Thursday, October 16, 2008

Kucinich schedules hearing October 24 on Yankee Stadium and future of PILOTs

Rep. Dennis Kucinich (D-OH), Chairman of the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform, yesterday announced a hearing October 24 during which Seth Pinsky, President of the New York City Economic Development Corporation, and Randy Levine, President of the New York Yankees, are expected to answer tough questions about the deal to use PILOTs (payments in lieu of taxes) to repay bonds for the new Yankee Stadium. The hearing also may cast doubt on a similar plan for the Atlantic Yards arena.

Tensions remain, as the press release stated: "Kucinich Steps Up Pressure on NYC Officials: Cooperation Insufficient in Subcommittee’s Investigation of Stadium Finances." Kucinich asked that Martha Stark, Commissioner of the New York City Department of Finance, testify at the hearing and that the City produce documents related to the assessment issue that were due last August 6.

Pending questions

An earlier investigation by Assemblyman Richard Brodsky, who testified at a hearing September 18, raised questions about whether the appraisal of the new stadium was inflated so that the foregone property taxes were sufficient to enable the PILOTs. (The PILOTs can't be larger than the taxes.)

Kucinich's letter (16 pages, plus 12 pages of attachments) warns:
Because the Yankees and the City have for two months refused to comply adequately with document requests related to the stadium site appraisal, many questions remain regarding the numerous choices made by the City, its agencies, and the NYCIDA [NYC Industrial Development Authority] in reporting a stadium and stadium site value of $1.229 billion to the IRS and for the bond offering. But these numerous choices all had a common result: each choice helped to increase the site value for the purposes of the tax assessments over a number of years where more accurate assessment may have endangered the financing agreed to by the Yankees and the City.

And it offers some ominous implications:
Finally, if the NYCIDA's representations constitute perjury, and IRS fails to retract the Private Letter Ruling and/or awards the City with the additional private letter ruling it seeks, federal taxpayers will be saddled with subsidizing a fraudulent project: the tax-exempt treatment for the stadium bonds effectively transfers a significant component of the construction cost from the Yankees and the City to federal taxpayers. In this case, the federal share of this project would be measured in terms of hundreds of millions of dollars in foregone tax revenues.


The AY angle

The hearing will examine not only whether the stadium valuation was "gamed" but also "whether the City’s efforts to stop finalization of proposed U.S. Department of Treasury regulations that would effectively prohibit the use of PILOTs in this context serve the public interest."

That larger issue points directly to the city's effort to get tax-exempt bonds for the Atlantic Yards arena grandfathered in under the same loose 2006 ruling--which the chief counsel of the IRS called a "loophole" the agency immediately proposed to close--that enabled PILOTs for the new Yankee Stadium and Mets stadium.

The difference, as I've written, is worth perhaps $165 million to Forest City Ratner on $800 million worth of tax-exempt bonds. And this issue, more than any other, may be the biggest hurdle facing the arena.

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