State Assembly member Deborah Glick is sponsoring a proposed law that will (if enacted) impose a tax on residential development in New York City, to create a new, dedicated funding stream to build public schools. In a related development, two Lower Manhattan Community Boards and the Community Education Council for District 2 (which covers Lower Manhattan) have endorsed this measure.
Ms. Glick’s bill (designated A3378) is a reprise of a similar measure that she sponsored in last year’s legislative session, which was passed in her chamber of the legislature, but never taken up by the Republican-dominated State Senate.
“It is a school impact fee that would be charged to developers who are either constructing or converting non-senior housing,” Ms. Glick explained at a public meeting last April, shortly after introducing the 2016 version of the bill. “The fees would be directed to kindergarten-through-12th grade school construction.” Upon hearing this, the assembled school principals, parents, and community leaders broke into applause.
Shortly after Ms. Glick introduced the 2017 version of her bill in the Assembly, it was endorsed by panels representing Lower Manhattan and its surrounding neighborhoods. Community Board 2 (CB2), which covers Canal to 14th Street, west of the Bowery, and Community Board 1 (CB1), which covers Manhattan South of Canal Street and the Brooklyn Bridge, have both passed resolutions supporting Ms. Glick’s bill. A third body, the Community Education Council (CEC) for District 2, which covers the East Side south of 97th Street (with the exception of the Lower East Side) and the West Side south of 59th street, has also endorsed the measure. (CECs are responsible for advising and commenting on educational policies, and providing input to the Department of Education on matters of concern to the district.) All three bodies have also called for the creation of a School Capital Fund to collect and disburse impact fees.
At the February meeting of Community Board 1 (CB1), Tricia Joyce, chair of that panel’s Youth and Education Committee, said, “we need to work together with developers to have them contribute to the cost of building our schools and provide space to build our schools, now that we don’t have many places to build from the ground up anymore in our community.”
The resolution Ms. Joyce introduced says (in part), “Community Board 1 strongly supports the school impact fee legislation bill A3378 introduced in the New York State Assembly by Assembly member Deborah J. Glick, and urges its immediate passage,” and “Community Board 1 supports the Community Board 2 and Community Education Council for District 2 resolutions requiring school impact fees from developers of new residential buildings.”
Although the law Ms. Glick is proposing would apply to all of New York City, such a levy would be more directly relevant for Lower Manhattan than almost any other community in the five boroughs. In the square mile below Canal Street, the frantic pace of residential development in recent years has left local schools operating well in excess of their designed capacity and bursting with students.
This creates an ironic dilemma, in that much of the demand for apartments in Lower Manhattan is driven by the perception that the area boasts multiple public schools that are among the best of any in New York City. While that belief is rooted in fact, it also fosters a dynamic that is both self-perpetuating and self-defeating, in which great schools drive residential development, which creates the demand for additional school seats. But these intertwined forces move at vastly different tempos: Developers have created tens of thousands of new homes in Lower Manhattan in recent years (and plan thousands more in the next 36 months), while school-seat capacity has grown by less than ten percent of the total surge in apartments. The resulting deficit is widely understood to harm students, schools, and the community as a whole.
Underlying this gap is a harsh fiscal reality: Developers of residential real estate in Lower Manhattan have reaped a windfall of many billions of dollars in the past decade. The City government’s coffers have swelled by hundreds of millions of dollars, as publicly owned real estate has been sold off for development, and levies such as property taxes and transfer fees have been collected on newly created homes. But only a tiny fraction of either of these jackpots has been allocated for building new schools in a community that exerts a gravitational tug on families with young children.
School impact fees, while almost unknown in New York, are prevalent in almost every other fast-growing area of the United States, urban or suburban. The idea behind the policy is that new building projects should directly pay at least a portion of the cost of providing additional public services, the need for which would not arise without the development. Some form of impact fees (which are also used to pay for services such as police and fire protection, water and sewage infrastructure, and new roads) is levied in about 60 percent of all U.S. cities with more than 25,000 residents, and almost 40 percent of all metropolitan counties, according to Duncan Associates, a Chicago-based consulting firm that advises local governments around the United States on how to formulate impact fees. In California and Florida, the two states that utilize impact fees most extensively, they are assessed by 90 and 83 percent of all cities and counties, respectively, according to the company.
But not in the largest city in America. For New York, where real estate interests are particularly influential, impact fees are not applied to building projects. The closest New York City comes to anything resembling an impact fee is “inclusionary zoning,” which encourages developers to create affordable housing, in exchange for bonuses like zoning variances, tax abatements, and preferential financing. But these are generally optional in New York City. Outside of New York, planners call these “linkage fees,” and they are usually mandatory.
Eric Greenleaf, a Tribeca parent who has served for almost a decade on the School Overcrowding Task Force (a joint panel convened by elected officials representing Lower Manhattan), points to a pair of earlier development projects on West Street as illustrations of a dysfunctional approach to school planning. Those projects were 200 Chambers Street and 101 Warren Street. Both are located on lots once owned by the City, where zoning regulations allowed only for small buildings. But in the real estate boom in the early 2000s, developers wanted to erect tall condominium towers there: 200 Chambers is 30 stories tall, while 101 Warren has 32 floors.
“The City wanted to up-zone those lots to allow for the larger buildings,” Mr. Greenleaf explains. But, foreseeing that many families with school-age children would be drawn to these dwellings, community leaders opposed the zoning change, unless the City promised to create a new school in Lower Manhattan. The Bloomberg administration agreed, but the developers proceeded at breakneck pace, while the school project plodded.
The tower at 200 Chambers opened in 2007 (with 253 apartments), and the 101 Warren Street building debuted in 2008 (with 390 apartments). Together, the two buildings created more demand for additional school seats than could be served by the planned new school. In the event, however, that facility (which is known today as the Spruce Street School) didn’t open until 2011. And when it did launch, it was in the base of yet another new tower, New York by Gehry, which contained an additional 904 apartments. All of which meant that the new buildings enabled by the promise of a new school had actually left Lower Manhattan with a more severe deficit than would have been the case if both the new school and the new developments had been cancelled.
“Three things happened,” Mr. Greenleaf observes. “First, the City got a lot more money for selling the land. Second, the developers were made very happy. And third, the City made a lot of additional money from real estate taxes, on property that would otherwise never have existed, and real estate transaction fees. Add up the difference from the sale, plus the taxes and transaction fees, and that’s a nine-figure sum, which could be used to build a nice new school.” But the nine figures disappeared into the City’s budget, while funds to build new schools have remained perpetually scarce.
Lower Manhattan now finds itself, once again, at a familiar crossroads. The plans for 80 South Street call for a tower that will be nearly as tall as One World Trade Center. Developer Howard Hughes Corporation (which is also in the midst of several development projects at the nearby South Street Seaport) has finalized the sale of the lot at 80 South Street (along the FDR Drive, between Fletcher and John Streets), with an area of 8,128 square feet. The Hughes Corporation acquired the site in January, 2015, for $100 million. At the time, 80 South Street was zoned for up to 820,000 square feet of development. But the company subsequently purchased several hundred of thousands of square feet of unused air rights from adjacent properties and transferred them to the South Street lot. These additions have brought the total developable space for the lot at 80 South Street to slightly more than one million square feet.
At the same time, Howard Hughes began seeking a buyer for 80 South Street, just months after purchasing the property. Late in 2015, it reached a tentative agreement with Hong Kong-based developer China Oceanwide Holdings, at a price of $390 million. That sale has now been completed and documents filed with the City by China Oceanwide indicate that the new owner plans to erect a tower of more than 110 stories, that will be slightly more than 1,400 feet tall — a height that will place its roof deck approximately 100 feet above that of One Word Trade Center (although 80 South Street will not match the height of the latter building’s ornamental spire).
Moreover, this building could theoretically become even larger, if the developer agrees to include community benefits, such as another new school, or some affordable housing. But the number of new residents added to Lower Manhattan by this one (admittedly, very large) building may turn out to be trivial. Research by Diana Switaj, CB1’s director of planning and land use indicates that more than 6,000 new apartments are scheduled to be developed Lower Manhattan in the next several years (not including the building at 80 South Street). These are likely to bring with them almost 12,000 new residents, and deepen Lower Manhattan’s deficit in schools capacity by hundreds of additional seats.
The bill Ms. Glick that Ms. Glick is sponsoring is one possible response. The text of her proposed law specifies that, “all funds collected pursuant to this section shall be specifically designated for the construction of new public kindergarten through twelfth grade schools.”