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Atlantic Yards/Pacific Park infographics: what's built/what's coming/what's missing, who's responsible, + project FAQ/timeline (pinned post)

Deconstructing Professor Zimbalist's dubious defenses of his radio appearance

After his appearance on The Brian Lehrer Show Monday, sports economist Andrew Zimbalist wrote in to defend himself. I'll divide his response up into sections.

Not in the Yankees' pocket

AZ: I want you to know that I have never received a penny of compensation from the Yankees. If I had, I would have made it known before I commented.

Fine. But if he's a scholar, rather than a promoter, he should grapple with contradictory information from Good Jobs New York and Neil deMause.

West Side Stadium

AZ: I am also not sure about the comment that one of your listeners made regarding what I said about the West Side Stadium. If I said that I did not think it should get public financing, it was because I thought it was a bad plan to build it. I don't see how this in any way contradicts anything I said on your show.

Well, part of the reason he thought it was a bad plan was that he severely criticized PILOTs, or payments in lieu of taxes. He thinks PILOTs are fine if the land previously was tax-exempt--but that issue's a lot fuzzier than he thinks. Even the Internal Revenue Service's chief counsel thinks the use of PILOTs is a "loophole."

And the tax-exempt status of the land for the Atlantic Yards arena was supposed to drive a higher price for the Metropolitan Transportation Authority's Vanderbilt Yard--except it didn't, since Forest City Ratner had the inside track.

Fair reading of Yankee Stadium?

AZ: What I tried to do is to give you a straight and fair reading of the Yankee Stadium deal. I am not in favor of tax exempt financing for stadiums, but I don't think it makes sense to preserve it for all states but New York, especially when the initial Yankee/City plan contemplated such tax exempt financing (and additional financing beyond the initial $940 million).

Zimbalist has a point, that national policy should be consistent. But the IRS would like to preserve tax-exempt financing without the PILOT loophole. And he should try to consider whether teams in New York--the Nets even more than the Yankees--have more opportunities than most for naming rights, luxury suites, and more to raise money and pay their own way.

Defending his AY report

AZ: Clearly, a group of people are angry about the economic impact report I wrote for FCRC. I stand by that report. It does not contradict anything in the scholarly literature and it does not contradict anything that I have written. I explain this clearly in my report. While it is true that I was paid for writing this report, it is also true that I voiced support for the project before I talked to anyone at FCRC. (Incidentally, the Mets are also using the same tax exempt/PILOT scheme to finance their new field and the team is also paying for the lion's share of development expenses.)

He stands by the report? That's an empty statement, given that he claimed that "Forest City Ratner was simply taking advantage" of existing tax exemptions rather than the special benefits noted by the Independent Budget Office's September 2005 report on Atlantic Yards.

OK, start here. Then here. Then here.

Peer review?

It does not contradict anything in the scholarly literature? "I would never have undertaken this exercise,” Washington State University sports economist Rod Fort told Neil deMause, suggesting it was unwise to forecast housing markets.

(Indeed, now that the project has been significantly delayed, and the developer has been given loose deadlines for Phase 1 and no deadline for Phase 2, the schedule of projected revenues should be significantly adjusted.)

I asked James Parrott of the Fiscal Policy Institute if there was any precedent for Zimbalist's methodology for adding up income taxes from new residents--a tactic that led to a magical 50% leap in projected new revenues after Zimbalist revised his report.

He responded, "I don't know of any serious cost-benefit analyses of mixed-used economic development projects that count the taxes of residents. That's why we said it was a methodological flaw."

Just because Zimbalist voiced support for Atlantic Yards before he was hired to write his report doesn't mean his report was thorough or accurate.

If it was, let's see him submit it for peer review.

Comments

  1. Zimbalist’s argument that New Yorkers should not challenge the attempted use of a federal tax loophole to finance sports complexes in New York if there is a possibility the loophole could be used in other states is simplistic to the point of being wrong. If you are an economist, a first step in analyzing a subsidy is to determine the “incidence”of the subsidy. In layman’s terms that means in whose lap the subsidy winds up. For instance, in the case of rent subsidies for housing, you may give rent supplements to tenants to help them shop and pay for apartments, but if the supply of housing is tight and inelastic in the immediate short term the landlords can be expected to pocket the subsidy by charging higher rents. You GAVE the subsidy to the tenants but the VALUE of the subsidy falls on the landlords which means that the INCIDENCE of the subsidy fell on the landlords. Conversely, in a market where there is an oversupply of housing, rents don’t go up because the tenants have choices when they shop for value and the INCIDENCE (benefit) of the subsidy falls upon the tenants.

    The same analysis is applied to subsidization of sports complexes and the first thing economists notice is that the incidence of the subsidy falls almost entirely upon the sports team franchise owners. They pocket the value of the subsidy because of the monopoly positions their franchises give them.

    To say that politicians like Assemblyman Richard Brodsky shouldn’t attack the use of this loophole in Albany is to ignore the fact that the benefit of the subsidy is NOT going to the New York public, it is being pocketed by Ratner- So, in essence, you can envision that it is being spirited away by Ratner to his home town of Cleveland or wherever he spends his money (certainly not on the Atlantic Center Mall). Putting this premise to the test, where does the incidence of the arena subsidy fall? Well, this AYR post points out that in selling its land to Ratner the MTA has NOT been able to obtain full price. It is taking a substantial discount notwithstanding all these shenanigans to pump money into Ratner’s pocket.

    In other words, if New York politicians go to bat for Ratner they put money in Ratner’s pocket. They do not put money into New York. Remember that Zimbalsist still says that arenas and stadiums do not provide an “independent economic plus.” And remember that there is a lot of land, local subsidy and other local resources going into the arena that could be used to build something else that would provide an “independent economic plus” including payment of taxes and a full purchase price to the MTA for its land.

    Meanwhile, to suggest that local politicians should not protest the federal loophole ignores not only that we are all federal citizens but also the collateral damage to the community and political confusion as Ratner goes after the federal subsidy in pursuit of his own self interests. Politicians like Assembly Speaker Sheldon Silver become unaccountable to their consistencies as they pocket (federally subsidized) Ratner campaign contributions. The list of local detriments from the rampant pursuit of the federal loophole subsidy is long.

    As a tactic, acting responsibly to attack the federal loophole in Albany should be expected to resonate with effect in Washington. Further, if Zimabalist’s attack on Assemblyman Brodsky had integral strength why would Zimbalist disingenuously attempt to buttress it by suggesting that it is OK with Brodsky if the federal loophole is used by other professional sports franchises in other states. I do not believe Brodsky ever said he is in favor of using the loophole for tax-exempt financing in any other state, and if he didn’t, how unfair to assert that he did!

    People who are not clicking on the links that this AYR post contains to prior AYR posts ought to. There is some interesting reading for many of us to catch up on. To further Tee this up, I note that the AYR post of July 16, 2008 asks the question about whether Zimabalist should be taken seriously.

    To consider whether Zimabilist should be taken seriously, look at Tuesday, March 28, 2006 “The $6 billion lie: why Ratner's fiscal claim is Swiss cheese”
    http://atlanticyardsreport.blogspot.com/2006/03/6-billion-lie-why-ratners-fiscal-claim.html

    To reiterate, Zimbalist says that there is no benefit, no “independent economic plus,” from the arena and he counts upon the rest of the project to create a net plus for the city or Brooklyn.

    As AYR pointed out in the spring of 2006, Zimbalist “was working outside of his expertise” when he concluded that the rest of the project provides benefit. He was working with information provided from Forest City Ratner which he did not question and which Forest City Ratner appears to disavow. He is quoted as saying, “Many of the numbers used in this report concerning Nets attendance, ticket prices, construction costs and other items come from projections done by or for FCRC. I have discussed these estimates with FCRC and they seem reasonable to me.” And Forest City Ratner says, “It is really not our report, it is Professor Zimbalist’s report.” As noted by AYR, Zimbalist did not question his source material or put his conclusions up for peer review.

    So the result is that Zimbalist, operating outside his expertise and without reliable data, projected that the arena would provide no benefit but that the rest of the project would generate $6 billion in new revenue to the city and state. This $6 billion figure was used to lobby Assembly Speaker Sheldon Silver and give him political cover for approving this senseless megaproject.


    The July 16, 2008 AYR post notes that the Neil deMause Field of Schemes book points out, as did I in comments in the last few days that if the non-arena component of the AY development would generate the benefit that economic benefit that justifies the project ($6 billion?), then why not just eliminate the arena and build more of apartment buildings, etc. that constitute the non-arena portion of the project generating the financial benefit.

    Think how this might play out using Zimbalist’s own questionable $6 billion figure. If 23% of the AY project is the area that provides no independent economic plus then swapping the arena out for other construction would generate $7.79 billion in benefit rather than $6 billion. Actually the benefit would be even more since one wouldn’t be using eminent domain to acquire and demolish newly renovated co-ops and condo to replace them with equivalent residential buildings. (Atlantic Yards is a $4.4 billion dollar project of which about 23%, around $1 billion is the arena)

    Alternatively, if it is the subsidy that drives the benefit consider this. The arena is getting about $1.3 billion in tax-payer dollar subsidies. If we consider that this is about half of the tax-payer subsidies the entire megadevelopment is getting, then redeploying the arena’s subsidies should generate about $12 billion in benefit rather than the $6 billion Zimbalist conjured up with Ratner’s (disavowed?) figures.

    OK, to be fair, maybe we are using the wrong figures from Zimbalist- In his Brian Lehrer interview he seems to remember that back when he worked on things the arena was perhaps only 14.3% of the project (a 3.5 billion dollar project, of which 500 million dollars, 14.3%, was an arena/“stadium”). In that case, getting rid of the arena might only increase the $6 billion figure to $7 billion. But, whatever Zimbalist remembers about what the arena numbers were in 2005, they have now changed substantially from the numbers that existed when Zimbalist operated outside his expertise to create a report that was used to lobby Sheldon Silver and other politicians for Public Authorities Control Board approval. And that is why the Public Authorities Approval Control from the days of yore is no longer applicable or valid.

    For more musing on this see- http://atlanticyardsreport.blogspot.com/2008/07/fcr-consultant-zimbalist-in-2003-no.html

    Michael D. D. White
    Noticing New York

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