IS the glorious vision of a resurrected Penn Station finished? Critics and mourners alike have been quick over the last few days to pronounce dead the project to build a Moynihan Station in the 1913 James A. Farley General Post Office on Eighth Avenue.

When the owners of Madison Square Garden announced last week that they’re pulling out of the state-sponsored and city-supported plan to move their arena across the street, it certainly looked like a dagger to Moynihan’s heart.

If the old Garden stays in place, the private development that’s to replace it – and produce funds for building the new station – can’t get built. The Garden’s owners had been pressing for major alterations to historic Farley to accommodate, among other things, an immense glass wall as an entrance to their arena.

But the city remains “committed to the larger Moynihan project, with all of its components,” says Deputy Mayor Robert Lieber – the Bloomberg administration’s point man for development.

Phase I of the plan was to build a new train station in the eastern portion of Farley and a new Madison Square Garden in the western portion. Once all Garden operations were moved into Farley, Phase II was to produce the demolition of the old Garden and the renovation of the current Penn Station, giving it greater capacity and better amenities. Some 7 million square feet of office space would be developed in the immediate neighborhood.

Note that tearing down the Garden is critical to the redevelopment and upgrading of the neighborhood – but it’s not central to reconstructing Farley, which is now just one component of the huge $14 billion project. Keep this distinction in mind as you hear of the Garden’s demands, which will likely grow in the coming weeks.

Back in 1992, it was just one more audacious idea from the late Sen. Daniel Patrick Moynihan: Use the Farley building to give New Yorkers back the gorgeous Beaux Arts Penn Station that was demolished in 1964. Today, it’s a mega-real-estate deal.

But development is never easy in New York – and development in the seedy but valuable Penn Station area is especially contentious.

Moynihan’s simple proposal would have retained the post office’s façade while completely remaking the interior. Government officials gradually transformed that into a far more expansive plan that would match profits from private development with government subsidies to pay for the station construction. The lead agency was the Empire State Development Corp, which pretty much carries out the governor’s bidding.

The more private development – and thus the more private dollars – the better. Or so it seemed to officials of the Bloomberg and Pataki administrations, until the plan was vetoed in 2006 by the state’s Public Authorities Control Board – allegedly at the instigation of Assembly Speaker Sheldon Silver. The deal was then dead – unless a new governor could resurrect it.

As he left office, Gov. George Pataki urged that the state at least begin the rebuilding of Farley while discussions were started up again. The Spitzer administration took half the advice – not touching Farley but at least restarting the negotiations with the chosen developers (Related and Vornado), property owners (especially Madison Square Garden) and the transit entities involved (including Amtrak, New Jersey Transit and the Metropolitan Transportation Authority).

The project that emerged was even bigger, with the Garden given even more control of Farley, the developers getting a million square feet in retail – and the super- block between Seventh and Eighth avenues and 31st and 33rd streets slated to receive 5 million square feet worth of office space.

Things seemed back on track: The Empire State Development Corp. bought Farley a year ago, paying $230 million – $140 million of it covered by the Port Authority. The rest of the price was to come from the developers and borrowing.

But since the planning got started, the costs of renovating Penn Station (to be called “Moynihan East”) have more than doubled, to $2.2 billion – plus another $1 billion to expand into Farley.

If the Garden is out, is the money there for this and the other components?

Sen. Chuck Schumer urged Gov. Paterson last week to kick-start the project by putting the Port Authority in charge – its enormous borrowing capacity could solve the financing problems. But the PA is not reknowned for getting big projects done right – and no other elected official has publicly agreed with Schumer.

The Bloomberg team is working on the issue. The city and state would each make a substantial contribu- tion, says Deputy Mayor Lieber, as well as the developers. “We will then work with our Washington partners to make sure the gap is doable,” he adds, talking about the unknown deficit the feds might be asked to handle.

It’s reassuring to know that the Bloomberg administration is intent on driving Moynihan Station forward. In the meantime, though, why not take Pataki’s advice – and start the work on Farley?

This is pretty much up to Gov. Paterson, who has many other pressing concerns he probably wants to tackle first. But in the meantime, the $900 million in federal, state and city funds set aside by Moynihan in 1999 have just been sitting.

Peg Breen, president of the Landmarks Conservancy, says, “Starting Farley doesn’t mean that the whole project becomes out of the question. Just finishing the design of the station and getting moving will take time, when negotiations with the Garden can continue. If it’s done correctly everybody will win – the Garden, the developers, the public.

“But if you give in to the Garden’s demands, you’ll have spent all that money on Farley for a lobby to their arena – and the public won’t get their station.”

Penn Station has long been the country’s busiest rail station – and one of its bleakest. Dark, maze-like and incomprehensible to the neophyte, it may be the world’s gloomiest portal to a great city. Yale’s Vincent Scully once contrasted the original station with the current one, “One entered the city like a god. One scuttles in now like a rat.”

The rebuilding of Farley can give New Yorkers back their transcendent portal. While the state works out a new deal with the Garden, it’s well worth starting on the project’s symbolic heart.

Julia Vitullo-Martin is a senior fellow at the Manhattan Institute.