By Tom McGeveran

April 7, 2002 | 8:00 p.m

On April 1, while in his offices at the Woodrow Wilson Center in

Washington, D.C., former Senator Daniel Patrick Moynihan received a phone call from Mayor Michael Bloomberg. The topic was close to Mr. Moynihan's heart, and now it's close to Mr. Bloomberg's: the redevelopment of Pennsylvania Station, and its expansion into the James A. Farley General Post Office. Would the former Senator like to leap back into the project? You bet. When he still was in office and monitoring the project's progress, Mr. Moynihan was known to describe the restoration as "a fat dolphin swimming in a sea of sharks." It served as a gentle admonition that the longer the project languished, the greater the chance of unacceptable or unworthy deviations from Mr. Moynihan's vision for a new temple of transportation on Eighth Avenue. It has languished long indeed-for 10 years-and the compromises have been substantial. But it is not into a sea of sharks that Mr. Moynihan will be wading now that he has agreed to be Mr. Bloomberg's appointee to the Pennsylvania Station Redevelopment Corporation's board. According to sources with knowledge of the deal, the mood on the board is cautiously optimistic. "There are still a couple of hurdles," said one source close to the talks. But several others close to the deal predict that a final agreement between the U.S. Postal Service-the last party left to sign onto the $788 million deal-and the PSRC is only weeks away. The Postal Service is due to move most of its operations out of the building, allowing for its conversion into a rail gateway. There is still much to be done. The PSRC itself isn't ready to bank on the deal going through-the agency has yet to float $155 million in bonds guaranteed against income from leases in the planned retail concourse of the new station. It had been nearly a year since Governor George Pataki signed a state law authorizing the bond issue, which already has gotten a favorable preliminary rating from Standard and Poor's. In reply to a question about the delay in issuing bonds, the PSRC offered a terse statement through a spokesperson: "We will continue to work with the Postal Service to ensure that Governor Pataki's vision for a commuter-friendly, state-of-the-art Penn Station is built at the current site of the Farley Post Office." The protocol of election-year politics apparently has shifted paternity of the Penn Station renovation. Meanwhile, architects at Skidmore, Owings & Merrill have been biding their time after creating an award-winning design that mirrors the classic train stations of Europe's world capitals, with a large bow of glass and steel that will direct dappled light onto a ticketing and retail concourse. Those ambitious plans have taken on a heightened significance since Sept. 11, when New York's resurgence became not just a rallying cry for the civic-minded, but a brutal necessity for the city's future. It was around the time of the terrorist attack that the project seemed to suffer its greatest blow. A Sept. 21 letter from the Postal Service's vice president for facilities, Rudy Umscheid, to the RSDC seemed to say the deal was off entirely. Charles Gargano, chief of the Empire State Redevelopment Corporation, leaked news of the Postal Service's apparent change of heart to the editorial board of the Daily News. A week later, on Oct. 11, Mr. Gargano accompanied Mr. Pataki to the White House to discuss ways the federal government could assist in rebuilding New York. The two emphasized the importance of the Penn Station project and, many say, asked the White House to put pressure on the Postal Service to come back to the table. The next day, Mr. Umscheid sent a letter to Kevin Corbett of the ESDC. "The Postal Service recognizes that this may be a unique opportunity to advance the project,"  Mr. Umscheid wrote. "We are prepared to negotiate in good faith." But nearly six months later, there is still no deal. Meanwhile, half a million rail passengers a day still make their way through the dimly lit, narrow and low-ceilinged tunnels under Madison Square Garden, that joyless drum of ochre stucco looming over Seventh Avenue. Until the Postal Service finally gives its approval to the project, New York's Amtrak portal will continue to have all the charm and grace of an unfinished basement. The deal that had been on the table before Sept. 11 already was altered to meet the Postal Service's demands. The PSRC would buy the huge, white-columned building on Eighth Avenue between 31st and 33rd streets from the Postal Service for $140 million. A third of the space-more than was envisioned-would be leased back to the Postal Service for a nominal sum for 15 years, after which the Postal Service would have had to find a new home for its Farley operations. Parties to the deal expected those terms to be agreed upon by March of last year, guaranteeing that money set aside for the project in a complex financial scheme arranged by former PSRC president Alexandros Washburn would still be in place. But last year was horrendous for the Postal Service. Declining revenues had forced the agency into a round of belt-tightening that included a freeze on large-scale capital projects-including the move out of the Farley Post Office. When the Sept. 11 terror attack damaged the Postal Service's Church Street processing facility, the Farley Post Office was commandeered to pick up the slack. With anthrax scares gripping the country through much of October, a heightened advertising recession and a slackening economy, the Post Office came in $521 million under its projections. Overall mail volume dropped some 2.8 billion pieces below the same period in 2000, the single largest quarterly mail-volume decline in recent history. "We are dealing with a lot of financial challenges within the Post Office," Postal Service spokeswoman Diane Todd told The Observer. "We're going to look at the agreement that's being drafted up right now …. The Postal Service is working closely with all of the involved parties to come to some resolution with this whole project." Ms. Todd would not say what part of the earlier deal had become a sticking point in the negotiations. But according to sources on Capitol Hill who have been watching the negotiations closely, disputes over the cost of the Postal Service's refurbished offices in the Farley building and the terms of its lease on a portion of the building, as well as over who will be responsible for finding a new home for the Postal Service's main midtown office, have occupied negotiators over the last six months. A Common Enemy They've been close to a deal before, of course. If the project has been stalled in the past for garden-variety reasons-bureaucratic tangles; internecine squabbles between federal agencies like Amtrak and the Governor's office; hostility from members of Congress, who are generally loathe to support a civic Taj Mahal on the Hudson-now everyone appears to be arrayed against a single foe: the U.S. Postal Service. Mayor Bloomberg had personally lobbied the President to push the Postal Service to make a deal with PSRC before his election. The President has been seen as a likely source of support now, given his friendly relationship with Governor Pataki, especially since Sept. 11. And the pressure to close the deal has only increased since that fateful day. New York's Congressional delegation finds itself defending a decade-long project before appropriations committees and federal agencies already chafing under the pile of requests for funding that have come in from the city since the terrorist attack. "We've made sure that the federal dollars are there, and it is imperative that the project go ahead as soon as possible for the safety and economic development of the city," said Karen Dunn, spokeswoman for Senator Hillary Clinton. The mood is more defiant at Senator Charles Schumer's office. "The Congress has taken every conceivable step to provide the funding the Post Office needs to recover from 9/11, to deal with any costs related to moving and making way for the new Penn Station," said Mr. Schumer's chief of staff, Bradley Tusk. "There's no excuse. This should be happening immediately." It's a problem Mr. Moynihan remembers well. "They have everything in place: They have the site, they have a great design, they have the money-we cobbled together $800 million," he said. "The problem is nothing more or less than that money migrates. It disappears. You have it one day and you don't spend it, and you look up and it's not there anymore." Indeed. On March 14, a $240 million loan agreement with the Department of Transportation expired; in two weeks, members of New York's Congressional delegation will once again have to defend a $20 million appropriation that has not been spent since it first appeared in their requests for fiscal year 1998. Last year, an appropriations subcommittee cut $40 million from the project. There are political concerns, too. Mr. Pataki, who has taken a leading role in the development of civic projects in New York City, from a redeveloped Penn Station to the Hudson River waterfront park to the privatization of the World Trade Center, now will have to bear the scrutiny for those projects: one stillborn, another half-complete and the last reduced to rubble. A reversal of fortune on the Penn Station project could reverse that perception and persuade New Yorkers that progress is possible. But that will require cooperation from the Postal Service. The longer that takes, the more morale sinks among the parties trying to keep the deal from the sharks. "Our biggest fear is that we keep getting these advance appropriations and they're not using it," said one Capitol Hill staffer. "We're being put in a very awkward position, because we're using a lot of political capital to make this happen."