Time to sweat the small stuff

By Kofi Annan's admission, it was the best funding offer the United Nations had received. But for fussy member states, the $1.2 billion U.S. loan to renovate the world body's Manhattan headquarters was not good enough.

The reason was the United States' terms-a 5.54 percent interest rate over 30 years, offered early last year and never accepted. With the offer's Sept. 30 deadline past, member nations still seem to be holding out for an interest-free loan, like the one the United States gave when the UN first built its iconic complex in Turtle Bay in 1952. For conservative Washington lawmakers, meanwhile, the real controversy is the whopping $1.2 billion price tag attached to renovation.

That the little-known UN project drew any notice is testimony to the impact of the $100 billion Oil-for-Food corruption scandal. Even with Secretary-General Annan implicated, the world body is ill-inclined to remove him as nations gather for their landmark 60th session in New York. But scandal breeds suspicion, and now any dubious UN spending is up for scrutiny.

The UN renovation project, called the Capital Master Plan, drew publicity this year only when Donald Trump and other New York real estate developers began questioning its cost. The price tag must be the result of fraud or incompetence, Mr. Trump said in late July, when he testified before a subcommittee of the Senate's Homeland Security and Governmental Affairs Committee.

Nonetheless, the United States is ready to make a new loan offer-same amount and length, with a mildly lower interest rate of 5.35 percent. While U.S. officials announced the new loan terms three weeks before the original offer expired, they go into effect only when the State Department puts them in writing.

The formal offer, however, will not happen until Washington hears more from a project report due in November. Scuttled plans are a major cause for the review: The UN initially wanted to construct a new building adjacent to the headquarters that would house its employees while the renovations went on. New York state lawmakers refused to grant permission for the "swing space," concerned its location on top of the Queens Midtown Tunnel, a terrorist target, would cause traffic snarls because of heightened security. Securing rental space is one alternative for the UN, but it could escalate total costs.

"This is a very difficult problem for us to deal with," said Fritz Reuter, assistant secretary-general and executive director of the Capital Master Plan. Officials are also reviewing some original cost estimates now that the first set of designs is complete, though Mr. Reuter explained, the $1.2 billion figure "is not the reason for the review."

By Mr. Trump's reckoning, few brand-new buildings-let alone renovations-should cost $1.2 billion. Testifying in July, he fired off his objections: The designs were incomplete and pricey, and moving out all the employees into swing space would cost too much. He offered to do the job for $700 million instead. "They don't know what they're getting into," he said, predicting the renovation could end up swallowing a colossal $3 billion.

Progress on design work has been slower than expected; plans are now about a quarter completed, more than four years into the project. "We found that as we started up there were areas worth doing more technical analysis in," explained Katherine Grenier of the UN's Capital Master Plan office. "We believe we made the right decision. Once designers start working, stopping them is costly." Designs are now due for completion at the end of 2006.

Whatever the project review yields, Senate conservatives want any U.S. loan to reflect fair market value for such a project-in this case, Mr. Trump's estimate of $700 million. "The goal is to get the number down, and we feel like we're moving toward that at this point," said John Hart, spokesman for U.S. Sen. Tom Coburn (R-Okla.). "We'll continue to push this until we get the number to a reasonable level." With the UN's record on graft, critics figure it is time to sweat the small stuff before it balloons into another scandal.