Tuesday, January 08, 2008

After criticism of MSG tax break, James, Yassky point to AY

Yesterday Madison Square Garden and its owner, Cablevision, was on the defensive at a City Council Finance Committee hearing where sentiment clearly has shifted—years after good-government advocates began lobbying about it—to lifting the tax exemption that now saves the Garden some $11 million a year.

In response, Cablevision called attention (right; click to enlarge) to the even larger tax breaks and other forms of support the city has handed out for construction of new sports facilities for the Yankees, Mets, and Nets.

And two City Council members—Atlantic Yards opponent Letitia James and sometime critic David Yassky—issued a statement saying the City Council should take a broader look at all subsidies, including much larger ones for Atlantic Yards.

Explaining the numbers [update]

IBO spokesman Doug Turetsky says of MSG's figures, "They have extrapolated from numbers we have presented in reports in the past and used portions of them but their totals are not the reflection of our numbers as sourcing them to us would lead one to think.

They include state and federal subsidies, which are not part of the comparison we presented yesterday. In addition, they compare the one-year cost of the MSG exemption to the lifetime subsidy costs of the other projects."

25 years later

The resolution notes that MSG was granted a property tax exemption by the state in 1982, at a time when an incentive was seen as necessary to keep the sports teams from leaving the city, a threat that clearly has passed. Moreover, it notes, “privately owned sports arenas built in recent years in other major cities, according to the IBO [Independent Budget Office], generally do pay real property taxes – as did MSG from 1968 when it opened until 1982.”

The resolution seems likely to pass City Council, given the support of Mayor Mike Bloomberg, who clashed with Cablevision over its opposition to a West Side Stadium that could compete with MSG, and Council Speaker Christine Quinn. However, it must then pass the state legislature, where cagey Assembly Speaker Sheldon Silver, long allied with Cablevision, has kept his cards close to his vest, as the New York Times reported.

Quinn’s opposition

Quinn was apparently in full dudgeon, according to a statement published on Gotham Gazette:
$11 million dollars may not sound like a lot of money to [company president] Jim Dolan, but to most New Yorkers it’s a fortune. If he expects the City of New York to extend what is almost a million dollar a month tax break in perpetuity, he’s sadly mistaken. New Yorkers pay the highest taxes in the country, and they need to know that their tax dollars are being spent wisely.
“When Mayor Koch requested the exemption for MSG, he believed it would be for a decade, not a quarter of a century, and certainly not forever. But for more than twenty-five years, New Yorkers have compensated Madison Square Garden’s decision to stay in New York to the tune of nearly $297 million dollars. It’s time for them to start paying their fair share.
“Madison Square Garden, the Knicks and Rangers, should be treated just like all our hometown professional sports teams. The Yankees and Mets are building publicly owned ballparks on publicly owned land, the Garden is a private facility. If and when a new arena is built for the Knicks and Rangers, Payments In Lieu of Taxes (PILOTS) should be considered as were structured around the agreements to build new homes for the Mets and Yankees.


She didn’t mention Atlantic Yards, perhaps because the term “publicly-owned land” is a dodge. As the Memorandum of Understanding shows, private property will be conveyed by Forest City Ratner to the state and leased back for nominal sums.

Council sponsors

Among the nine initial City Council sponors are Lew Fidler and Mike Nelson of Brooklyn, both Atlantic Yards supporters. Fidler told the New York Sun, "The Garden pressured the city into a giveaway in perpetuity, and that was wrong."

Note that the Payment in Lieu of Taxes (PILOT) deal in the Atlantic Yards MOU is for 99 years.

James and Yassky

In their statement, James and Yassky, who called the MSG exemption “now entirely unnecessary,” added:
Unfortunately, Madison Square Garden is not the only potentially tax-supported, privately-owned arena on our horizon: if you think subsidizing MSG is a bad idea, know that worse is on the way in the form of Atlantic Yards, which features a new stadium for the New Jersey (soon-to-be-Brooklyn) Nets. The Atlantic Yards Project is slated to receive $500 million in City and State subsidies, including $205 million in the current City Budget, a property tax carve-out valued at up to $200 million, and $100 million from the State.
Forest City Ratner is the greatest beneficiary of public subsidies in NYC. The various tax exemptions enjoyed by this company, and others in the City, have not been reviewed or been subject to as much scrutiny as was witnessed in the Finance Committee hearing today. This legislative body should be reviewing how we grant tax exemptions to companies on a city wide basis, and not single out any one company. The policy should be consistent, broad and equitable.


I don’t know if Forest City Ratner is the greatest beneficiary of public subsidies, but they are King of the PILOTs, as Daily News columnist Juan Gonzalez recently wrote.

In 2005, Bettina Damiani of the watchdog group Good Jobs New York argued for “attention to what we believe are unnecessary taxpayer giveaways – that are not only being given to Madison Square Garden... We hope all large corporate subsidies get this type of attention." She made similar arguments yesterday.

Retention vs. construction

MSG said in a statement that it was wrong to pick on them: “With a more than $50 billion City annual operating budget, it is strange that Speaker Quinn would focus on MSG's abatement which pales in comparison to the more than a billion dollars in benefits recently granted to all other pro sports teams in New York City."

Quinn told that Times said MSG was disingenuous to compare its deal with those regarding new construction. (Then again, it was for a remodeling.)

MSG within norms?

In testimony (which I was sent) at City Council , Thomas Hazinski, Managing Director of HVS Convention, Sports & Entertainment Facilities Consulting argued that “MSG’s property tax exemption is well within the norms for sports venues in the United States.”

In fact, he said, most get far more subsidies than just abatement of property taxes. “The vast majority of sports venues do not pay property taxes,” he said, though the IBO has pointed out (see below) that new arenas have been required to pay property taxes.

He also said that MSG’s “exemption is more modest than the support New York City has offered to other professional teams, citing “the estimate of public support for the new Nets arena in Brooklyn is $340 million with $14 million in property tax savings.”

A fact sheet (top) MSG distributed stated $342 million, citing the IBO as a source. While the city and state have pledged $305 million, the IBO, as noted by Turetsky's comments, does not endorse MSG’s calculations.

Either way, clearly the amount of subsidy is even greater for the other sports facilities. Hazinzki noted, “These totals do not include other key support mechanisms, including the full value of tax exempt bonds.”

Economic impact

Hazinski argued that New York “has leveraged greater economic impact from Madison Square Garden with less overall public support,” given that MSG “is the home of three professional teams and hosts hundreds of other events.” That cuts both ways, however, because it suggests that MSG already has steady income.

Moreover, Cablevision’s willingness to spend $11.5 million—more than the tax-exemption over one year—to settle a sexual harassment case involving former MSG executive Anucha Browne Sanders, also suggests that the company has deep pockets.

Hazinksi, in closing, argued that the Council defer any vote until a full evaluation of “what government support is appropriate for the development of a new arena.” Quinn has said that could be taken up separately.

IBO evaluation

The IBO yesterday criticized the tax break, as the Daily News reported. Last February, in its Budget Options for New York City document, the IBO offered much stronger pros than cons regarding removal of the exemption:
Proponents might argue that tax incentives are now unnecessary because the operation of Madison Square Garden is almost certainly profitable. Because Madison Square Garden, L.P. owns the Knicks and Rangers teams, and the MSG Network and Fox Sports New York, it receives game-related revenue from tickets, concessions, and cable broadcast advertising. In addition, Madison Square Garden hosts concerts, theatrical productions, ice shows, the circus, and much more in its arena and theater, and it collects both rent and concession revenue on these events.

Proponents also might note that privately owned sports arenas built in recent years in other major cities, such as the Fleet Center in Boston and the United Center in Chicago, generally do pay real property taxes—as did MSG from 1968 when it opened until 1982—although some have received other government subsidies such as access to tax exempt financing and public investment in related infrastructure projects. In the case of MSG, the continuing subsidy, long after the construction costs have been recouped, is at odds with the philosophy that guides economic development tax expenditure policy.

Opponents might argue that the presence of the teams continues to economically benefit the city and that foregoing $13 million is reasonable compared to the risk that the teams might leave the city. Some also might contend that reneging on the tax exemption would add to the impression that the city is not business-friendly.


These days, the risk that such teams would leave a major media market seems low. And, as James and Yassky and Damiani pointed out, the city still manages to seem business-friendly.

[Updated]: IBO testimony

From the IBO's testimony yesterday:
With an open-ended benefit, the city continues to face an annual cost even if the conditions that prompted the initial deal have changed. In 1982, the owners of the Garden argued that their costs, including taxes and energy, had grown so high that they threatened their ability to keep the basketball and hockey teams playing there. Today, it is unlikely those conditions remain. With the advent of its own cable TV network, more intensive use of the facility to generate advertising revenue, and construction of new luxury boxes and club seating areas with higher ticket prices, the Garden today is by all accounts a highly profitably enterprise.


In recent years the city—ignoring the argument that sports facilities are a bad investment—has entered into agreements with the Nets, the Mets, and the Yankees to subsidize new facilities for each of those teams. IBO has estimated that the net present value (40 years with discount of 6 percent) of these city subsidies range from $140 million for the Nets arena to $162 million for Yankee Stadium. These deals also include additional state subsidies and federal tax exempt financing. Measured on a comparable basis, the Garden’s exemption represents a city subsidy of about $218 million. While the value of the Garden’s subsidy from the city is larger, with these other deals, the city has somewhat leveled the playing field in terms of public subsidies for our major league sports teams.

(Emphasis added, given that the Nets would get $205 million in direct subsidy from the city and $100 million from the state)

1 comment:

  1. Some thoughts-

    It is interesting that the criticism of the Madison Square Garden tax exemption comes at the time when there is an effort to coax MSG into a new location. In connection with that move, if it happens, MSG will probably be offered a deal that is sweetly like Mets, Yankees, and, cough, Ratner’s Nets. By proposing to take away the current tax exemption from MSG the comparative incentive to relocate is enhanced. (Conversely, if MSG argues successfully that their current high subsidies should continue then it gives greater assurance that a deal inducing them to move will have to be extra sweet.)

    No doubt, if MSG moves it would want everything else on their checklist that it shows Mets, Yankees, and, cough, Ratner’s Nets, but not them getting. I am sure they will want, like Ratner and the Yankees and the Mets an “R-TIFC-PILOT” agreement (pronounced “Artifice-PILOT”- or “Return Total Intercepted for Costs-PILOT”) which is unlike a typical “Payment In Lieu Of Taxes” agreement because it is designed so no payments go into city coffers like taxes. Instead, all the “PILOT” payments go so the developer doesn’t have to actually pay for the asset he is acquiring and for such things such maintenance and operation of the facility, something else that would normally be a cost for which the developer/owner should be responsibility. In other words, the Nets arena is being given to Ratner by the government. The total intercepted which is not going as taxes would is enough for the arena to be entirely publicly owned and paid for in which case the public would collect all the profits from it.

    (The R-TIFC-PILOT which ESDC has with Ratner has a provision that if there is overage beyond what is necessary to pay the tax exempt bonds, the overage will be split between arena maintenance costs and ESDC. An overage, probably slight could result from a slight miscalculation of the payment amounts at the outset or, more likely, if the payments go up because of an increased real estate tax property assessment. The theoretical fractional distribution to ESDC is probably eyewash for the IRS for tax exemption on the bonds since, for this purpose in the transaction, ESDC is nominally a public entity. But having the fraction go to ESDC rather than the New York City- where taxes are supposed to go- is probably considered insurance against another City administration increasing the tax assessment to get money in. Ratner may even consider he has a shot at recapturing for himself the fraction theoretically headed for ESDC.)

    When we talk about PILOTs and who is the “King of the PILOTS.” the bottom line to understand though is that the arena/stadium R-TIFC-PILOTs are NOT equivalent to the other traditional PILOTs. A typical PILOT deals with, essentially, substituting fractional tax-equivalent payments for full payment of taxes- But the idea is that all the dollars paid under the PILOT, though less in total, are each as good as a dollar of taxes- Hence your 60% abatement per company figure or the 2/3 reduction for Metrotech or 87% reduction for the Times- At least the fractional amount that remains is a good as a tax dollar paid.- And, once you know the percentage you know the story from the public’s standpoint. The arena/stadium R-TIFC-PILOTs, are at least in Ratner’s case sending NOTHING to the city or the public. - Not one dollar is as good as or the equivalent of taxes. (The IRS should be targeting these transactions and not allow them to be the basis for tax-exempt bonds.)

    Next, when comparing what various arenas and stadiums are paying or not paying in property taxes (or receiving in benefits) in this city or others it is worthwhile to remember that these are not all apples-to-apples comparisons. Profitability and location need to be taken into account. Those venues which are suitably and most constantly busy with a stream of profit-making or cost-carrying events should be paying higher property taxes than venues that meet a few particular occasional uses but often lie fallow at other times. Arenas like MSG or Ratner’s proposed arena should be expected to be more profitable and paying more taxes than Stadiums used for fewer events. Next, facilities built in central urban locations displace other potentially better uses. This is one reason it was so inappropriate to propose putting the Jets Stadium on Manhattan’s West Side. The alternative uses displaced would be paying appropriately high real estate taxes. Accordingly, sports facility venues that displace them should pay high taxes if they are to displace them. MSG and Ratner’s arena should pay higher taxes than outlying facilities like the Yankee and Mets Stadium which are not displacing such high yielding tax payers. And they should be busy enough to pay substantial taxes because, if they are not, then that argues that they should not be located in central locations displacing better more constantly busy alternative uses.

    It is great that Bloomberg may be willing to challenge inappropriate tax-exemption for MSG but the Jets Stadium was a colossally bad idea on a scale of misjudgment nearly equal to Atlantic Yards and if there is any vendetta against MSG because they helped defeat a bad idea that would be sad indeed. The Atlantic Yards arena should not be built for many reasons, but assuming arguendo that we were to proceed with it (rather than the City Council recapturing funds or Spitzer coming to his senses) Bloomberg should recognize that, on a par with MSG, the Ratner arena should be paying substantially more taxes than currently proposed.

    I also could not help but notice that the same day the New York Times ran the story about the suggestion for curtailment of the MSG’s tax exemption another story appeared about the abject failure and unworkablity of the “Community Benefits Agreements” relating to Yankee Stadium (“Stadium Goes Up, but Bronx Still Seeks Benefits” by Timothy Williams). The same people who sell us R-TIFC-PILOTs are the people selling the very bad idea of community benefit agreements. Within the Times article there were several sentences worth extracting to read together that say much about the problem of accountability and community benefit agreements:

    “Last month, Mr. Carrión announced his candidacy for CITY COMPTROLLER (emphasis supplied) in 2009.”

    “The agreements are enforceable by courts, but officials who normally ensure that the terms of a contract are carried out — such as the CITY COMPTROLLER (emphasis supplied) — have no oversight because municipal money is not involved.”

    “None of the officials who signed the agreement agreed to be interviewed for this article. The signatories were Mr. Carrión; Randy L. Levine, the president of the Yankees; and Bronx City Council members Maria Baez, Joel Rivera and Maria del Carmen Arroyo.”

    “Mr. Carrión has promoted the stadium deal as on of the high points of his tenure as borough president, but the plan encountered sooem opposition in the High Bridge neighborhood, just north of the stadium.”

    The last sentence was in the print version of the Times but not the on-line version. The print article which was better than the on-line verison also exclusively contained this telling sentence:

    “Unlike contract entered into by the city that are subject to government regulation, community benefits agreements are typically pacts made between developers and community members that promise money or services when a neighborhood consents to a large project.”

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