At a joint hearing yesterday of several state Assembly committees regarding tax-exempt bond financing for the New York Yankees, New York City Economic Development Corporation President Seth Pinsky faced forceful scrutiny from Westchester Assemblyman Richard Brodsky, a vocal foe of “Soviet-style bureaucracies,” his term for the unelected city and state authorities and agencies that have steered such deals.
Though Brodsky said he still hadn’t made up his mind about the legitimacy of the Yankees’ request for additional tax-exempt bonds—under what the Internal Revenue Service describes as a “loophole”--he did offer this statement at the end of the three-hour hearing: “I dislike public benefits for private parties when the public at large is being starved in so many ways.” And if that’s a description of sports facility finance, he added, “so be it.”
Brodsky chairs the Assembly Standing Committee on Corporations, Authorities and Commissions, which held the hearing with three other committees.
(Photo by Steve Soblick)
More AY subsidies
The Atlantic Yards arena and the New York Mets stadium both were discussed only glancingly, but yes, there were hints of the additional subsidy request Forest City Ratner is expected to make.
Pinsky, who also heads the New York City Industrial Development Authority (NYC IDA), was asked by Assemblyman Brian Kavanagh, “Is it your understanding, from [FCR executive Andy] Zlotnick and others, for the purpose of financing Atlantic Yards, Forest City Ratner will be requesting additional assistance than what’s already been announced?”
The Memorandum of Understanding signed in 2005, Pinksy responded, “assumed tax-exempt financing, provided through the state.” (So did the General Project Plan approved in 2006.) “In terms of additional assistance, we all know that we’re operating in a difficult economic and financial environment. The Nets—Forest City Ratner has made clear to us that that’s having impacts on their project. They have not made specific requests for additional financial assistance.”
After the hearing, he told reporters, “I believe that this project is going to happen. It’s a very important project for Brooklyn.”
Was AY approval premature?
Brooklyn Assemblyman Jim Brennan, who chairs the Assembly Committee on Cities, noted that the tax-exempt financing for the Yankees was approved in 2006, then was immediately followed by an Internal Revenue Service statement that the rules would be modified.
Pinsky confirmed that that occurred in October 2006.
Brennan raised a question about the December 2006 approval of Atlantic Yards by the Public Authorities Control Board (PACB), two weeks after approval by the Empire State Development Corporation (ESDC). The PACB evaluated the soundness of the state’s $100 million subsidy for Atlantic Yards
“So when the PACB approved the Nets project,” Brennan noted, the revised regulation had already been proposed by IRS and was then effectively implemented, because nobody could get any financing when it was on the table. So the PACB’s approval, he said, making the point again, occurred after a regulation was on the table that would effectively shut out tax-exempt financing for the arena
Yes, said Pinsky, as long as Brennan’s dates were correct.
Brennan implicitly suggested that that the PACB had acted without considering the full viability of the project.
Construction workers pack house
The hearing, at 250 Broadway in Lower Manhattan, was packed with construction workers who came on at least four buses more than 45 minutes before the 10 am start time, thus crowding out some others who didn’t expect a full house. The hearing room holds fewer than 150 people.
(Photo by Michael D.D. White)
Brodsky and Pinsky jousted repeatedly over whether the latter’s answers were responsive, with the Assemblyman—a generation older but a fellow Harvard Law School graduate—scornfully suggesting that Pinsky’s answers deserved a failing grade. Pinsky at one point declared that his agency had “spent over 100 man-hours over the past week or two weeks trying to answer your requests.” He was the only witness at the hearing.
Would Yankees leave the Bronx?
A key question at the hearing was the legitimacy of the threat by the Yankees to leave the South Bronx. Neil deMause has the blow-by-blow in his Village Voice report in which Pinsky admitted he doesn’t recall who at the IDA was told the Yankees would leave and that city officials trusted the Yankees’ claim they could not, or would not, fund the stadium using taxable debt. (More from deMause on his Field of Schemes site.)
Unmentioned was whether the Yankees—the Bronx Bombers—could move and not suffer diminished franchise value.
Pinsky offered three other possible outcomes: the Yankees would not have built a stadium at all; they would have would have built a stadium “substantially less” than achieved, “which would’ve created fewer job, fewer benefits;” or they would’ve requested additional subsidies from the city and state.
The tax-exempt bonds, Pinsky said, were worth $20 million a year over 30 years to the Yankees. Brennan questioned whether, given billions of dollars in revenue, the difference was "so essential that they will walk away from the city of New York.”
While Pinksy suggested that, under an alternate scenario, the additional direct subsidy from the city and state might have been $100 million, he didn’t quantify the reduction in revenues and jobs that would result from a smaller, less fancy stadium.
Indeed, Brodsky noted that, because the stadium would produce relatively few jobs, NYC IDA officials had to get a mayoral waiver to move the project along. (He said there’d be 140 permanent jobs; the Yankees now say 1000. Pinsky said figures in Juan Gonzalez's New York Daily News column yesterday were premature.)
What about ticket prices?
Kavanagh, who has proposed a bill to cap ticket prices at the stadium, wanted an explanation of why building the most expensive stadium in the history of baseball, even if it means the most expensive tickets, is a positive thing. (Here's more coverage in Metro, amNY/Newsday, and the New York Sun.)
Pinksy ticked off five reasons:
--“We’re getting off our hands an obsolete stadium.”
--“There will be 30 acres of new parkland, six more than exist today. (He pointed out that the Assembly had approved the alienation of parkland, but left out the major delays, which Assemblyman Ruben Diaz noted.)
--A new Metro-North station.
--“3000 new parking spaces, which will “take cars off the streets.” (Not sure how much that helps.)
--"The Yankees are making a $1 billion-plus investment “in an area that hasn’t seen that kind of investment.” (He left out that the Yankees have a strong incentive to stay in the Bronx.)
Kavanagh suggested that the Yankees are spending more than necessary to build the stadium. Pinsky suggested that the ticket prices are set by the market—leaving out the possibility that additional bells and whistles might help sell luxury boxes.
Pinsky suggested that elected officials wouldn’t try to regulate the cost of products made by IBM, were it gaining state assistance. (It was an example of how the seemingly “public” nature of local sports teams both generates support and expectations.)
Kavanagh tried to tease out a contradiction, pointing out that Pinsky had testified that the more the resulting economic activity, the more justification for the subsidy. So why, he asked, wouldn’t it be better to have higher ticket prices?
Pinsky responded that it was a question of balance.
Kavanagh asked if the affordability of tickets was a factor in the IDA’s determination.
Pinsky said "the affordability of tickets [to fans] is something we hope for,” but it was not a condition. He noted that “the public is not subsidizing the stadium.”
“I did not say subsidizing; it’s providing financial assistance,” Kavanagh replied.
(The "blended average ticket price" for the Nets also would skyrocket; the team has so far put only luxury suites on sale for the yet-unbuilt arena.)
How much do Yankees want?
The Yankees, who have benefited from $943 million in tax-exempt bonds, with savings of nearly $200 million, would like to issue perhaps $350 million more, and the city and state are asking the IRS and the Treasury Department, which have proposed tightening federal regulations, to grandfather in the request.
Brodsky asked Pinsky how much the Yankees have requested.
Pinsky said the team “asked for a placeholder” and that the NYC IDA won’t review the draft application until the “IRS says this is a possibility, which they have not done.”
Brodsky asked why the draft document forwarded to his committee contained redactions.
Pinsky said, “We believe it is competitive information.”
Brodsky pointed out that Yankees executive Lonn Trost had already told Forbes--actually an AP story—that “cost overruns included $150 million in enhancements such as the giant video screen, $138 million in food and beverage costs not included in the original estimate and $50 million from delays due to a lawsuit by community groups that sought to halt construction of the stadium.”
Pinsky said that the Yankees “don’t want to alert the potential bidders what they have in their budget for these items.”
Brodsky said he’d accept a lesser level of detail. Pinsky said he’d look into it.
“Since it’s in the public domain, I don’t see any reason not to provide it,” Brodsky said.
(Does this mean that Forest City Ratner will ask for more tax-exempt bonds because of delays posed by lawsuits?)
The Zimbalist defense
Long Island Assemblyman Charles Lavine pointed out that some economists say the “cheap seats are fewer and much farther” away than in old stadiums.
Pinsky said that he hadn’t seen such studies, but “some of the leading sports economists, who looked at this,” said that the city and state investment was “considerably lower” than in other cities. (I think he was pointing to Andrew Zimbalist. Then again, TV and other revenues in New York are higher.)
Lavine asked how many projects NYC IDA rejects each year.
Pinsky said he’d have to check.
Would assessed value exceed PILOTs?
The financing plan for the sports facilities is based on PILOTs (payments in lieu of taxes), which must be keyed to the foregone property taxes on tax-exempt land. Bonds can only be sold if the payments are fixed; the proposed IRS rule aims to ensure that the PILOTs are keyed to actual property taxes, which fluctuate. However, the bond market requires the predictability of fixed payments; hence the city/state lobbying to get the Nets arena, and the additional bonds for the new stadium, grandfathered in.
But how could the value of the land exceed the significant ($57.6 million) annual PILOT for the Yankees?
Who applied to the IRS in 2006 for a private letter ruling endorsing the PILOTs plan, asked Brodsky.
The IDA, said Pinsky.
“The city asserted an assessed value at $1.229 billion,” Brodsky noted. “Did that figure include capitalized interest?”
Pinsky said he wasn’t aware of the details, but the numbers were determined in connection with the city Department of Finance’s normal assessment.
In determining such assessments, Brodsky asked, is it common practice to include capitalized interest and soft costs (architecture, legal, etc.)?
Pinsky said he didn’t know the methodology, but the IRS had given its blessing.
“I believe the IRS accepted the numbers given without examination,” Brodsky responded.
Pinsky said that the bond buyers and rating agencies and associated law firms had vouched for the numbers.
“We’re going to take a much harder look at that,” Brodsky said.
The role of elected officials
In representing the city’s position to the IRS, “what elected officials have been involved in determining whether your position is correct?” Brodsky asked Pinsky.
Pinsky drily said he assumed Brodsky was referring to his “Soviet-style” quote.
“I’ll get to the Soviet reference in good time,” Brodsky responded.
Pinsky said there were hearings and reviews at all levels of government, and the IDA board is made up of elected officials or their designees.
“Who’d you have in civil procedure?” Brodsky asked, making a law school reference.
“Martha Minow,” Pinsky replied.
“You’d have gotten an F,” Brodsky continued, playing Professor Kingsley on the fly.
Which elected officials were involved in the decision to advise the IRS, Brodsky continued.
Pinsky said that his agency had coordinated with the mayor’s office, with the Empire State Development Corporation, “which reports to the governor.”
“ESDC does not report to the governor,” Brodsky said. (Well, it is controlled by the governor.)
Pinksy ultimately acknowledged that the mayor’s office, the ESDC, and the state’s Washington (lobbying) office, had been involved.
Brodsky suggested that the city’s executive is making policy to the exclusion of legislators.
“Notwithstanding you’re having done better in civil procedure than me,” Pinsky riposted, “I don’t understand that asking for an option” to get the bonds was out of order.
“If there’s something below an F, you’re going to get it for that,” snapped Brodsky. He suggested that issues like public authority reform, the Jets stadium, and congestion pricing were driven by unaccountable executives.
Pinsky was conciliatory, saying that he believes Brodsky is “coming from a position of genuine conviction,” but that asking the IRS for relief from a regulation “simply gives the mayor an option” which would then have to go through a public hearing and get approval by the IDA board. Moreover, the diversion of PILOT revenue would require a City Council vote.
(Does that mean there’d be a vote for AY PILOTs?)
No more help for Yankees?
If the IRS doesn’t change its regulations, would the city help the Yankees through additional capital contributions or other subsidies?
“I would be surprised if that were to occur,” Pinsky said.
If the IRS says no and the Yankees open their wallets, that might answer the question of whether tax-exempt bonds were essential.
Replacing real estate taxes
Brennan asked if the city could authorize increasingly more tax-exempt debt, given that the cost is mainly to federal taxpayers.
“The PILOT is serving as debt service for a private investment,” Pinsky said, quickly correcting his phrasing to “for a project that’s backed by a private entity.” The reason why tax-exempt bonds backed by PILOTs “make sense” here and perhaps in similar places is that the city never received real estate taxes from the original stadium.
The same argument is made regarding the Atlantic Yards arena, some of which would be on land that is currently taxed. The no-property-tax status was supposed to raise the value of the land, however.
Brodsky, as the hearing wound down, referred to the Yankees’ threat to leave the city. “The extent to which that threat is valid is at the heart of the legal position the city and IDA have taken,” he said. “If it was just a negotiation, the city folded to a certain kind of political pressure. I don’t know what it is yet, because we don’t have the documents.”
Moreover, he continued, decisions were made solely by the mayor and his surrogates. “The analyses of the benefits and costs remain obscure, partially because you guys have not produced the documents that would clarify them. The requests for additional bonding is similarly obscure,” he said. “The mayor’s and IDA’s failure to consider the issues raised by Mr. Kavanagh strikes me as a fundamental breakdown in the public policy analysis.”
He added that the Yankees will seek electricity discounts, even as other public projects, notably the mass transit system, need capital. So that raises “fundamental political concerns” regarding whether public processes need to change. The single strongest argument, Brodsky said, “is the one you haven’t made, or hardly made: the federal government takes more money from us than they give back.”
“Everybody who rides a subway train needs to know the priorities for capital investment,” Brodsky said. “Everyone who needs a new school…”
“May I respond?” Pinsky asked.
“Knock yourself out,” Brodsky responded.
Pinsky forcefully stated that the city had not folded to political pressure, that the administration had taken politically unpopular stands. He repeated that no other business was willing to invest as much in the South Bronx. He pointed out that the Assembly had recently bailed out a state racetrack and suggested it was no less elitist than Yankee Stadium.
He criticized Brodsky’s use of the term “Soviet-style,” pointing to public hearings and opinions from counsel and bond insurers. “This has nothing to do with the MTA. We can help the Yankees and we can help the MTA.…The best way to help the MTA is to make sure the economy and the city grows.” And, he pointed out, Brodsky and his colleagues killed congestion pricing. As Pinsky pointed proudly to the city’s record, the crowd for the first time erupted in applause.
Brodsky proclaimed “a great personal admiration” for Bloomberg but said he remained at odds regarding the “Soviet-style bureaucracies… those are the state authorities,” such as ESDC and MTA, inaccessible, controlled largely by executives. “The mayor is the major obstacle to reforming public authorities, because he killed the bill in the last week of the session.”
“We voted to demap parkland,” Brodsky said of the Assembly’s Yankee Stadium vote. “I don’t think the Legislature ever took a position on funding a facility, or facilities, of the kind I just described.... And in the end, although you’re smart and an effective advocate, no one elected you. And the fight we’re in is to turn these type of decisions back to people who are elected.”
Not too late?
Bettina Damiani of Good Jobs New York, which has witheringly scrutinized the Yankees deal, told me afterward that there were two reasons the hearing was important: "First, this was the only time there was any real discussion about job figures and the (lack of) accountability measures to ensure jobs were created. (The gist here is that there is no written guarantee that any a specific number of jobs were to be created, NONE). Bronx elected officials need to be asked why this hearing wasn’t held three years ago."
She added: "Second, the Yankee project should be the canary in the coal mine for local elected officials with proposed projects in their community. Unless local elected officials start to educate themselves on the impacts on major economic development projects, there won’t be any way for the community or the city to hold private interests accountable."
Still, as far as I can tell, the hearing didn't answer the question Good Jobs New York posed regarding apparently contradictory city postures on tax-exempt bonds.