Wednesday, December 13, 2006

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:
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:
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.”

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