Everyone knows that Rudy Giuliani went out on top, ending his operatic eight-year reign over New York City as the Person of the Year. But hardly anyone noticed that he left behind a parting gift. On his last day in office, Rudy signed an agreement to proceed with the largest corporate subsidy in New York history: up to $1.1 billion in cash and tax breaks for the New York Stock Exchange. Even when the deal was announced three years earlier, it committed money the city didn't really have to a new trading floor the exchange didn't really need in order to generate a new skyscraper no one really wanted in response to a flee-the-city threat no one really believed. And that was before the city began to hemorrhage cash, skyscrapers began to look like targets, and flee-the-city threats began to feel like municipal treason.
Giuliani unveiled the deal on Dec. 22, 1998, calling it "a Christmas gift to the city." To the city? The city and state agreed to buy out an entire block across the street from the current exchange and build a new 10-story trading floor for the NYSE, as well as a 50-story office tower on top of it. The exchange, whose leaders had been muttering about moving to Jersey City, would pay only one-fourth the cost of the new digs, but would commit to remaining in New York for 50 years. Merry Christmas! No wonder Richard Grasso, the savvy Queens guy who runs the exchange—which, believe it or not, is a nonprofit corporation (despite the huge stacks of cash it blows to place the NYSE symbol on Chris Berman's desk during NFL halftime shows)—noted at Giuliani's holiday-season news conference that it was "an appropriate time of the year to give thanks."
In fairness to Giuliani, the Big Board is a big deal. It employs about 1,200 people, and a badly dressed army of 3,000 additional workers babble and squabble and litter on its trading floor. It is the world's largest equities market, enshrining New York as the global capital of money. It helps attract all those Wall Street firms to Wall Street—firms that provide one-fifth of the city's revenues.
But there is some extraordinary chutzpah to its demand for a taxpayer-funded trading floor, beyond the irony of the ultimate symbol of America's free markets begging for a government handout.
For one thing, trading floors are rapidly becoming the E*Trade era's version of rotary phones; a new one would be obsolete on arrival. The London and Frankfurt exchanges, for example, already operate almost entirely in cyberspace. As one venture capitalist wrote last year in the Wall Street Journal, "The opening bell and old bald guys running around creating confetti make for great TV, but are as dated as disco."
The office tower, meanwhile, was supposed to make the whole deal fall into place. The idea was that sky-high rents from the sky-high tower would eventually get taxpayers their investment back. But well before Sept. 11, it was painfully clear that a softening downtown real estate market was crumbing that play. The project was plagued by delays from the start, and although the city begged many potential tenants and developers to sign on, its talks went nowhere. "There's no buzz anywhere that this is a viable project," an insider told the New York Times development reporter Charles Bagli last year.
And that was before planes started plowing into skyscrapers. Now even Grasso has admitted that building the tallest tower in Lower Manhattan on top of the greatest symbol of American capitalism is "not a salable transaction." Even if taxpayers build it! So, Giuliani's last-minute "agreement in principle" with the exchange, while still guaranteeing at least $865 million in subsidies for the trading floor, allows Grasso to decide whether or not he even wants to go ahead with the skyscraper as well.
What's in it for the city now? A pledge that it won't have to look across the Hudson at a New Jersey Stock Exchange. That was hard to imagine before 9/11—Would Big Ben abandon London?—but now it's totally implausible. Grasso would be tarred and feathered for even hinting about Joisey. That's why he keeps saying things like, "With this agreement, the exchange underscores our commitment to New York, and our strong belief that the capital of financial services will remain at the heart of New York City."
Now that its downtown is in ruins, the city does need to protect that capital status. Firms have abandoned the demolition zone that is Lower Manhattan at an alarming rate since Sept. 11; even though the terrorists obliterated 13 million square feet of downtown office space, the vacancy rate increased in the aftermath. The presence of a grisly, noisy 16-acre construction site will surely tempt more firms to bolt in the days to come. And that will in turn tempt municipal leaders to try to lure them back with cash that the city—which faces a $4 billion budget deficit—cannot afford. Those incentives would encourage Jersey City to respond with incentives of its own, resuming the mutually destructive civic race to the bottom.
But there is an alternative to corporate bribery in the struggle to attract businesses to an area: Make the area more attractive. This is an especially logical alternative for an area located in the greatest city on earth; companies move to New York because they want to be there, not because it's cheap. The problem with Lower Manhattan is getting there, especially now that its train stations are in ruins. That's why New York's civic and planning groups are pushing a different kind of public spending: major investments in transportation links to help workers get downtown from the suburbs, not to mention the outer boroughs and even Upper Manhattan. They also want to create a 24-hour neighborhood, with more housing, restaurants, and amenities to make downtown an even more attractive place to put a business. (Little-known fact: Wall Street was already New York's fastest-growing residential neighborhood before 9/11.)
Sometimes corporate incentives do help protect jobs. But not always. A study last February by the Center for an Urban Future detailed how 39 of the 80 firms that got "business retention" incentives to stay in Giuliani's New York then announced significant layoffs. The New York Mercantile Exchange, for example, received $183.9 million, then laid off 10 percent of its staff the next summer. In the gilded age, Giuliani offered incentives to just about anyone who asked, but Mayor Michael Bloomberg will have to be a lot choosier. And if he says yes to the NYSE, a nonprofit company with 209 years of downtown roots, it's hard to see how he could say no to anyone else.
But it is worth noting that in his inaugural address, Bloomberg signaled his intention to delay Giuliani's lavish last-minute agreement to build stadiums for the Yankees and Mets, and to put corporate leaders on notice that he expects their loyalty in these times of universal sacrifice. "I urge you to strengthen your commitment to New York," Bloomberg said. "This is no time to leave the Big Apple." It is also worth noting that one of Bloomberg's advisers on development issues, Mitchell Moss, told me last year that the NYSE deal was "stupid on every conceivable level."
And remember: One of Bloomberg's first acts after he was elected in November was to renounce a $14.4 million business retention deal for a prominent New York company. If a business needs tax breaks to survive in New York, Bloomberg said, it probably needs a new business plan.
That prominent company, by the way, was Bloomberg L.P.