Friday, June 13, 2008

As officials admit lobbying IRS for Nets arena, Lieber says AY groundbreaking by 2009 (at least)

Deputy Mayor for Economic Development Robert Lieber, speaking at a Crain's New York Business breakfast yesterday, declared that Atlantic Yards would be "under construction by the end of 2009."

[Update: The remarks, as prepared: In Downtown Brooklyn, we, along with colleagues in the State, have created the conditions to jump start the development at Atlantic Yards where the Nets Arena and at least one residential tower will be under construction by 2009. We’ve built in penalties to the agreements should the project not proceed as planned, but we’re confident that these projects are well poised to move forward.]

That raised a few eyebrows, given developer Forest City Ratner's stated goal--reiterated with confidence in today's New York Times--to begin construction this year. After his remarks, Lieber backed off the prediction, saying he was just responding to the request by Crain's Editor-in-Chief Greg David to list projects under way by the time the administration leaves office. (Actually, however, his speech came before David’s question.)

He acknowledged he couldn't predict a specific starting date for Atlantic Yards, saying that depends on the “last bit of litigation.” So perhaps he chose the end of 2009 as a date by which it's more likely litigation will be concluded, yet Mayor Mike Bloomberg would still be around to participate in a groundbreaking.

Needless to say, a 2009 groundbreaking makes an arena opening in 2010 almost impossible.

IRS rules challenge AY

Ratner’s plans depends not only on litigation but also the capacity to get tax-exempt bonds, a challenge highlighted this week by the New York Yankees' apparent effort to complete the new Yankee Stadium with tax-exempt bonds.

But it turns out that was only the tip of the iceberg--the Yankees' new stadium is mostly on the way, but the $950 million Nets arena would be very dependent on such bonds.

Today's New York Times, in an article headlined A Question Mark Looms Over 3 Expensive Projects, reports that, while the new Yankees and Mets stadiums were financed through tax-exempt bonds, the IRS quickly issued a proposal in 2006 to tighten the rules governing the use of tax-exempt bonds so that it would be more difficult, and perhaps impossible, for this kind of financing to be used again by profitable, private enterprises like professional sports teams.

So maybe Lieber, when he said that the city had been "working with colleagues in the state to create conditions" to get Atlantic Yards moving, meant not only the creation of infrastructure and distribution of subsidies but also lobbying in Washington to change Internal Revenue Service rules.

(Note that the "Arena Site" caption in the Times is incorrect: rather than stretch solely along the Metropolitan Transportation Authority's Vanderbilt Yard, as in the picture, the arena site would end at the Sixth Avenue Bridge in the upper left quadrant of the photo and stretch south below the Pacific Street boundary, at the far left of the photo. Below is the arena site outlined, more or less, in a photo by Jonathan Barkey. Click to enlarge.)

NYC EDC helping developer

Indeed, Seth Pinsky, who heads the New York City Economic Development Corporation told the New York Sun that the developer Forest City Ratner Co. had expressed interest to the city about seeking additional tax-exempt funding, but that the request was being handled by the state.

What "additional tax-exempt funding" means is unclear--is that the difference between 2006l plans for a $637 million arena and current plans for a $950 million arena? Or has the arena tab continued to grow?

Assemblyman Richard Brodsky, who's been looking into such financing arrangements--which hurt the federal treasury more than the city and state, hence the attraction to local officials--told the Sun he was concerned about the city's willingness to go to bat for the team owners: "These decisions are being made in secret in these Soviet-style meetings and it is outrageous."

More subsidies for AY?

During the Crain's session, David pointed out that “the opposition which has dogged” Atlantic Yards had been inflamed by reports in March of delays in project construction, the developer’s call in early April for more subsidies, and the general question of what might be done with the site, as exemplified by City Comptroller William Thompson’s April 30 acknowledgement that “I’m not sure what that project is any longer” and his hint that it might be revived by bringing in additional developers.

[Updated: Lieber's response, verbatim comments: You know, Atlantic Yards is going through the last stages of the litigation. You know, again, what I wanted to try and emphasis here is that we’re trying to do is to lay the foundation so that the private market can respond appropriately here. So the development activity that’s going to take place in Atlantic Yards is going to be a byproduct of what the economic conditions and what the financing markets are going to be. But we do believe this project is going to get underway. We do believe you’re going to see construction begin on the Nets arena and we do believe you will see residential begin there. And as far as bringing in other developers, no I don’t see any reason to do that. That’s- and frankly that’s nothing that’s ever even been contemplated at least that I’ve heard about.

He was asked, "Do you think the project needs additional subsidies and would you entertain a request for additional subsidies?"

Lieber's response, verbatim: Well, we have not received any kinds of requests formally from Forest City Ratner to date but we’re open minded and we’ll listen and if we think there are things that make sense we’ll contemplate that.]

Remember, Brooklyn Borough President Marty Markowitz, during an interview shortly after the December 2003 announcement of Atlantic Yards, said: He made it clear, over and over again, the mayor, this city has no money, no money to provide in any way at all. This is all incremental funds.

The few or the many?

David also asked whether the administration should concentrate on moving a few projects rather than the many projects—he counted 15—Lieber mentioned in his remarks, given the short window until the end of Bloomberg’s term in December 2009.

Lieber said no. “We have to think big,” he declared. “It’s critical for us not to back off… If anything, we’re putting our foot down and accelerating harder.” Indeed, he said the administration was making “not just the money choices, but the political choices” to ensure that projects stay on track.

Yankees need bonds?

Also, Lieber was asked about the apparent effort by the Yankees to seek $350 million (or, as has been reported, $400 million) in tax-exempt financing to finish their new stadium.

Lieber said that he didn’t think there was a connection, that there were “a number of alternatives” in the taxable and tax-exempt bond markets. (Of course, the former would cost the team more.) He said he had no "iota of doubt” that the stadium would be completed on time.

So the discussion about the lobbying in Washington apparently has to do with Atlantic Yards more than anything else.

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