Wednesday, December 10, 2008

Brooklyn to Barack: Support infrastructure, small biz, and education (but Marty hypes the Nets)

Interviews conducted by The Brooklyn Ink (a project of Columbia Journalism School students) with a broad spectrum of policy analysts show a general consensus: the federal government could boost Brooklyn by investing in infrastructure, small businesses, and education.

Borough President Marty Markowitz, perhaps enveloped by his nostalgia for the Dodgers, added to his call for infrastructure and housing help a parochial plea that betrays little insight into federal policy:
"I would, of course, also ask for support for Brooklyn’s Atlantic Yards project, which will bring the New Jersey Nets to our borough, and be a major investment magnet for Downtown Brooklyn, as well as create thousands of units of affordable housing and good union jobs."

Well, the project would not create affordable housing; rather, an allocation of a limited amount of tax-exempt bonds would do so. And such housing might be a better bang for the buck elsewhere.

DDDB's criticism

"So, who is it that has lost all sense of proportion?" asks Develop Don't Destroy Brooklyn, which reminds us that Markowitz told The Brooklyn Paper in December 2006:
"There’s no question that there’s an element of people that truly believe that the greatest challenge facing America is the Atlantic Yards Project rather than terrorism and Osama Bin Laden and Al-Qaeda."

I wrote at the time: Does he really believe that politically engaged people can’t keep local and national issues straight?

Federal help for sports teams?

More importantly, federal policymakers are increasingly questioning whether federal policies should encourage sports teams to change states. Bringing the Nets to Brooklyn might help the New York economy, but mainly because the city and state would capture taxes going to New Jersey. That has no impact on the federal treasury.

In his testimony at a Congressional hearing held 9/18/08 by the Domestic Oversight Subcommittee chaired by Rep. Dennis Kucinich (D-OH), Clayton P. Gillette of the New York University School of Law noted, “there is a substantial argument that the tax exemption [for sports facilities] constitutes an inefficient subsidy,” given that it costs the federal government more in forgone income than it returns to states and cities in terms of reduced borrowing costs.

Speaking generally but responding to a hearing called in response to concerns over the Yankee Stadium deal, Gillette suggested two circumstances under which such a subsidy is appropriate. One case involves projects undertaken by states and localities “that have positive external effects,” for example a project that could reduce pollution in multiple jurisdictions.

The second category, he said, is “a bit more nebulous, and arguably broader,” since it involves “projects that enhance the local autonomy of local governments generally."

“Thus,” he observed, “federal subsidies are appropriate to ensure that localities possess the basic infrastructure and capital capacity that is a prerequisite to more productive local government.”

Local preferences

“For instance, if a locality truly believes that a sports stadium will provide it with a competitive advantage or enhance residents’ sense of community, it may use the federal tax exemption to pursue that vision,” he said, adding that “federal tax law contains a variety of provisions that can properly be understood as imposing on a locality the obligation to ensure that the decision to undertake a project does, in fact, reflect the preferences of local residents.”

If the project aims solely “to satisfy the interests of a relatively small group of constituents,” then it doesn’t foster local autonomy, undermining the argument for federal subsidies.

“The availability of the tax exemption under those conditions looks more like an effort by which local officials can simply confer a significant benefit on favored interests in the form of lower financing costs, and shift the lion’s share of the subsidy to federal rather than to state and local taxpayers,” he said. “From the perspective of local officials, this is a winning strategy. They can confer an advantage onto local interest groups, but externalize the related costs in a manner that saves them from having to increase taxes or charges on their constituents.”

Sweetheart deal

So the issuance of tax-exempt bonds, he said, should be linked to transparency and democratic accountability, helping ensure that subsidized projects will foster local autonomy and generate significant spillovers.

“[A]t least to the extent that PILOTs [payments in lieu of taxes for sports facilities] are treated differently from taxes, they permit evasion of the kinds of democratic scrutiny that ensure that federally tax-exempt projects and financing structures reflect constituent preferences and serve the objectives of local autonomy,” Gillette warned.

That's a professorial way of saying "sweetheart deal."

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