In the frenetic months that followed the terrorist attacks, Congress worked fast to assemble financing to rebuild the area around Ground Zero. In a rare move, Congress allowed private developers to receive proceeds for commercial projects from interest-free, tax-exempt bonds sold on the municipal bond market. While the Liberty Bonds were backed by the federal government, state and local officials selected the projects that would receive the money.
Congress put few conditions on the Liberty Bond program, but the program's advocates said the intention was clear -- and it was not for luxury apartments and commercial projects far from the site of the World Trade Center. In fact, the program stipulated that New York's governor and the city's mayor had to deem a downtown project "not feasible" before diverting money for use elsewhere in the city.
"We didn't put a lot of strings on the Liberty Bonds, but more should have gone for jobs and affordable housing," said U.S. Rep. Carolyn B. Maloney (D-N.Y.). "A lot of this money has been spent on projects that fit the letter of the law but not the spirit."
The city's Industrial Development Corp. was designated to hand out the commercial Liberty Bonds. The corporation's executive director, Barbara Basser-Bigio, said that city and state officials wanted to jump-start the broader city economy and that some of the projects would not have been built without the assistance. "Our top priority is to create office space," she said. "We are looking to stimulate the economy through the creation of jobs and enhance business districts throughout the city."
New York officials also say that critics are missing the urgency felt in the weeks after the attacks to retain businesses in the city, especially Lower Manhattan, which remains the nation's third-largest central business district.
"Downtown was hemorrhaging in those days," said Carl Weisbrod, a former top city development official and now president of the Alliance for Downtown New York. "It was critical to stabilize the residential and commercial communities."
'Rebuild, Renew, Enrich'
The first recovery aid began to flow to New York in the weeks immediately after the terrorist attacks. The Bush administration tapped $3.5 billion in community development block grants, a federal program usually reserved for economic development in poor communities. Of this money, $300 million was quickly directed to a program to retain companies tempted to flee from downtown Manhattan. Auditing firm Deloitte & Touche got $17 million, Bank of Nova Scotia got $3 million, and Bank of New York received $40 million. American Express got $25 million even without threatening to leave its 3 World Financial Center home. Other federal money intended for small businesses ending up going to investment-house brokers and traders.
In March 2002, Congress started to move beyond this initial emergency patchwork and created the Liberty Bond program. (This week the Senate approved an extension of the Liberty Bond program, and the legislation is now headed to the House.)
City officials applauded, saying the bonds would spark the redevelopment of downtown. "The Liberty Bonds will rebuild, renew and enrich Lower Manhattan," Gov. George E. Pataki (R) said at the time.
Myriad agencies are involved in the effort. The Lower Manhattan Development Corp., a joint state-city agency, has taken the lead in the rebuilding but was given no power over the Liberty Bonds. Separate city and state development agencies -- including the city's Liberty Development Corp. and the New York City Industrial Development Agency -- sell the bonds and provide the proceeds to developers.
The corporations' records show the agencies gave $400 million from Liberty Bonds to World Trade Center leaseholder Larry A. Silverstein to rebuild an office tower near Ground Zero, which he is doing even though he has no prospective tenants. The state set aside money for a downtown convention center and gave funding to De Niro and his partners for their six-story, 83-room boutique hotel 10 blocks north of Ground Zero.
The commercial market downtown, however, continues to sputter. The vacancy rate today hovers at 15 percent, more than twice what it was four years ago.
By the middle of 2003, no other developers had stepped forward to build downtown, city officials said. Officials at the Lower Manhattan Development Corp. argued for holding the Liberty Bonds in reserve and waiting for the downtown market to pick up.
But city and state development officials who controlled the Liberty Bonds turned their eyes elsewhere and provided funding for the Bank of America building and the Bank of New York office tower.
Developer Bruce C. Ratner, who is constructing the bank building, has also received $243 million from Liberty Bonds for the construction of a tower for Pace University and New York University Downtown Hospital. Media tycoon Barry Diller received preliminary approval for $80 million to build the corporate headquarters for his company, IAC/InterActiveCorp., which includes Ticketmaster, in the Chelsea neighborhood.
John C. Whitehead, the chairman of the Lower Manhattan Development Corp., criticized those awards, saying that Congress did not intend the Liberty Bonds for the more prosperous precincts of midtown. He told the corporation board last year that the bonds eventually "will be needed for the World Trade Center site itself and the surrounding area."
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