Monday, November 23, 2009

Arena bonds authorization coming Tuesday: questions about transparency, PILOTs, and infrastructure spending remain

At a meeting Tuesday, the Brooklyn Arena Local Development Corporation (BALDC) surely will authorize arena bonds--which may not be sold immediately, pending the decision on the eminent domain case (which could come today, Tuesday, or next Tuesday).

Meanwhile, it's worth noting some big difference between this process and the recent process for stadium bonds. No board materials are made available before Tuesday's meeting and no public comment is permitted.

By contrast, the New York City Industrial Development Authority, which issued bonds for the new Yankees and Mets stadiums, is required to allow public comment in public hearings prior to board meetings. It also posts project materials ahead of time.

The web site states:
State law requires the NYCIDA to hold a public hearing (with notice published 30 days prior) before providing assistance. For bond transactions, this hearing will also satisfy federal law requirements.
Arena bonds

So, why the above requirements don't apply to the BALDC?

Empire State Development Corporation spokeswoman Elizabeth Mitchell responded:
IDA generally issues private activity bonds for which federal law requires a hearing. In contrast, we are issuing governmental bonds and there is no federal or state requirement for a hearing. The distinction is based on the fact that governments are already subject to a public process, in our case ESDC's prior hearings, for governmental projects. Even if BALDC was subject to the open meetings law, the law does not require that the public be offered a right to comment, only to observe and attend.
Well, the IDA may "generally" issue private activity bonds, but those are taxable. The main bonds for the Yankees and Mets stadiums are tax-exempt (see Congressional hearing testimony by Dennis Zimmerman), as would be the bonds for the Brooklyn arena. So the IDA apparently went beyond the minimum requirements.

Moreover, the ESDC's public process for Atlantic Yards didn't give people an opportunity to comment on the arena bonds themselves, given the lack of specifics about the terms and the ratings.

Size of PILOTs

One thing to keep watch on: how big will the tax-exempt arena bonds be? (There likely will be taxable bonds, as well.) While it's in developer Forest City Ratner's interest to have as much of the arena paid for via tax-exempt bonds, given the estimated (by the New York City Independent Budget Office) $193.5 million in savings, those bonds are repaid via PILOTs (payments in lieu of taxes).

Those PILOTs can't exceed the foregone property tax that would be paid if the land were not tax exempt. The New York City Department of Finance got into serious shenanigans in assessing the land for Yankee Stadium arena.

And the New York City Independent Budget Office, in September, estimated "that a typical property tax assessment would result in a PILOT that falls short of the payments needed to cover debt service in the early years of the project." So, look to the arena bonds to be tailored to respond to this concern.

Mitchell added that certain Board materials will be available at Tuesday’s meeting, but not in advance.

BALDC background

As I wrote in January 2009, The BALDC was authorized by the New York State Job Development Authority (JDA), a sibling agency of the ESDC, “to facilitate financing for the arena and certain infrastructure improvements related to the project.”

Why the JDA? “ESDC and JDA have differing statutory powers,” spokesman Warner Johnston explained. “JDA has the authority to create LDC's; ESDC is more limited.”

The BALDC is not a subsidiary of either agency; rather, the structure is similar to that of the Liberty Bonds Development Corporation. Its role will be limited to the financing of arena bonds and possibly the financing of project infrastructure.

Project infrastructure?

Will there be LDC infrastructure bond financing separate from arena bond financing? "A ‘development fee’ (similar to a rental payment) will be the source of repayment of the infrastructure bonds," ESDC's Warner Johnston said in January.

In January, I wrote that the 2006 Modified General Project Plan (MGPP) budgeted $544.4 million for project infrastructure, with $205 million coming from government funds but no particular source for the rest.

The 2009 MGPP, passed in September, budgets $717 million for project infrastructure, again with $205 million coming from government funds but no particular source for the rest. Will that gap be filled by new bonds?

Board members

The board of directors consists entirely of state officials:
I don't think we should be expecting them to ask many tough questions in public.

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