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May 22, 2004
New York State Gov't Misdirected 9/11 Rebuilding Funds: WaPo

In the aftermath of the destruction in Lower Manhattan on 9/11, Congress acted on the will of the American people to defiantly rebuild what had been destroyed by the Islamofascists within the space of a few hours. Congress created, and President Bush approved, the Liberty Bond program and funded it to the tune of $8 billion. They intended the money to rescue the financial condition of the areas damaged at and around Ground Zero and gave New York state and city officials unprecedented leeway to manage the funds in order to reduce bottlenecks and promote maximum efficiency and speed for the rebuilding effort.

Unfortunately, state and city officials have spent the money on an ever-widening radius of projects, both in geography and scope, according to the Washington Post:

Six months after the Sept. 11, 2001, terrorist attacks, Congress approved an $8 billion program to repair this city's damaged office towers, build apartment buildings and finance the rebirth of the financial district. But two years later, city records show that much of the money, dubbed Liberty Bonds, has gone to developers of prime real estate in midtown Manhattan and Brooklyn and to builders of luxury housing.

Local and state officials -- over the objections of their own downtown development chief -- gave one developer $650 million from the Liberty Bonds to erect an office tower for the Bank of America near Times Square, miles from the shattered precincts of Ground Zero. According to city records, another developer got $113 million to build a tower for Bank of New York in Brooklyn. One of the few projects downtown has gone to actor and sometime developer Robert De Niro, who picked up nearly $39 million from the bonds in November to build a boutique hotel in Tribeca, directly north of Ground Zero.

Congress designated $1.6 billion of the Liberty Bonds for rental housing. Nearly all the money from those bonds has gone to prominent developers to build luxury apartment towers in the neighborhoods around Ground Zero, accelerating its transformation into one of New York's richest neighborhoods, the city records show.

I love Robert DeNiro on screen -- who doesn't? -- but that doesn't mean I love stuffing money into his pockets to build a hotel, especially money intended to actually rebuild the damage done on 9/11. Nor do I believe that building high-rent housing in Manhattan really requires federal funding to complete. Congress has reacted to these developments (figuratively and literally) with some dismay but acknowledge that the funding carried little in the way of mandates:

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."

Maloney misspeaks here, as these projects will create jobs for several years as they work towards completion, and new businesses will eventually occupy some of the spaces created by the funding. It just won't be where the damage actually occurred. As fas as Congress' disappointment, what happened with Liberty Bonds is the mirror image of a traditional complaint about federal regulation for states: unfunded mandates. In this case, the government supplied unmandated funds, and it's clear that neither practice produces desirable results.

State and local officials defend their choices by saying that the money went to areas where businesses threatened to leave the area, which would have futher destabilized the city's economy:

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."

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.

The explanation makes sense, and compensating businesses to stay in the area directly impacted by the attack makes some sense; otherwise, with increased overhead cost for the location stretching out several years, most of them probably would have left for other locations. However, the Liberty Bond program was not intended to act as a corporate-welfare grant but to physically rebuild the Lower Manhattan sites that were destroyed or damaged in the attack. Maintenance of the local economy is the state's responsibility. After all, what concerns New York is that most of those business would have moved across the border to New Jersey and would have taken their tax base with them. Does New York plan on repaying those bond funds from the tax revenue they rescued with them?

Congress may need to update the Liberty Bond program in order to enact greater oversight over the use of the funds. Until they do, they have only themselves to blame if money intended to restore Ground Zero winds up at a Grand Zero before the World Trade Center reconstruction even begins.

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Posted by Ed Morrissey at May 22, 2004 8:10 AM

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