Insights Blog

Penn Station Redevelopment: Projected Tax Breaks & PILOT Revenues

July 12, 2022

A report by SCEPA researcher Bridget Fisher and co-author Flávia Leite analyzes New York State’s proposal to redevelop Penn Station using a version of value capture financing.

To assist the public debate regarding approval of the Empire State Development Corporation's (ESD) proposal to redevelop Penn Station, SCEPA's report, "Penn Station Redevelopment Proposal: Projected Commercial Tax Breaks and Revenues," models an optimistic scenario for one of the project’s proposed revenue sources: PILOTs that would be paid by the seven commercial sites designated for revenue capture in the ESD’s General Project Plan (GPP) as amended.[1] 



1. Commercial Tax Breaks/Discounted PILOTs

ESD has stated the GPP will include PILOT abatements similar to those currently available to developers in Midtown West, home to Hudson Yards. Hudson Yards’ commercial tax breaks range from 15% to 40%.[2] The maximum tax break currently available for development sites in the financing district is 20%. Applying a 20% tax break to future PILOTs paid by developers of the seven commercial sites in the GPP over the proposed lifespan of the value capture mechanism results in:

  • $1.2 Billion in Tax Breaks: Penn Station commercial developers would pay $1.2 billion less in property taxes. This amount represents foregone revenue that would otherwise be captured by the PILOT increment financing district and support additional bond capacity. Specifically, developers would pay $6.6 billion without the discount and $5.4 billion with the discount.
  • $67/sqft Tax Break: The tax break would decrease the PILOT cost/sqft for Penn Station commercial developers by $67/sqft over the 20-year discounted PILOT program. This is the difference between $363/sqft without the tax break and $296/sqft with the tax break.[3]

2. Commercial PILOT Revenues

This report models an optimistic scenario for projected PILOT revenues paid by the seven commercial sites designated for revenue capture in the Penn Station proposal. ESD’s GPP states that ad valorem property taxes will be a source of recurring revenue to support the state’s bond financing.  Since the GPP was published, ESD made two additional statements that affect the potential revenues captured by the proposed PILOT increment financing mechanism: 1) it will include a “hold harmless” provision which commits the state to refund revenues to the city they would otherwise receive over the lifespan of the value capture mechanism,[4] and 2) the plan will include PILOT abatements similar to those currently available to developers in Midtown West, which includes Hudson Yards.[5]

$4.1 Billion in Net PILOT Revenues

PILOT revenue from commercial property taxes in the GPP is projected to support $4.1 billion in bonds over the life of the study’s defined value capture district to fund the state’s share of Penn Station upgrades. This optimistic projection relies on three assumptions: 1) development proceeds as planned and growth rates for the commercial office market remain consistent,[6] 2) the state uses PILOT revenue to refund the value of current commercial property taxes to the city, and 3) commercial developers in relevant GPP sites receive a 20% tax break, the maximum discount on PILOT payments currently available in the Hudson Yards Financing District.

Below is a breakdown of this total:

Table 2: Commercial Property Tax Revenues

from the Proposed Penn Station Value Capture District

GPP Revenues

Amount ($ billion)

Property taxes from GPP


Revenues lost to tax breaks


Revenues lost to refunding city


Remaining bond borrowing capacity


 Source: Authors’ estimates

  • $6.6 Billion in Gross PILOT Revenues: Total property tax revenue from the seven commercial sites in the GPP is projected to be $6.6 billion over the life of the defined value capture mechanism. This projection is a best-case scenario, assuming development proceeds as planned and growth rates for the commercial office market remain consistent.
  • $1.2 Billion in Tax Breaks: Applying the 20% commercial tax break currently available in Hudson Yards to the future PILOTs paid by the seven commercial sites in the GPP over time, the Penn Station proposal would bring in $1.2 billion less than if these commercial sites paid PILOTS equivalent to full taxes.[7]
  • $1.3 Billion to Refund Current City Taxes: Without the Penn Station redevelopment, current property owners on lots that make up the seven commercial GPP sites would pay $1.3 billion in property taxes to the city during the timeframe of this analysis. This translates to a $1.3 billion loss to ESD’s value capture district to fulfill their commitment to “hold the city harmless.”
  • $3.4 to $5.9 Billion Funding Gap: While PILOTs from commercial property taxes are not the GPP’s only source of revenue, these large, recurring revenues will likely be a significant source of the value capture revenues in the proposed plan. ESD estimates the state’s share of all Penn Station projects at $7.5 to $10 billion (Gateway, Penn expansion and reconstruction of Penn Station). With $4.1 billion in net commercial PILOT revenues under an optimistic scenario, this would leave a shortfall between $3.4 to $5.9 billion to be filled by other revenue streams (not including potential debt financing costs in the form of state interest support payments). The FY 2023 state budget includes $1.3 billion for below-ground improvements.

The model used in this analysis is limited as a result of a lack of information from ESD regarding the proposed project’s overall financing and expected timeframe. As such, the study only projects revenues from commercial properties in the proposal and is based on a limited timeframe. For more details on the study’s parameters, methodology and background, please see the report’s Appendix.

Bridget Fisher is a researcher with the Schwartz Center for Economic Policy Analysis
(SCEPA) at The New School. Flávia Leite is a doctoral student in city and regional planning at the University of California, Berkeley. As public finance scholars, they authored the 2018 report,The Cost of New York City’s Hudson Yards Redevelopment Project.”

The report was commissioned by Reinvent Albany, a nonprofit advocacy organization working to ensure transparent and accountable New York State government and increased transparency in New York City.

[1] The GPP states that the designated revenue streams will also include an unspecified combination of payment in lieu of sales tax (PILOST) and/or payments in lieu of the mortgage recording tax (PILOMRT) and possibly the proceeds of land sales, ground payments or sales of development rights.

[2] The range was designed to provide higher incentives for earlier development and development of sites located farther west. In 2022, sites that receive the highest discount have been developed or are under construction.

[3] This includes a phase out of the tax break during years 16-19 with a return to PILOT payments equivalent to full property taxes in year 20, which follows the discounted PILOT structure received in Hudson Yards. 

[4] The FEIS states, “ESD has proposed that the City would continue to receive current property tax revenues, adjusted annually, on all sites in the Project Area, so the City would not lose tax revenue” (Executive Summary, p. S-40). This study assumes revenues captured by the state’s proposed Penn Station value capture mechanism will be used to fulfill this commitment.

[5] New York State Senate joint hearing of the committees on Corporations, Authorities & Commissions, Finance, and Cities 1 to receive an update on the Penn Station Revitalization Plan held on June 24, 2022.

[6] The project’s FEIS states that the redevelopment of sites 1, 2, and 3 are dependent on the “future selection and approval of a Penn Station expansion at these locations.” Site 1A is proposed to be redeveloped as a residential, not commercial, building. As such it is not included in this analysis, which is based on the FEIS’s majority-commercial development scenario. However, if commercial sites 1B, 2A, 2B, and 3 are not developed and continue to pay city taxes rather than contribute to the value capture mechanism, this would represent a significant decrease in the projected revenue stream presented here (FEIS, Executive Summary, pg S-28)

[7] This projected revenue loss is higher than the $1.1 billion executive budget for the Department of Housing Preservation and Development (HPD) in FY 2022.