Almost everybody rightly celebrates Times Square's revival as one of New York City's greatest recent success stories. Just a short while ago it was sleazy, blighted, and crime-ridden; today it is all but crime free, it has driven out the prostitutes and pornographers who made it so seedy, it bustles with tourists by day and night, and world-spanning corporations such as AMC, Disney, and Viacom prosper within it. But if everyone knows about Times Square's remarkable comeback, few understand what made it happen.

I thought I knew what the ingredients for success were back in 1984, when I worked for Governor Mario Cuomo as head of the Urban Development Corporation (UDC). On my watch, the UDC put in place a gigantic project, first conceived in 1981, to revitalize Times Square, then at its absolute nadir. The $2.6 billion 42nd Street Redevelopment Plan would extend tax-abatement deals to developers and direct them to transform Times Square by building grand office towers, a huge merchandise market, and a fancy hotel; by restoring historic theaters; and by revamping the dingy 42nd Street subway station. Also sponsoring the plan were Mayor Ed Koch and—unofficially but prominently—the New York Times, whose headquarters gave the square its name in 1905.

But almost nothing we planned ever came to fruition. Instead, Times Square succeeded for reasons that had nothing to do with our building schemes and everything to do with government policy that, by fighting crime, cracking down on the sex industry, and cutting taxes—albeit only selectively—at last allowed the market to do its work and bring the area back to life. The lesson: there's a right way and a wrong way for government to pursue economic development. It's a lesson that needs spelling out, since it's crucial to future economic recovery in New York.

It's important to recall accurately what Times Square was like when we officially launched our plan in November 1984, since today you still find a few people perversely nostalgic for it. Samuel R. Delany's new book, Times Square Red, Times Square Blue, is a case in point: it is a lament for defunct Times Square sex clubs like the Capri, the Eros, and the Venus. These risqué establishments, Delany argues, provided a harmless, playful way to subvert stuffy bourgeois morality.

But the Times Square Delany mourns was anything but playful. The area began going to seed during the late fifties after the sex industry—waved on by ill-advised federal and state court decisions that extended First Amendment protections to pornography—edged out and took over once-lustrous theaters that had been economically struggling since the Depression. The decline was rapid thereafter: the porn establishments attracted to Times Square an unsavory and increasingly criminal crowd. Already by 1960, the New York Times was calling the heart of Times Square—42nd Street between Seventh and Eighth—the "worst block in the city." By the eighties, things got worse still, with an amazing 2,300 crimes on the block in 1984 alone, 20 percent of them serious felonies such as murder or rape. Dispirited police, at the time more concerned with avoiding scandals than fighting crime—especially low-level crime like the prostitution that was swamping Times Square—would investigate the serious felonies but mostly stood by and watched as disorder grew (see "What We've Learned About Policing," Spring 1999).

The lawless climate had devastating economic consequences. In 1984, the entire 13-acre area that we sought to revitalize employed only 3,000 people in legitimate businesses and paid the city only $6 million in property taxes—less than what a medium-size office building typically produced in tax revenue.

No legitimate business—indeed, scarcely a normal person—would willingly visit so blighted and threatening an area. As head of the UDC during the mid-eighties, I would walk through Times Square at night, a state trooper by my side, and feel revulsion. We'd hurry past prostitute-filled single-room-occupancy hotels and massage parlors, greasy spoons and pornographic bookstores; past X-rated movie houses and peep shows and a pathetic assortment of junkies and pushers and johns and hookers and pimps—the whole panorama of big-city low life. Everywhere I'd look, I'd see—except for female prostitutes—only men. A UDC study later verified my impression empirically: 90 percent of those who walked Times Square's streets were adult males. Times Square was haunted with them, like a circle of lost souls in Dante.

All of us involved in the redevelopment project were New Yorkers, born and bred. We remembered a better Times Square. In the early fifties, Times Square had been a childhood delight for me. On Saturday, my father and I would bus down from Harlem to see a movie, often a Roy Rogers or Gene Autry cowboy picture. Then we'd get something to eat at Nedick's and afterward just stroll around, gazing up at the giant signs that adorned Times Square's buildings, then as now. Mario Cuomo and Ed Koch had similar happy memories. The mayor was old enough even to have heard firsthand accounts of Times Square's heyday during the 1920s, when 13 theaters studded 42nd Street between Seventh and Eighth and lit up in neon the legendary "Great White Way," as theatergoers crowded into the latest creations of impresario George M. Cohan or of musicians such as George and Ira Gershwin. The regret we felt over the passing of this glamorous world of our youth gave the project a powerful emotional boost.

Our plan was Neronian in scale. Its biggest component was to be Times Square Center: four giant office towers, containing 4.1 million square feet of floor space in all, looming over Times Square's southern border. Offered a $240 million tax abatement, George Klein's Park Tower Realty would develop the site. Perennial modernist Philip Johnson, together with fellow architect John Burgee,  would design the buildings. In Johnson's controversial design, four-story red-granite bases would support glass towers topped with iron-crested glass mansard roofs. Each tower would light up at night to dispel the shadow world below; at street level, a pedestrian thoroughfare would connect the four towers and establish a new hub for subway travel.

Johnson's gargantuan buildings weren't the only part of the redevelopment project conceived on a grand scale. We also called for a 2.4 million-square-foot computer and garment wholesale mart between 40th Street and 42nd Street on the east side of Eighth Avenue, and a 550-room luxury hotel with additional office and retail space on West 42nd Street at Eighth Avenue. Nine historic theaters, including the legendary New Victory and the New Amsterdam, would get a $9 million spruce-up and reopen as nonprofit cultural centers featuring legitimate entertainment. The final component was a major $100 million makeover of the 42nd Street subway station, which would be outfitted with a computerized information center, scores of shops, and six new entrances, among other improvements. As part of the overall deal, Park Tower Realty would pick up most of the tab for the nonprofit theaters and the subway. Everything had to go forward at the same time, we felt, since the sheer momentum of the development would push out the sleaze for good.

Unveiling the plan early in 1984, we felt enormous pride. After all, how many people have the opportunity to leave such a deep and positive mark on the history—and in the landscape—of a world city? But, though I can't speak for the others, I felt doubt, too. Perhaps the Pharaohs could contemplate such a mega-project with equanimity, but could a group of New York City kids really pull it off? But I suppressed my doubt: I had informed Governor Cuomo that I would soon step down as head of the UDC—I had grown disgusted with New York's pervasive political corruption and would leave public service for good in 1985—and I wanted to feel as if I had accomplished something big and worthwhile in government before I left. This project would be it.

On November 8, 1984, the now-defunct New York City Board of Estimate approved the project, removing the last political hurdle to its implementation. We all exhaled in relief, since reaching that point hadn't been easy. From the moment state and city officials first announced the redevelopment scheme in February 1981, it faced opposition from activists, who worried that it would displace lower-income people from their homes, and from the cultural left, who defended Times Square's sex businesses as constitutionally protected speech—speech that had the added virtue of subverting bourgeois proprieties. And after Johnson and Burgee's blueprint for the towers went public, civic groups lobbied for a less obtrusive design that took more account of smaller surrounding buildings. But none of these forces mustered enough support to defeat the project.

An internal disagreement had also broken out over who would get the potentially lucrative nod to develop the mart. The dispute was really part of a larger battle over who would predominantly shape the new Times Square. The city and the New York Times favored a team of Trammel Crow (a Texas-based developer) and George Klein; the state, thinking that Klein already had enough on his hands, preferred Paul Milstein, a major New York developer. An artful political compromise between Mayor Koch and Governor Cuomo—two politicians who harbored deep mutual suspicion from past political campaigns against each other—eventually settled on a consortium that brought together Klein and Milstein, though neither the mayor nor the governor ever questioned the idea that government should be picking developers in the first place. By the autumn of 1984, everything was set to go.

Yet after the Board of Estimate vote, the plan withered. The four new towers never went up, the wholesale mart never opened, the hotel never appeared, the subway renovations never happened, and the nonprofit theaters never materialized. What happened?

The commercial real estate market, perhaps already beginning to peak in 1984, tanked with the stock-market crash of 1987, and Klein hesitated to start work on what were now unlettable office towers. Already in 1986, the Dewey, Ballantine law firm, which was to have been a major tenant in Times Square Center, had withdrawn. In 1989, Chemical Bank, another anchor tenant, dropped out. By 1992, Governor Cuomo was letting the developers off the hook: "It doesn't make sense to go forward immediately with the building of the office towers—there's no market for them," the governor observed. "To hold these people to the contract is to ask them to commit an act of economic self-mutilation," he added. Later, after more than a decade on the project, Klein would leave, having built or renovated nothing.

But while the original building project remained stalled, something surprising happened: Times Square started to revive. First, it was a trickle of activity. In 1990, Viacom, the huge entertainment firm that owns Nickelodeon and MTV, signed a lease at 1515 Broadway. In 1992, the publishing giant Bertelsmann AG bought 1540 Broadway from Citicorp. In 1993, the Morgan Stanley investment firm purchased 1585 Broadway from Salomon Equities.

Then the trickle became a flood. On the last day of the Dinkins administration in 1993, the Walt Disney Company signed a memo of understanding with the city to refurbish and reopen the New Amsterdam Theater, though it didn't finalize the deal—which included a $25 million low-interest government loan—until 1995. In 1995, AMC, the entertainment conglomerate, agreed to move to the neighborhood; Madame Tussaud's Wax Museum decided to open a Times Square branch to join its famous London counterpart; the Tishman Urban Development Corporation contracted to build a big hotel; and the Durst Organization announced that it would erect a 1.5 million-square-foot office building, taking over one-quarter of the site originally intended for Times Square Center. By the summer of that eventful year, the left-wing urbanist Marshall Berman was complaining that Times Square had "become the focus of some of the most ambitious commercial development New York has ever seen"—and it hasn't stopped since.

The ever-accelerating development has brought back the whole neighborhood. Disney refurbished the New Amsterdam Theater, and it reopened with a wildly successful run of The Lion King. The 100-year-old New Victory Theater, which showed porn films in the eighties, reopened—beautifully restored to its original glory—as a venue for children's theater. And new restaurants like Caroline's Comedy Nation and the upscale Russian Firebird bustled from the moment they opened. By 1997, Broadway was having its best year in nearly two decades, as 10.6 million theater lovers flocked to 38 different shows.

Times Square was bursting with investment and renewal not because of the building project, since it had built nothing, nor even because the nation had entered into its present economic boom—42nd Street kept rotting away through the economic upswings of the 1960s and 1980s—but because government was at last starting to behave the way government should behave if it wants to nourish prosperity. Government began to do three things—two of them with the plan's help, though the city could have done them more effectively on its own—that ignited Times Square's revitalization: it started to fight crime, it kicked out the sex industry, and it lowered taxes selectively for big businesses willing to locate in the area. And as Times Square became safer and less sleazy, its natural advantages became strikingly apparent: at the center of the city's subway system, home to the Port Authority Bus Terminal, near Penn Station and Grand Central Station, it boasts a transportation infrastructure unmatched in the United States, and it has always been one of New York's cultural landmarks.

Mayor Abe Beame took the first hesitant steps to tame Times Square's disorder in 1977, when he enacted nuisance abatement laws to shut down some of the neighborhood's ubiquitous massage parlors. But the first really effective measures came courtesy of a now-retired deputy inspector named Richard Mayronne, assigned to the Midtown South precinct that includes Times Square during the mid-eighties. As former NYPD deputy chief John Timoney (now Philadelphia's police commissioner) remembers him, Mayronne was "a big tough guy, a cop's cop, and easily the most imposing police commander I've ever met." He was also something more, Timoney stresses: an innovator in police tactics. Mayronne covered his office with neighborhood maps, and used pins to chart crime patterns in order to employ his forces efficiently creating a crude, pre-electronic version of Compstat, the computerized crime-tracking system that has since revolutionized New York City policing under Mayor Rudolph Giuliani.

Even more important, Timoney recounts, Mayronne instructed his men to make arrests for low-level crimes such as prostitution and minor drug transactions that, when left unpunished, create a climate of lawlessness that encourages criminals to act on their darker impulses, leading to ever more serious crime. Such quality-of-life policing, as most observers now recognize, is a major reason for New York's sharply lower crime rates, and the absence of it had contributed to Times Square's decay. The new techniques paid off: as Mayronne's Midtown South successors continued to monitor crime patterns and keep up the pressure on quality-of-life infractions, crime dropped. By the end of 1991, Times Square's crime rate was 12 percent lower than in 1984—nothing like the 68 percent citywide reduction that Giuliani would achieve, but a healthy start nonetheless.

With Giuliani's election as mayor in 1993, the war on crime dramatically intensified. Together with his police commissioner William Bratton, the mayor completely transformed New York City's approach to policing: Compstat soon allowed the NYPD to deploy personnel and resources efficiently, and quality-of-life policing became the norm throughout the city. Thanks to the new techniques—a quantum improvement over Mayronne's early innovations—Times Square's crime rate dropped to an infinitesimal level. Felonies committed on 42nd Street between Seventh and Eighth—the "worst block in the city"—fell from 2,300 in 1984 to a mere 60 in 1995, prompting a city official to enthuse that "crime has reached such a low level on that block that we don't keep statistics anymore." In the entire Midtown South precinct, felony complaints fell 50 percent, from 20,000 in 1992 to 10,000 in 1997. Giuliani and Bratton also sent a powerful message through their public rhetoric that the city would no longer tolerate crime and disorder, heightening New Yorkers' and tourists' expectations about safety and soothing the jangling nerves of the business community.

Encouraged by dwindling crime, tourists began crowding back into Times Square—always potentially one of New York's biggest draws—bringing much needed revenue into the city. Giuliani had grasped the connection between cutting crime and reviving Times Square's tourism even before his mayoralty began. The mayor recently told me about how, during the 1970s, he watched Martin Scorsese's film Taxi Driver, which depicted Times Square as a hellish nightmare, and wondered how adversely it might affect tourism. During his 1993 mayoral campaign, Giuliani got a firsthand insight into the answer. Driving down Broadway in his campaign car, he saw a tourist frantically chasing a thief who had snatched his wife's purse, bruising her hand in the process. Giuliani, jumping from the car, joined the chase, but only caught up with the tourist, not the purse snatcher. No cops were around, and none arrived until 30 minutes had passed, assuring the crook's clean getaway. Again, Giuliani thought: what would these tourists think about visiting Times Square in the future?

But that was six years ago. Today, reassured investors and tourists no longer have reason to shun the area.

The 42nd Street Redevelopment Plan had nothing to do with this revolution in crime fighting and the safer Times Square it created—the main reason investment again started to flow into the neighborhood, just as it's the main reason investment has started to flow into a markedly safer 125th Street, also the site of an ambitious, but largely irrelevant, government redevelopment plan. But through the state's Urban Development Corporation, the redevelopment plan did play a key role in the second thing government did that helped to revive Times Square: kicking out the sex businesses.

From 1984 on, drawing on the UDC's special powers to condemn for economic blight, the redevelopment project began to shut down Times Square's sex clubs. By 1990, after a hugely expensive six-year condemnation process, the UDC had taken title to two-thirds of the 13-acre project area, sending the sex businesses scuttling to other corners of the city. The ultimate cost reached nearly $300 million, a sum initially advanced by the developers, whom the plan would later reimburse through tax abatements. It proved so expensive because condemnation requires court-determined compensation for the owners of condemned properties and hefty legal fees to fight the protracted lawsuits when the owners resisted being kicked out.

Instead of condemning, why didn't the city just zone out the sex businesses? After all, throughout the nineteenth century—and indeed, for most of the twentieth—cities freely applied tough zoning regulations to the sex industry, viewing it, apart from any moral objection, as poisonous to other economic activity. In New York during the 1930s, Mayor Fiorello La Guardia, whom no one would accuse of being an early member of the religious right, waged war on the city's burlesque houses—the sex clubs of that era—because he knew that they drew in crime and drove away legitimate commerce.

But that was well before the late 1950s, when activist judges, in effect defining away the concept of obscenity, extended First Amendment protection to strip clubs and pornography (see "Free to Strip?" Spring 1999). To apply zoning restrictions to sex businesses was henceforth different from applying them to, say, a slaughterhouse or a chemical plant, since now to do so supposedly violated the First Amendment. It also would invariably incur the wrath of the cultural left, loudly decrying censorship and the imposition of puritan values. The redevelopment plan allowed the city and the state to escape these invented First Amendment restrictions and deflect the criticisms of the cultural left, accomplishing indirectly what zoning would have done directly and far less expensively. Support for the project's condemnation efforts also allowed the New York Times's editorial page to have it both ways: it denounced on economic grounds the sex businesses defacing its own backyard that it regularly defended elsewhere as constitutionally protected forms of speech. The Times's stance seemed to be: "Yes to sex businesses, but not in our neighborhood."

Yet condemnation might not have been necessary after all. As early as 1976, the Supreme Court started to allow municipalities to subject "adult" businesses to zoning regulations for reasons of "secondary effects" on neighborhoods, with economic blight leading the list—the Fiorello La Guardia argument, we could call it. Looking back, zoning might have proceeded on the same rationale as condemnation and still have passed constitutional muster, though this certainly wasn't the high-priced legal opinion we were getting at the time (or the inclination of the governor, the mayor, or the Times, all averse to challenging New York's left-wing judicial culture). Later, in the mid-1990s, Mayor Giuliani did employ the "secondary effects" argument to pass sweeping regulations restricting sex-oriented video stores, X-rated theaters, and topless bars to a few isolated non-residential neighborhoods, where they'd cause the least economic damage. "They hurt the economy of the city; they cost us jobs; they cost us money," Giuliani bluntly explained.

But for Times Square, this was just sweeping up: thanks to the plan, most of the sex industry had already moved on by 1990, when the first signs of the area's economic rebirth became evident. The city had finally liberated Times Square from sleaze, though at a great, and probably unnecessary, expense. With the sex industry gone, Times Square could at last begin to develop its economic potential.

The redevelopment plan provided a second major spark to revitalizing Times Square: it reduced taxes for businesses willing to locate in the neighborhood. It did this, however, not by giving the city an overall tax cut, but instead by awarding special tax abatements, low-interest loans, and other subsidies to well-connected firms. From the original $240 million tax abatement given to George Klein to the $40 million abatement given to Morgan Stanley in 1992 to the $25 million low-interest loan given to Disney in 1994 to the $20 million incentive package offered to Ernst & Young just this year—everybody in the new Times Square has some kind of deal from the plan. The results show the power of supply-side tax cuts: more than $2.5 billion in private-sector investment has poured into Times Square since 1995.

Any sensible economist would say: Why not cut taxes citywide? Giuliani, a defender of tax abatements, has a tough answer. There's no political constituency in New York for it, he claims, and polls show that he's right (though a mayor passionate about tax cuts could use his bully pulpit to begin to create a constituency for them). So if citywide tax cuts remain politically unfeasible, the mayor argues, the only thing the city can do to boost investment is to cut taxes selectively. The trouble with this approach is that the considerable political clout a firm needs to land a choice tax deal from the city means that it is invariably the older, already established, company, not the brash newcomer, that gets a break.

This favoring of the old and the well-connected over the new and the as yet unknown—it's really a form of state—directed capitalism, where government substitutes its bureaucratic thinking for the market's invisible hand—means that New York squanders enormous economic possibilities. Imagine a 29-year-old college dropout named Bill Gates coming to us in 1984 and asking for a tax abatement to build a 42nd Street office for his new computer-software company. "What's an operating system, and what's a Gates?" I can hear Koch sneering. We would have laughed Gates out the door. But for the last quarter-century, it has been the bold outsiders like Gates, usually bringing some undreamed-of service or technology to the market, who have fueled real economic growth and created most of the country's 70 million new jobs.

As great as the new Times Square is, what might it look like today if New York City's taxes weren't so anti-competitive and instead encouraged up-and-coming firms to locate in Gotham? If then-fledgling enterprises like Microsoft, Cisco, or Oracle, drawn in by low taxes, dropping crime rates, and a newly non-sleazy atmosphere, had moved into Times Square during the eighties and nineties, these upstarts would have created even more jobs and produced even more tax revenue than did the well-connected businesses that now reside in the neighborhood, lured in by politically negotiated tax abatements and sweetheart deals.

Giuliani asserts that "it will be perhaps 20 years" before Gotham's tax structure is competitively on a par with more business-friendly cities. But perhaps the mayor is too pessimistic. Even some of his detractors admit that he helped transform New Yorkers' attitudes on crime and proved that the city wasn't ungovernable. Perhaps some future mayor might build a political constituency to enact major, across-the-board tax cuts. He could use this argument: the New York Times, the state, and the city favored tax cuts for Times Square. Those tax cuts worked. Why not, then, try them for the entire city?

So what did the 42nd Street Development Plan really achieve? The four towers will eventually go up, but they won't look anything like those we proposed in the early eighties, and different developers will build them. No mart is on the horizon. The theaters have been given a new birth, but their parent is the market, not the government plan. The 42nd Street subway is still grungy.

The plan, in retrospect, seems like a giant Rube Goldberg device. It let public officials lower taxes without challenging the orthodoxies of New York's welfare state, and it let them drive out sex businesses without conflicting with court decisions on obscenity or unduly angering the cultural left. But Times Square's revitalization cost much more than it needed to—much more than if New York had simply abandoned the redevelopment project and pursued effective policing, smart zoning, and aggressive tax-cutting from the start.


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