Media company gives up tax deal in N.Y.; Bertelsmann to proceed with Random House tower


NEW YORK -- Bertelsmann AG, the third-largest media company in the world, has decided to walk away from $28 million in tax breaks for the new headquarters for its Random House publishing division rather than comply with a last-minute city request to conduct a full environmental review of the $300 million project.

Nonetheless, the company will proceed with construction of the 31-story tower on Broadway, between 55th and 56th streets.

The company has spent more than two years looking for a suitable location, and a year negotiating with city officials over an incentive package. Construction is to begin Nov. 1, and the company recently learned that to obtain the subsidies it would have to conduct the environmental review, a process that could take a year.

Unwilling to incur additional delays, Bertelsmann balked last week. Some executives said they suspected that the city's last-minute demand was being used to renege on the tax breaks, and city officials countered that they were not asking for anything out of the ordinary.

Because the city's zoning law does not require an environmental review in this case, Bertelsmann has decided to forgo the $28 million in tax breaks and proceed with what will be called the Random House Building.

"The incentive package is not as important as our need to consolidate our employees at Random House into one state-of-the-art building," said Robert Sorrentino, president of Bertelsmann Inc.

The turnabout by Bertelsmann raises a critical question about the city's policy of granting tax breaks to some of the largest, most profitable corporations in the world: If Bertelsmann can proceed without the tax breaks, why did Mayor Rudolph W. Giuliani's administration offer them in the first place?

"Turning down a tax break is pretty good evidence that the subsidy wasn't ever needed," said Diana Fortuna, president of the Citizens Budget Commission, a nonprofit organization. "I'm sure a lot of these projects could fly without government support."

Last spring, Maryland legislators agreed to award Bertelsmann a $2.5 million grant to assist in the expansion of its Random House plant in Westminster to create the division's sole distribution facility.

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