board at the subsequent meeting, which was held July 31. No vote was taken at that session.