Skip to main content

The missing half-billion: ESDC cuts projected AY tax revenue by nearly one-third

The Empire State Development Corporation (ESDC) didn't shine a light on it, but nearly half a billion dollars in projected public revenues just vanished.

The revised Atlantic Yards General Project Plan (GPP) issued last Friday by the ESDC contains one very significant change from the document released in July. Projected net new tax revenues have plummeted by $456 million. That's almost a one-third decline from the $1.4 billion figure announced five months ago.

That's much more than a rounding error. And it vastly outpaces other changes regarding Atlantic Yards. After all, since July, the project's cost went down 5% (from $4.2 billion to $4 billion), and its size declined 8% (from 8.659 million square feet to 7.961 million sf).

So how could the revenues drop so much? The change calls into question the ESDC's methods, and its candor, since no supporting study has been released.

It may be worse

Even as the agency has modified its revenue projections to $944.2 million over 30 years, it has yet to acknowledge the full impact of subsidies and public costs that could cut deeply into the overall net revenue.

In other words, there are hundreds of millions of dollars in taxpayer costs--for affordable housing, public safety, schools, and sanitation--that further offset the net revenue. And those costs have not been fully disclosed, nor factored into the ESDC's analysis.

So we still don't know whether Atlantic Yards would be a good deal. But the new numbers raise further questions and demand further transparency.

[Note: I've added boldface in certain passages below.]

Two press releases

The 7/18/06 press release (at bottom):
On a present value basis, the project will generate $1.4 billion in tax revenues to the State in excess of the public contribution to the project.

The 12/8/06 press release (no longer linked; I hope to find hard copy):
On a present value basis, the project will generate $944 million in tax revenues to the State in excess of the public contribution to the project.

Whoops--that's not a rounding error.

(Present value is today's value of a stream of payments to be made over the coming 30 years.)

Teasing out the difference

Let's compare similar passages between the GPP issued in July with the one issued in December. One key difference comes at the start.

July: ESDC has performed an independent economic impact analysis of the Project. ESDC has Projected that the Project will have the following impacts during construction and for the first 40 years of operations

December: ESDC has performed an independent economic impact analysis of the Project. ESDC has Projected that the Project will have the following impacts during construction and for the first 30 years of operations

I reported in August that the ESDC acknowledged that the 40-year time period was a "typo," as 30 years is the standard period for analysis, but the agency didn't revise the GPP until December. It's not clear if it was used in the fiscal impact memo the agency belatedly released 10/18/06, since that memo incompletely describes the ESDC's calculations.

Did the shift from a 40 years to 30 years lower the projected cumulative revenues? It's quite possible, but it certainly shouldn't affect revenues from construction, which is expected to take ten years. And it shouldn't affect the average annual number of jobs. But both figures declined significantly.

Construction jobs

July: (i) Construction of the Project will generate 15,344 new direct job years and 26,803 total job years (direct, indirect and induced);
(These numbers appear in the 10/18/06 memo.)

December: (i) Construction of the Project will generate 12,568 new direct job years and 21,976 total job years (direct, indirect and induced);

The project was reduced in size by 8%. However, the reduction is 18% in both direct job years and total job years. Was the earlier figure an overestimate?

Note that in the GPP the ESDC, at least, distinguishes between jobs and job years, though not in the press release, which states: The project is expected to create almost 22,000 construction jobs during the 10-year construction period.

Direct personal income

July: (ii) Direct personal income related to construction activities will be $721.0 million and total personal income will $1.5 billion (direct, indirect and induced);
(These numbers appear in the 10/18/06 memo.)

December: (ii) Direct personal income related to construction activities will be $590.0 million and total personal income will be $1.2 billion (direct, indirect and induced);

That's a reduction of 18% in direct personal income and 20% in total personal income. Remember, the project was downsized by only 8%.

Total construction employment

July: (iii) Total construction employment will generate $50.4 million in City personal income tax and sales tax on consumption expenditures and $109.5 million for New York State;
(These numbers appear in the 10/18/06 memo.)

December: (iii) Total construction employment will generate $42.1 million in City tax revenues and $89.9 million for New York State;

Those are declines of 16.5% and 18%, respectively.

Operations

July: (iv) Operations at the Arena and additional spending in the region will support an annual average 6,573 new jobs in New York City (direct, indirect and induced) and an annual average 7,378 jobs (direct, indirect and induced) in New York State (inclusive of New York City);
(These numbers appear in the 10/18/06 memo.)

December: (iv) Operations at the Arena and mixed-use development will support an annual average 4,538 new jobs in New York City (direct, indirect and induced) and an annual average 5,065 jobs (direct, indirect and induced) in New York State (inclusive of New York City);

That's a 31% decline in both city and state jobs. But the project hasn't changed that much. What changed with the methodology?

Revenues, in present value

July: (v) On a present value basis, the Project will generate $845.5 million of City tax revenues and $1.1 billion of State tax revenues. Thus the Project will generate $1.4 billion in net tax revenues in excess of the public contribution to the Project.

December: (v) On a present value basis, the Project will generate $652.3 million of City tax revenues and $745.3 million of State tax revenues. Thus the project will generate $944.2 million in net tax revenues in excess of the public contribution to the Project.

Those are declines of 23% for City revenues, 33% for State revenues, and nearly 33% for net revenues. (The GPP also cites an estimated $554 million in public improvements and infrastructure.)

What are the costs?

The July calculation, estimating $1.9455 billion in new revenues and $1.4 billion in net revenues, assumes a public contribution of $545.5 million.

The December calculation, estimating $1.3976 billion in new revenues and $944.2 million in net revenues, assumes a public contribution of $453.4 million.

Why did the public contribution go down? Maybe the ESDC calculated lower sales and mortgage recording tax exemptions. Certainly the $251.8 million in bond financing remains in place.

But it's worth further explanation.

Missing are the costs for schools, sanitation, and public safety acknowledged by the Independent Budget Office and even Forest City Ratner consultant Andrew Zimbalist--not to mention other subsidies, such as for "extraordinary infrastructure costs.”


Comments

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.