Skip to main content

Breaking down the AY fiscal analysis: why if you follow NYC EDC in your personal economics you could go to jail

OK, I too am inspired by Empire State Development Corporation CEO Marisa Lago's folksy style, explaining that value engineering is just like getting a four-burner stove instead of a six-burner stove.

Noticing New York's Michael D.D. White demolished Lago's arguments, suggesting some very helpful rules regarding both kitchen renovations and megadevelopments.

NYC EDC's "analysis"

So let's talk "economic and fiscal impact analysis." That was the exercise by which the New York City Economic Development Corporation (NYC EDC) concluded that Atlantic Yards would bring more than half a billion dollars in revenue to the city over 30 years, a figure touted enthusiastically by NYC EDC president Seth Pinsky at Friday's AY oversight hearing.

I don't want to be accused of "blocking the program, with these complicated questions" (to quote the disrespectful Rev. Herbert Daughtry), so let me break it down.

To NYC EDC, "economic and fiscal impact analysis" concerns revenue you take in. That's it. No costs, no subsidies.

A personal example

OK, I have just conducted an "economic and fiscal impact analysis" regarding my personal future revenue stream. After 20 years, I conclude, I will easily become a millionaire.

Yippee!

Oops--I forgot to factor in rent, food, and tons of other things, including taxes. If I don't pay taxes, well, I go to jail. 

It renders my "economic and fiscal impact analysis" slightly flawed.

Didn't this kind of shoddy math lead to our economic meltdown?

Cost-benefit analysis?

At one point, Pinsky even called the NYC EDC's exercise a cost-benefit analysis, even though it didn't factor in direct subsidies from the city (at that point, $100 million; now, $205 million), indirect subsidies (e.g., tax exemptions), and increased public costs to provide services.

He clearly misspoke. 

I asked NYC EDC spokesman David Lombino when a new NYC EDC analysis was coming, and he said it would be soon.

I also asked about the methodology--whether it would be a true cost-benefit analysis--and didn't get an answer.

IBO vs. NYC EDC

The Independent Budget Office (IBO) calculated that the arena would be a money-loser for the city, given the doubling of the city's contribution. (The IBO works for NYC, so it didn't recalculate the impact on the state, which might well still come out ahead in terms of new arena revenues.)

NYC EDC's Lombino told WNYC's Matthew Schuerman that the IBO report was incomplete because it considered only the economic impact of the arena rather than the project as a whole.

Fair enough, especially because the IBO applied all the direct subsidies to the arena. But the IBO was unable to conduct a cost-benefit analysis for the project as a whole, saying in its September 2005 report it was limited by methodological challenges.

In its report, NYC EDC didn't even try. It just added up new revenues for the project as a whole. 

And even that strategy has its flaws.

Arena revenues are overstated, as I suggest below. And the operations of the mixed-use development likely would generate far fewer taxes than estimated.

Why? For one thing, there no longer would be 2 million square feet of office space, which NYC EDC estimated would generate some $87 million in revenue. Sure, there's an office building on the boards with about 650,000 sf, but there's no market now, and maybe never.

For another, NYC EDC counts $132 million in new revenue from the income taxes of new residents. Forest City Ratner consultant, sports economist Andrew Zimbalist, also counted income taxes, in a report that triggered my $6 billion lie post.

The Empire State Development Corporation, in its own flawed fiscal analysis, didn't count income taxes. No one should. 

As James Parrott of the Fiscal Policy Institute told me, "I don't know of any serious cost-benefit analyses of mixed-used economic development projects that count the taxes of residents."

Flaws regarding arena revenues

Both the NYC EDC and IBO analyses suffer from fundamental flaws regarding arena revenue, as I pointed out in February.

Both assumed that 30% of New Jersey season ticket holders would be retained. However, as I pointed out, there's reason to believe the team now has a lower attendance base, thus sending  a smaller percentage of New Jersey-based fans to Brooklyn and lowering new revenues for New York City and State.

Also, both analyses assumed that both the Meadlowlands arena would close and there would be no new arena in Newark, thus making it easier to book events at the Brooklyn arena. However, the Prudential Center in Newark is already open.

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…

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…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.