Saturday, June 14, 2008

The $165 million difference: why Ratner can't play it cool about IRS rules

Given perhaps $165 million in savings at stake, Forest City Ratner CEO Bruce Ratner seems curiously unperturbed about the possibility that new Internal Revenue Service restrictions would limit the amount of tax-exempt bonds for the planned Atlantic Yards arena.

NY1 reported Friday:
"We don't see really a problem,” said Ratner. “You know if the regulations don't change, do change, whatever the regulations will do, we'll be able to finance this. We've been assured of that. We've been working on it over the last two months, and it will take another three or four months to finish the documentation, but there's not a problem.”

While Ratner's playing it cool, his company is surely lobbying hard, along with city and state officials, to ensure that the long-contemplated plan to issue tax-exempt bonds that would be repaid by PILOTs (payments in lieu of taxes) will go forward.

Looking at the numbers

The difference is worth many millions. The Yankees would save $189.9 million over the 40-year life of $920 million in tax-exempt bonds, according to the Independent Budget Office. (The Times, quoting the IBO, suggested $190 million savings on $943 million in bonds.)

Though the IBO has not calculated the savings on the arena's new $950 million price tag, a similar ratio to the Yankees numbers suggests that those building the Atlantic Yards arena, for which $800 million in tax-exempt bonds are sought, would save $165.1 million.

So Ratner may tell the press that the arena might go forward with taxable bonds. But surely Forest City Ratner's investment plan assumes tax-exempt bonds and the attendant savings.

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