Skip to main content

Author deMause on tax-exempt bonds, PILOTs, & TIFs

This is the first of a multi-part interview with Neil deMause, the Brooklyn-based co-author of the book Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit, and writer of the companion web site. He testified at a 3/29/07 Congressional hearing that questioned taxpayer financing of stadiums, convention centers, and hotels.

Q. One thing I learned from the book is that sports facilities like the proposed Atlantic Yards arena have leases for just one dollar because the building has to be nominally publicly owned--and the developer pays off construction costs via PILOTs (payments in lieu of taxes), a "loophole," according to the IRS.

A. Prior to 1986, you could finance a stadium with tax-exempt bonds, which are cheaper because they’re tax-exempt. You don’t have to pay as much interest to the bond holders, so they’ll take a lower interest rate. It’s great for cities, because it lowers their costs. It’s terrible for the federal government, because they get nothing out of it; all that happens is suddenly there are all these extra bonds they’re not getting taxes on. It was soaking up all the available tax-exempt bonds, because everyone was using them for these big private projects. So in ‘86, they instituted limits on private activity bonds, particularly on sports facilities, saying, “OK if this really a private project, if the city is just lending its bonding capacity for a private project and it’s going to make money with private revenue, you can’t do it.” The limit was, if more than 10% of the facility is private use and more than 10% of the cost is paid off by revenues from facility, then you can’t do it. This was [Senator Daniel Patrick] Moynihan’s attempt to close off tax-exempt bonds used for stadiums.

Immediately, what cities started doing is saying is, “OK, well, we just won’t charge you any rent.”

The arcane world of tax-exempt bonds

Q. I’m flabbergasted that I and a lot of other people looking at Atlantic Yards didn’t really know this.

A. No one understands this. When it started coming up for the Jets project, they were going to use this end run, PILOT [payments in lieu of taxes] payments; instead of calling it rent, they would say, “OK, it’s PILOTs,” even though they claimed it wouldn’t actually be subject to property taxes, because it’s on public land. They said this isn’t rent, it’s tax money, even though it’s a special tax just for them. The Jets thing never happened, the Yankees and Mets used the same structure, got away with it and now the Nets are trying to use the same thing. When the Jets [plan] came up, in 2004, I was calling around the country, trying to find someone who understood was whether it’s legal. I called Dennis Zimmerman [formerly of the Congressional Research Service], who said, “That doesn’t sound legal to me, but I’m sure there are plenty of bond lawyers who can convince a judge or the IRS that it is.” So you really had folks in Dan Doctoroff’s office who were really breaking new ground.

You had this City Council Finance Committee hearing for the Yankees, where the Yankees were simultaneously saying "This isn’t private money, this is tax money, so therefore we can use tax-exempt bonds, and you should go ahead with this project because it wouldn’t require any tax money."And nobody questioned them on it.

PILOTs vs. TIFs

Q. One thing I learned from the book: PILOTs don’t need legislative approval but TIFs do. And TIFs were first thought to be the plan for Atlantic Yards.

A. This was the genius of the Jets plan. Doctoroff was proposing a TIF for the Jets plan, and it was not going over very well. I was writing a lot of stuff for the Voice, interviewing people who said TIFs are horrible. I think he realized it was going to be difficult getting it through state legislature and realized, “Oh, a TIF district has to be approved by the state legislature, but a PILOT is just ‘redirecting property taxes’ and we can do that without the state.”

Of course he forgot about the PACB [Public Authorities Control Board], so he wound up having Sheldon Silver block his deal anyway. Just the ways they’ve gone around public oversight in all these deals has been remarkable. They had the alienation of the parkland for the Yankees pushed through in eight days.

Comments

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…