Ground Zero Funds Often Drifted Uptown

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."

Rental Market Subsidies

The parceling out of $1.6 billion in Liberty Bonds to finance luxury housing has proved no less contentious. The downtown housing market slumped briefly after Sept. 11 but then swiftly rebounded. Today three-bedroom apartments near Ground Zero rent for $6,500 a month -- and sell for more than $1 million. Manhattan residential occupancy rates -- more than 95 percent -- are higher than before the terrorist attacks, according to real estate statistics.

Yet the state and city agencies that award the bonds -- the New York State Housing Finance Agency and New York City Housing Development Corp. -- awarded nearly all the residential Liberty Bonds to subsidize the rental market.

Common Cause New York reported that 30 percent of the state's residential share of Liberty Bond proceeds went to Leonard Litwin, who is a major campaign contributor to Pataki.

State housing officials said that political favoritism played no part in their decisions and that loans were handed out "on a first-come, first-served basis." Litwin, they say, had projects in the works and simply got in line when the Liberty Bonds came available.

"Market rents had gone down, and it was a market necessity," said Gary Jacob, a vice president of Glenwood Management Corp., Litwin's real estate firm.

Many urban planners doubt the economics of this argument, noting that Litwin put up a huge equity share in these projects, an indicator of his good financial health. But these planners save their most furious criticism for the state's Housing Finance Agency, which decided to waive its own guidelines requiring that developers who get public bonds set aside 20 percent of the apartments for families with low or moderate incomes.

Instead, they required that Liberty Bond developers designate just 5 percent of the apartments for families of moderate income, which is defined in the area as $80,000 a year for a family of three.

A year ago, Mayor Michael R. Bloomberg laid out his master plan for rebuilding Lower Manhattan, saying he wanted to preserve its economic and residential diversity. But Deputy Mayor Daniel L. Doctoroff, who has overseen much of the development, now says that goal is difficult to achieve.

"It's an admirable goal to have a mixed-income community, but maybe over time it's shifting," he said in an interview, adding that affordable housing in downtown Manhattan requires a deep subsidy. "Maybe this isn't the best use of scarce dollars," he continued. "We have to look at the trade-offs."

Surveys have shown that many residents want the federal recovery money used not just for affordable housing but also for economic development, schools and parks in downtown Manhattan.

"I constantly wonder what Congress will make of our lavish subsidies for some of the wealthiest neighborhoods in the country," said David Dyssegaard Kallick, an economist and senior analyst with the Fiscal Policy Institute, a think tank funded by foundations and labor. "It just seems shocking."