Thursday, June 26, 2008

Who spent $219 million on AY? The city and state obscure the issue

In a 5/8/08 letter to the Internal Revenue Service and U.S. Treasury Department, the New York City Industrial Development Authority and the Empire State Development Corporation (ESDC) argue that the PILOTs (payments in lieu of taxes) plan for arena financing should stand, even though the feds want to change the rules for tax-exempt bonds. (Here's the letter in full.)

Part of the argument is that Atlantic Yards has already proceeded significantly. But on more than one issue, the city and state obfuscate rather than explain. For example, consider this passage about Atlantic Yards spending (click to enlarge):
In order to illustrate the substantial progress that has been made with the Project prior to the issuance of the Proposed Regulations, we have provided the chronology of events set forth below.... Substantial amounts have been spent on the Project: approximately $99 million prior to 2006 (of which $15 million related to the Arena) and approximately $219 million prior to 2007 (of which $47 million related to the Arena).
(Emphasis added)

Note that $47 million is a little less than 5% of the cost of the $950 million arena.

Who spent the money?

More importantly, note that the passive sentence construction fails to identify who has spent such substantial amounts. The ESDC confirms that the spender is not the city or state but developer Forest City Ratner.

[Update 7/19/08: I should've pointed out that the city and state have already passed along $55 million in public funds.]

Should tax-exempt bonds not be issued and if, for some reason, Atlantic Yards goes down the tubes, the expenditure of $219 million need not represent a loss for Forest City Ratner. Yes, some expenditures, such as for legal and architectural services, may not be recompensed, but surely the value of the land has risen.

1 comment:

  1. I believe that the letter to the IRS is intentionally misguiding in the following respect. It says that $47 Million has been spent that “relates to the arena.” It would have been fairer and more accurate had it said:

    “$47 Million has been spent that would be allocable and relate to the arena should the arena ever be built. The expenditures are for basic infrastructure in the area which would also be entirely consistent with and won’t in any way preclude alternative development in the area. Should the arena not be built such allocable expenditures will then instead relate to that alternative non-arena development.”

    As the IRS considers the appeal being made to make these IRS-loophole bonds specially available to unfairly transfer more wealth to Ratner from the taxpayers let’s hope that the Internal Revenue Service does not get taken in by one artifice offered in pursuit of another.

    “Who” has really spent the money is probably a bit of a tactical tangle and I am not sure that ESDC knows which way they want to slant it though they say here that it was Forest City Ratner. There maybe tactical benefit in alleging or intimating that a private taxpayer will be harmed if this loophole is not granted to Ratner. On the other hand, the eye-wash-idea of these bonds is that government is acting and government will be backing the bonds with a diversion of its tax flow, so that suggests ESDC might want to use a different tactic with the IRS. In point of fact, the way that Ratner is proceeding as a conduit of public funds for general improvement which in the end the city would be interested in anyway tends to subtract him out of the picture if the arena is never built.

    ***

    We hope that the efforts of Rep. Dennis Kucinich (D-OH) to reign in this abusive artifice and device behavior will be successful. We hope that Senators Charles Schumer and Hillary Clinton will take the right stance to prevent this tax loophole from being used.

    For more on the special IRS loophole for sports stadiums and arenas- “R-TIFC-PILOT” bonds (pronounced “Artifice-PILOT”- or “Return Total Intercepted For Costs-PILOT”)- see:

    More Money for the Very Rich: An Unsporting Pursuit?
    Posted March 17, 2008
    By: Michael D. D. White
    http://www.huffingtonpost.com/michael-d-d-white/more-money-for-the-very-r_b_91970.html


    Michael D. D. White
    Noticing New York

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