The BroadsheetDAILY ~ News of Lower Manhattan ~ 2/19/20

Municipal Think Tank Urges City to Weigh BPCA Takeover

The City’s Independent Budget Office (IBO), a publicly funded agency that provides nonpartisan information on critical issues confronting the City, is proposing that the administration of Mayor Bill de Blasio consider a municipal takeover of Battery Park City.

This recommendation hinges upon the unique, hybrid nature of the community, which was built on acreage newly created from landfill in the 1970s. This unusual situation arose because the freshly created site straddled complicated jurisdictional boundaries. The portion of the new land closest to West Street (the previously existing waterfront of Manhattan) would protrude roughly 500 feet to the bulkhead line, which traditionally fell within the jurisdiction of a local municipality — in this case, New York City. But Battery Park City’s 92 acres extended beyond this demarcation, a full 1,000 feet into the Hudson, to what is known as the pierhead line, a legal boundary beyond which artificial structures may not be built into navigable waters. That extra length customarily fell within the purview of the State.

But in these negotiations, the City insisted upon an escape clause: The municipal government would have the option, at any time, to cancel the 99-year lease and take full possession of Battery Park City’s 92 acres, in exchange for one dollar, plus assumption of the BPCA’s outstanding debt, which currently totals more than $1 billion.

In the meantime, the BPCA acts on the City’s behalf by collecting property taxes (in the form of Payments in Lieu of Taxes, or PILOT) and ground rents. The latter form of payment results from the exotic nature of property ownership in Battery Park City, where homeowners, landlords, and developers do not own outright the land they occupy, but instead lease the space (through June, 2069), in exchange for yearly payments of ground rent.

For decades, this option has been a moot point, because the City reaps an annual windfall from the BPCA’s excess revenue (totaling roughly $200 million in 2019), for which it is required to do nothing in exchange, while the Authority looks after the operational details of running and maintaining the community. For this reason, City Hall has had little incentive to consider exercising its right to acquire Battery Park City. And while some local leaders and elected officials advocated for this option years ago, when relations between the community and the BPCA were at their most contentious, these calls have subsided as the rapport between the Authority and residents has improved.

Ms. Brown continues that, “proponents might argue that Battery Park City differs little from other City neighborhoods — it receives similar services, and its residents, in effect, pay the same taxes. Now that the neighborhood’s construction is complete, the BPCA is unnecessary and the City should have exclusive control over the revenue it produces. While the City already receives most of BPCA’s excess funds, the state-controlled BPCA board can and has at times allocated funds to fill State budget gaps to the detriment of the City. If the City realizes efficiencies by combining BPCA and City operations, revenue would increase. The City would also have the right to sell land now leased through ground leases to private developers.”

She continues that, “opponents might argue that Battery Park City is one of the City’s best-maintained neighborhoods thanks to its dedicated funding. Residents and business moved to the area, often paying higher rents due to the ground-lease structure, in exchange for its amenities. If funds were distributed City-wide, local maintenance would suffer — particularly hurting the neighborhood’s many parks. They also might argue an ownership change is unnecessary: BPCA is already required to transfer most of its surpluses to the City and the remaining funds cannot be spent without the City’s approval.”

Largely absent from this analysis is the impact that such a move would have on the financial outlook of the people who live in Battery Park City. The prospect of maintaining affordability (both for renters and condominium owners) is largely contingent on the possibility that the BPCA will agree to renegotiate the leases for these buildings, and agree to forgo a series of ruinous increases in ground rent enshrined in the original contracts, dating (in most cases) from decades ago. This appeal is rooted in politics and policy: the perceived value of maintaining middle-class affordability, rather than allowing the community to devolve into an enclave of unalloyed wealth.

Such a possibility would likely become more remote if the City took direct control and ownership over the community. Given the relentless budget pressure faced by City Hall, precisely the opposite imperative would almost certainly come to the fore: the need to cut expenses, while collecting the maximum possible revenue.

In the alternate scenario outlined by Ms. Brown, “to sell land now leased through ground leases to private developers,” the prospect of financial relief would shift from improbable to impossible. If private investors took ownership of the land beneath the residential buildings in Battery Park City, there would be no realistic basis whatsoever for residents to ask for (or expect) concessions on the terms of ground leases. Such investors would have every incentive (and legal right) to extract the utmost profit from their property.

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	245 Water Street

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212-912-1106 editor@ebroadsheet.com

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