By Miranda Neubauer
Last fall Broadway Stages, the Greenpoint, Brooklyn, film production facility that is home to the sets of Blue Bloods, Royal Pains and The Good Wife, sought funding to expand its production space. The project was estimated to create 58 construction jobs and 38 permanent jobs.
Broadway Stages was hoping for a piece of a $121 million pie of federal stimulus funding allocated to the city in June 2009 for so-called “shovel-ready projects,” as part of the $787 billion Obama administration stimulus package that Congress passed in February 2009. The Greenpoint project seemed tailor made for the conditions of the stimulus package— ready to start and located in an economically distressed area of the city where traditional financing was difficult to obtain.
But when the program expired at the end of the year, Broadway Stages’ request for $13.5 million had been turned down, and the project –and its intended jobs—remained in limbo.
It wasn’t an exception: $54.5 million of the stimulus allocation for the city —part of a program known as the Recovery Zone Facility Bonds (RFZB) was not used for its originally intended purpose, according to David Lombino and Julie Wood, spokespersons for the New York City Economic Development Corporation, which was in charge of distributing the funds.
That was also the case around the country, he added. Only $2.17 billion of the $15 billion in tax-exempt bonds available to municipalities around the country was used—less than 7 percent of the total–according to a December report in Bond Buyer, citing data from Thomson Reuters. The stimulus has created or saved 88,000 jobs in the city said James Parrot, deputy director of the Fiscal Policy Institute, which analyzes New York state tax and economic issues In New York City, As stimulus funding winds down and the momentum from the private sector necessary to compensate for decreased stimulus funds is doubtful, Parrot said, a strong recovery could require more stimulus funds.
Final approval of the Broadway Stages project stalled in November when doubts arose over its ability to meet the environmental specifications necessary to receive the bonds. The NYCEDC required that the environmental condition of project sites would have to be satisfactory before funding could be secured.
The site at 359 Kingsland Avenue where Broadway Stages plans to build the new studio is located on property affected by a century old Exxon Mobil oil spill from oil refineries along the Newtown Creek. The area was declared a Superfund site in September. In November Exxon-Mobil entered into a settlement with New York State to pay $ 25 million to help clean up the site. Lombino, from the NYEDC, said potential buyers of the bonds had concerns about possible environmental problems on the location. There was also confusion about which government agency had jurisdiction over the environmental issue, said Sunil Aggarwal, managing director of Think Forward Financial Group, a consultant on the plan.
“I think it’s important for Broadway Stages to get publicly subsidized funding because they’re having such difficulty on the private market obtaining financing,” said Leah Archibald, director of the East Williamsburg Valley Industrial Development Corporation prior to the program’s expiration. “For Broadway Stages to get an ARRA bond would be an important investment in the community because it would help this company ….create hundreds of jobs.” Film production in the city contributes $ 5 billion to the economy and employs around 100,000 New Yorkers, according to the New York City Office of Film and Television.
But even once projects received approval the process of securing the funding was not easy.
The RFZBS were unprecedented, said Julie Wood, spokeswoman for the NYEDC. “It didn’t come with an instruction book, it was a very unique program,”, she said of the initiative, which Mayor Michael Bloomberg announced in June 2009 as the Recover NYC program.
For the first bond allocation cycle in July 2009, the NYEDC received a number of applications worth “ten times the total allocation” according to Wood. Of seven projects that the NYEDC approved, five worth $ 66.5 million were able to secure funding. Among those are the City Point residential and commercial project in downtown Brooklyn and a hotel project in Williamsburg. The funding for another approved project, a $ 28 million cement distribution facility planned by Staten Island Terminal company in Elm Park, projected to create 200 construction and 125 permanent jobs, ended up being returned earlier last year. The North Queens Medical Center in Flushing planned by Fleet Financial Group, projected to create 250 construction and 280 permanent jobs was also not able to secure the $ 17 million in bonds by the Dec 31 deadline, according to Lombino. Esmith Legacy, the backer behind a hotel project in Harlem, which was expected to create 129 construction and 81 permanent jobs, announced Dec. 21 that it was returning its $20 million allocation because it would pursue other financing.
Lombino called the process of “closing” such a deal “a sensitive mechanism” and said that even though the program “lowered borrowing costs”, it was still a difficult climate to seek financing for development and construction.
Instead of the bonds, Aggarwal said Broadway Stages would now seek tax benefits. He said though that such an approach would be more difficult because the city might claim that Broadway Stages is already indirectly benefiting from the 30 percent tax credit for film and TV productions offered by New York State.
That concern was echoed at the NYEDC hearing in November by, Bettina Damiani of the advocacy organization Good Jobs New York. In an interview she called the film industry “one of the most heavily subsidized industries not only in New York, but in the country”. Therefore, she said it would be important to look first at what other funding sources might be available. Aggarwal pointed out that due to the economic crisis, “financing is hard to come by for new construction projects “nobody was lending for real estate, nobody was lending for construction.”
On Dec. 17, Governor David Paterson issued an executive order requiring that since more than half of the bond authorizations had gone unused statewide, any unspent funds from the program in New York State would go to the construction of the new World Trade Center.
According to a press release under Governor Paterson, in New York State, over $ 250 million of $ 551.1 million went unused for its original purpose.
Wood said the program in the city was still a “tremendous success”, noting that the Treasury had recognized the city as a national leader in creating an allocation process for the bonds and that the projects that did secure their financing have created hundreds of jobs
The Wythe Hotel project in Williamsburg, which obtained $ 15 million in bonds, is projected to create as many as 75 construction jobs and ultimately 195 permanent jobs. When he first applied for the funding over a year ago, Jed Walentas, the project’s developer, said, “there was no financing available” and the bonds were one way to address “a very bad capital market.” Because the city selected the project very late in the process “the bonds were actually less important to us,” Walentas said, because other financing opportunities had become available, but added that “over time” the bonds could have a positive financial impact.
“I think the idea behind the bonds was to make projects happen that would not otherwise happen,” he said. “ A year ago for our project that unequivocally true, today it was more marginally true, but nonetheless our project is going to happen with more certainty and probably a little bit faster than it would have without the bonds.”
Overall, $16 billion has poured into New York City’s economy from the federal stimulus package said Parrot. The Recovery Zone allocation stands in addition to other high-profile projects and many more unnoticed ones, from funding for the school lunch program, for the operation of the Staten Island Ferry to the construction of the Second Avenue Subway. New York City agencies received $ 7 billion to spend on everything from infrastructure to health and social support, of which the city has spent just over $ 5 billion, or about 70 percent, according to the city’s stimulus tracker. Through the State, the New York City school system received $256 million as part of the high-profile Race to The Top program to improve education.
“While there has been some job growth in New York City so far in 2010, unemployment is still very high and the prospect is for continued high unemployment indefinitely, almost,” said Parrot. The city’s jobless rate in December 2010 was 8.9 percent, down slightly from 9.1 percent in December, according to the New York State Department of Labor, even as the number of private sector jobs declined slightly by 0.1 percent.
Before the passage of the $900 billion tax cut compromise in December that some are calling a second stimulus, Senator Max Baucus (D-SD) had proposed extending the Recovery Zone Bonds. But in the end such an extension was not part of any legislation. Maureen Babis, a Senior Vice President at the NYEDC, said she was supportive of the World Trade Center project and that it made sense for the bonds to go toward it if they would otherwise go unused. But if there had been no expiration for Recovery Zone projects and clarification of the environmental doubts could have occurred in time, “[Broadway Stages] would be an excellent candidate that would [have benefited] from an extension.”
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