Monday, December 10, 2007

AY won’t “touch the existing tax base”? Ratner's claim soon contradicted

On the fourth anniversary of the announcement of the Atlantic Yards project, a look at a dubious economic claim.

We now know that Atlantic Yards would involve hundreds of millions of dollars in direct subsidies and public costs, and possibly much, much more. And we know developer Forest City Ratner always claimed the project would be “primarily privately funded.”

Less known, however, is that Forest City Ratner CEO Bruce Ratner initially went even farther, claiming that Atlantic Yards would “not touch the existing tax base.” That has since been clearly contradicted. But he's never been called to account for it.

(Graphic from Ratner's 6/26/05 New York Times Magazine interview.)

Ratner rarely grants interviews or answers questions at press conferences, so it's worth listening again to his 12/12/03 interview on the Brian Lehrer Show. Lehrer read a listener's question: "Can you make all of this happen with no public money and with New York State getting the full value for the land it surrenders?"

Ratner's response wasn't quite a yes: “We have a bunch of goals, and one of the goals from Day One is to make sure to not hurt our existing tax base. I’m very sympathetic. I worked for the government, the city government, I love this city. We want to make this primarily private money, so let me answer your question.”

“Primarily,” Lehrer interjected, with a touch of skepticism.

Fair market?

“That’s not a trick word, that was really meant,” Ratner responded. “First, we will pay fair market value for any of the development land, um, that we build housing on and commercial.”

Unmentioned was that the developer would not pay fair market value for all development land used for the arena; in a the 2/18/05 Memorandum of Understanding (MOU), the city agreed to convey streets and city properties underlying the arena for $1, well below full value. That deal, Ratner’s locution suggested, was already under discussion.

And Ratner's cash bid for the Metropolitan Transportation Authority's Vanderbilt Yard, $50 million, was way less than the $214.5 million appraised value, and was upped to $100 million after the MTA agreed to exclusive negotiations, even though rival bidder Extell bid $150 million. (FCR says its bid was worth more; Extell allegedly wasn't able to package ancillary improvements because the MTA wouldn't answer technical questions.)

Incremental revenues?

“Second," Ratner continued, "the tax money that we will use, will be incremental tax money that’s based on sales tax from tickets, concessions, and so on, that normally we wouldn’t have, that’s added taxes… and any taxes like that, which are incremental, because of the arena, so it will not touch the existing tax base.”

Maybe that’s how they were thinking about it then, in terms of so-called “tax-increment financing” (TIF), but that wasn’t how it came to be. In the MOU issued 14 months later, the city and state each agreed to put up $100 million in capital for site preparation, infrastructure, and property acquisition. There was no mention of TIF.

The New York City Independent Budget Office, in its September 2005 Fiscal Brief on Atlantic Yards, did not mention TIF, stating:
The city funds will be raised through the sale of general obligation bonds as part of the city’s capital plan, with debt service on these bonds paid out of general revenue.

This year, that city budget allocation went up to $205 million and the city is spending money even though the new arena might never be built. Even if it is, the spending suggests, as I've written, that the city might lose money, rather than gain, on the arena. (The developer, which would gain from lucrative arena naming rights and luxury suites, faces a big potential upside.)

"Blank check"

And both the city and state, according to the MOU, have agreed to “consider making additional contributions for extraordinary infrastructure costs relating to the mixed-use development on the Project Site (excluding the Arena Building Site).

Develop Don’t Destroy Brooklyn (DDDB) calls this a “blank check.”

Only new revenues?

In the radio interview, Lehrer wanted to understand the concept behind TIF: “Is that like kind of a loan and the city and state get it back assuming that you make that much….?”

Ratner wasn’t too helpful. “I gave you the general answer and that’s the answer, “ he responded, with a touch of testiness. “We should get rid of that notion we’re taking existing tax bases or other kinds of government money. This is remarkable--it’s a 2.5 billion dollar project in which in the only kinds of new revenues are used are new revenues from ticket sales, concessions, and the like.”

Not so. Also, as the IBO added in its Fiscal Brief, there are “several special benefits not available as-of-right to development projects: capital contributions from the city and state, low-cost financing for the arena, extra property tax savings, a low-cost lease, and property obtained using the state’s power of eminent domain."

Other benefits

The IBO noted that "the property transfers and tax exemptions would involve foregone new revenues rather than new outlays" and that use of bonds for affordable housing and the arena represented "limited public resources not available for development elsewhere."

Beyond that, the state's override of zoning would allow "greater density than would be possible under current zoning for the site."

Also, unmentioned by the IBO, we could add naming rights for the "publicly-owned" arena.

The initial claim

Forest City Ratner's Atlantic Yards Project Overview released 12/10/03 echoed Ratner's claim:
The cost of the entire Brooklyn Atlantic Yards project—including residential, commerical and retail space and public amenities—is estimated at more than $2.5 billion over a ten-year period. The Arena will be primarily privately funded. Incremental revenues will be derived from sales taxes on tickets, food, and merchandise sold at the new Arena.

A 2004 FCR flier sent to Brooklynites contained this passage:
Q. How will Atlantic Yards be financed?
A. Primarily through private funds.
…A study by respected Smith College economist Andrew Zimbalist projects that Atlantic Yards will generate $4.1 billion in new tax revenue for the City and the State over the next 30 years. About one-third of that will help pay for construction and operating costs, leaving New York with $2.8 billion we didn’t have before to help fund better schools and safer streets.


However, that study was full of holes, the trade was never as simple as Ratner suggested, and the existing tax base has already been touched--and may well be touched again.

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