As the massive stalagmites of Hudson Yards intrude upon the Manhattan skyline, it's easy to focus just on the impact on the streetscape of the onetime no-man's land between Chelsea and Hell's Kitchen: Out with the diners and gas stations, in with giant bug exoskeletons and towering glass shards that look like they were designed just to be demolished in the next Marvel movie. There's a new dystopian outpost of Midtown, and it is changing the blocks west of Penn Station forever.

The new district, though, didn't just come about through the hard work of money-grubbing developers, or even just a city rezoning like in Downtown Brooklyn. Hudson Yards owes its existence to a 2004 initiative to jump-start a new neighborhood on and around the old West Side rail yards, greased by lots and lots of publicly provided cash: $2.3 billion for extending the 7 train to 11th Avenue, $500 million for new pocket parks and roads, and $200 million to buy up air rights from the MTA. Just last month, the city council approved another $500 million to pay for what would be the city's most expensive park per acre, thanks for the need to deck over an Amtrak line that will run underneath it.

All told — adding in $281.2 million in city capital expenditures and more than $750 million in special tax breaks handed out for Hudson Yards commercial developers — the city will end up spending at least $4.5 billion in taxpayer money, with developers led by Stephen Ross's Related getting a sweetheart deal on publicly controlled land in order to create a new outpost of Midtown. [Update: That figure has now risen to $5.6 billion, according to newly compiled research.]

Or, in the words of a 2016 consulting report for Related, by creating a new district supporting 55,752 jobs and an economic impact "larger than the GDP of Iceland," city taxpayers will earn back their investment, and more. As Related Hudson Yards president Jay Cross vows to Gothamist, "To the extent that the city put $3 billion in up front, they're going to get more than paid back."

So which is it? Massive tax sinkhole, or cornucopian windfall?

Figures from IBO and EDC (chart by Lylla Younes / Gothamist)

The John D. Caemmerer West Side Yard, an open-cut rail yard taking up six city blocks west of Penn Station, officially opened in 1987, on the site of a rail depot that dated back to the Civil War. With the Javits Convention Center having debuted one year earlier on the northern part of the yards, this land was soon eyed as well for possible future development: Rudy Giuliani considered it for the site of a proposed Yankees stadium — a plan killed by the city council in a rare budget revolt — and it was targeted by the Jets owners for a new football and Olympic stadium — nixed by Assembly Speaker Sheldon Silver after Madison Square Garden owner James Dolan hired Silver's former chief of staff as a lobbyist. (One legacy of the latter proposal: the Jets’ stadium czar at the time was Jay Cross, who ended up jumping to Related to head up its own development plans.)

Before the NFL plan met its demise, it shook loose an important concession from the city council, which approved spending $2 billion to extend the 7 train to 33rd Street and 11th Avenue. New subway lines are usually the responsibility of the MTA, but that authority wanted nothing to do with spending $2 billion to add a single station. Instead, Michael Bloomberg's deputy mayor Dan Doctoroff came up with a plan dubbed "value capture": The city would take tax money collected on the site and siphon it off to pay off the cost of the subway extension and traffic infrastructure, with the goal of making the site more attractive to developers who could create an entire new neighborhood on the failed stadium site.

The value that would have to be captured was daunting. To foot the bill, the city redirected a dizzying array of revenue streams to the newly created Hudson Yards Infrastructure Corporation, a quasi-public agency controlled by, but not technically part of, the city.

According to figures compiled by the NYC Independent Budget Office, these are (deep breath): $814.4 million from district improvement bonuses, fees paid by developers for exceeding existing zoning limits; $414.9 million from "tax equivalency payments," residential property taxes funneled to the HYIC; $294.1 million from the resale of those air rights that had purchased from the MTA; and $145.4 million from payments in lieu of property and mortgage recording taxes on commercial properties. The City has also kicked in $281.2 million from its capital budget for items like sewers, $75.5 million for a performing arts center with retractable walls dubbed The Shed, and $55.4 million in 7 train cost overruns.

Money spent so far isn't the best way of looking at the split of costs, though. Since the air rights money and zoning bonuses have mostly run their course, the vast majority of the funds will come from future property tax revenues — or payments in lieu of waived property taxes — from a quarter-square-mile swath of the West Side reaching as far east as 9th Avenue and as far north as 43rd Street.

The glass-half-full way of looking at this is that the city has been able to create a whole new neighborhood without sinking itself with debt, by leveraging future tax revenues. The less rosy view is that city government has subsidized a forest of office and luxury residential towers by siphoning off for the foreseeable future tax money that under normal circumstances would go into the city's general fund.

"I think the way to look upon it is, it's all incremental new income to the city from an area of town that was derelict before and produced no income for the city," says Cross. "So to the extent that we create a lot of construction and we create new space and we grow the working population and we build new residences, the rising tide lifts all boats."

"This is the 'manna from heaven, we should be grateful' argument," counters Greg LeRoy, executive director of Good Jobs First, which tracks and analyzes development subsidies nationwide. "And it really goes to the but-for business."

Ah, the infamous “but-for.” In the development world, it’s a term of art used to justify a multitude of subsidies: If none of this new construction would have happened but for the public money, then giving up future taxes isn’t really a loss, because you never really lost them to begin with. Yet, as critics like LeRoy have pointed out, how can you know for sure if that Iceland-sized GDP wouldn't have appeared regardless?

The but-for question is an especially vexing one with tax increment financing, or TIF, in which future taxes are kicked back to developers to help pay their costs. (Technically, a TIF requires the creation of a special TIF district, which New York didn't do, hence the rebranding as “value capture”; nonetheless, LeRoy says the Hudson Yards financing "walks and talks like a TIF to me," and Cross openly refers to it as a TIF, so go ahead and consider it one.) And TIFs have a checkered record, with multiple ways things can go awry for taxpayers.

Mayor Bloomberg joins City Council Speaker Christine Quinn and Manhattan Borough President Scott Stringer, along with Related Companies's chairman Stephen Ross (far left) to break ground on 26-acre development at Hudson Yards, December 4, 2012 (Photo: Spencer T Tucker)

First off, the projected development can fail to show up, causing a revenue shortfall and forcing the local government to dip into its general fund to pay off the bonds. That's what happened in Louisville, where a TIF to fund the University of Louisville basketball team's KFC Yum! Center initially brought in almost no new tax revenue in its early years, forcing the city to refinance the project.

This has already happened, to a lesser extent, at Hudson Yards: Thanks to the Great Recession, a 2013 IBO report noted, the project generated only $170 million in revenues through 2012, not enough to pay off $283 million in debt. (The city eventually refinanced the plan, but only by kicking the can down the road to rely on projected tax payments further in the future.) The good news is that the remaining development to be built at Hudson Yards is largely residential, and the housing market shows little sign of cooling off; the bad news is that New York is on the short list of cities at risk of succumbing to a real estate bubble, and the residential portion of Hudson Yards doesn't come with the alluring tax breaks that helped jump-start the office towers.

Secondly, a new neighborhood can develop, but only by siphoning off economic activity from other parts of your city. This is already starting to be seen in Midtown, where Hudson Yards has been successful at attracting new commercial tenants — but in many cases by luring them away from nearby Times Square.

Cross acknowledges that Hudson Yards office tenants will likely relocate from elsewhere in Manhattan — Coach, the anchor tenant of the first-completed building at 10 Hudson Yards, actually moved from a since-demolished building in Hudson Yards itself — but notes that "it's a complex dance," as ultimately this could open up older office buildings to get retrofitted as needed housing.

LeRoy remains skeptical, noting that at best this would be an exceedingly inefficient way to create affordable housing. "Even intellectually honest backers of those programs will admit to you that they don't necessarily create net new economic activity — they simply move it around," he says. "They make it more attractive to do it in one place rather than the other, but they don't create the market for the activity."

Finally, the projected development can show up, but only because it was likely to get built regardless — thus wasting public subsidies on a project that could have been achieved at no cost to taxpayers. Perhaps the most infamous example of this is Chicago, where Mayor Richard M. Daley expanded TIFs at such a precipitous rate that eventually more than 40% of city property taxes were being diverted to the districts. One survey of recent literature found that between 75% and 98% of projects that got development incentives would have happened even without the public cash, which is a hell of a lot.

All of these pitfalls, ultimately, come down to but-for: Is your city putting money into a project that will churn out jobs and tax revenues that otherwise wouldn't exist? Or is it throwing money at something that developers would want to do regardless, but are happy enough to take a few billion in cash for to boost their profits?

LeRoy calls but-for "a political deflector shield," providing cover for elected officials who might otherwise come under fire for handing over tax money to wealthy real estate barons.

"What happens is, taxpayers get upset at politicians for granting an overly generous TIF package," he says. "The politicians say, 'But the developers signed the but-for clause, that this wouldn't have happened but for the TIFs.' And because nobody ever gets to see inside the developers' books, we just have to take their word for it. It passes the buck to somebody who doesn't have to say."

The Vessel, shot in April of 2018 (Jake Dobkin / Gothamist)

New School Center for New York City Affairs economic director James Parrott has been a critic of the Hudson Yards finance plan from the beginning, when he was chief economist at the watchdog Fiscal Policy Institute. Parrott says his biggest worry is neither tax revenues falling short nor money being cannibalized from other parts of the city.

"What I'm really concerned about is a third thing," says Parrott, "that the city is providing massive property tax breaks for that development, which is lessening city resources that could be available to fund infrastructure."

Those PILOT payments, you see, aren't quite entirely "in lieu of" normal property taxes. Commercial developers get to pay them at a discount, as part of the Uniform Tax Exemption Policy established by the city for Hudson Yards way back in 2006. The tax break formula gets a bit convoluted, but is most easily grasped via the UTEP map: The first 5 million square feet of development gets a 40% break, the next 5 million earns a 25% break, and so on, with all breaks eventually phased out after 19 years.

The city Industrial Development Agency helpfully breaks that down into estimated dollar figures that the city will be forgoing thanks to the UTEP. For 30 Hudson Yards — the angular North Tower and accompanying mall that is nearing completion — it comes to $328 million; for 50 Hudson Yards, currently just an open pit north across 33rd Street, $177 million; for3 Hudson Boulevard, an unremarkable glass box under construction across from the Javits Center, $65 million; for Manhattan West, the subtly rounded shaft a block east of the rail yards that is the most visible indicator of Hudson Yards for much of the city, $115 million. For 10 Hudson Yards, the triangular-tipped building to the south that was the first to open in 2016, the estimate is apparently lost somewhere on the city's Economic Development Corporation's website, though at more than half the square footage of 50 Hudson Yards, it's likely to be at least $100 million, bringing the total city outlay to roughly $785 million.

The reason for all these tax breaks, according to Cross, was the city's fear that without reduced property taxes that would allow for lower rents, early adopters would be too fearful of taking a chance on a new neighborhood: "They said, 'What happens if people don't build office buildings? What can we do to incent them to come?' That's where they got into this sort of early-bird special."

Parrott's response is to ask why developers couldn't just discount rents out of their own pockets, as a loss leader for their future profits on a successful development. "There is no law of capitalism that says a first mover should be subsidized by government," he says.

Hudson Yards in 2015 (Jake Dobkin / Gothamist)

In the end, there is no smoking gun to this story, no final tally that says exactly how much to the dollar taxpayers have been ripped off by developers in cahoots with city officials. There is only this: In order to support a cluster of crystalline faceted office towers, New York City is delivering about $4.5 billion in tax money; in return, the city is getting a new subway stop (though not one in any of its major transit deserts), a few small parks (most of which so far are limited to some lunchable benches and landscaping), and a new neighborhood of corporate towers and luxury housing.

Ultimately, it comes down to a fundamental difference of opinion about the nature of growth. Developers like Cross insist it's an inherent good: "Economic growth in general is always good for a city — it leads to greater taxes. When we create a lot of construction and we create new space and we grow the working population and we build new residences, the rising tide lifts all boats."

Subsidy critics like LeRoy and Parrott counter that not only that one boat's rise can come at the expense of boats across town, but that that rising tide comes with costs — at about $80,000 per new school seat, for example, the cost of adding residents can quickly eat up the benefits of collecting their income taxes.

"Whether large-scale projects like Hudson Yards or Atlantic Yards pay for themselves is difficult to assess," concludes Doug Turetsky, chief of staff for the IBO, which has conducted several studies of aspects of Hudson Yards financing but has never dared to attempt calculating a total public cost figure.

"How much in additional education expenses must the city shoulder because of the hundreds, if not thousands of new families?" asks Turetsky. "Do you need additional police and fire coverage? More sanitation pick-ups and disposal? This becomes even harder to assess with a TIF-like project such as Hudson Yards because much of the tax revenue is plowed back into paying for the bonds used to develop the area. So what is it generating for the city as a whole?"

Welcome to the future, where $4.5 billion in tax money can be spent without anyone knowing for sure if it will be a boon or a money pit. Ultimately, how well you can stomach Hudson Yards will depend on how willing you are to roll the dice based on developers' math. And how much you like big metal bugs.