Skip to main content

While JDA bonds are state-guaranteed, its "creation" (not subsidiary) BALDC operates by different rules

So, the murky, single-purpose Brooklyn Arena Local Development Corporation (BALDC) is not a subsidiary but a creation of the Job Development Authority (JDA), the Governor's counsel told state Senator Bill Perkins.

Why is it so important to keep a distance? Because the bonds issued by the JDA itself--I'm not sure about subsidiaries--are guaranteed by the state, while the $511 million in tax-exempt bonds issued by the BALDC are non-recourse, with no guarantees. (BALDC officials last month said such a bailout wasn't foreseeable, but wouldn't rule it out.)

And bonds backed by the JDA would certainly require review by the Public Authorities Control Board (PACB), which was avoided in this case.

What the JDA usually does

The JDA, which has no dedicated staff, is an alter ego of sorts of the Empire State Development Corporation (ESDC), which has shepherded and approved Atlantic Yards. I already pointed out that the ESDC's own web site indicates that its Urban Development Corporation (UDC) program authorizes Sports Stadium Assistance, while the JDA helps New York companies build and expand facilities and acquire machinery and equipment.

At left is another confirmation, from an RFP on the ESDC web site:
JDA is also a public benefit corporation of the State. Its main task is to assist in the expansion of manufacturing and job creation throughout the State. JDA’s primary products are real estate and machinery and equipment loans.
I read that as "real estate loans and machinery and equipment loans. See for example the Greater Syracuse Business Development Corporation's description of JDA loan, secured by a second lien on real estate, or a co-equal lien on on machinery and equipment with the participating financial institution.

Thus the BALDC is a far cry from more typical local development corporations, or LDCs.

History of the LDC

From Peter J. Galie's 1991 book, The New York State Constitution: a reference guide:
Subdivision (3) [of Article VII, Section 8] established the Job Development Authority in 1961 with the purpose of stimulating the expansion of business, thus securing jobs and creating new ones, encouraging new plants to locate in the state, and encouraging existing plants to stay in the state rather than relocating. The scope of responsibilities and borrowing power of the agency have been expanded periodically since its inception... the full faith and credit support of the Job Development Authority obligation now stands at $600 million as a result of an amendment approved in 1985. The new limit is specified in Article X, section 8.
(That limit has since gone up.)

Previous concern

From the Manhattan Institute's January 1998 Civic Report, Debt & New York’s Public Authorities: Borrowing Like There’s No Tomorrow:
Under the state constitution, New York may guarantee, with its full faith and credit, the bonds of only three of its public authorities—the Thruway Authority, the Job Development Authority, and the Port Authority. Such guaranteed debt, unlike debt issued by other authorities, is subject to voter-approved caps and other restrictions. As a result, it has never gotten out of hand and today amounts to a mere $400 million.
From the Comptroller

Frequently Asked Questions About State Debt, from the Office of the State Comptroller:
State-Guaranteed Debt - This is debt authorized by the voters where the State unconditionally guarantees the payment for three authorities: the New York State Thruway Authority, the Job Development Authority and the Port Authority of New York and New Jersey. The State makes payments on this debt only if the original borrower fails to do so. All of the State-Guaranteed debt of the New York State Thruway Authority has been retired and no more debt of this type is authorized to be issued. Only JDA has this type of debt outstanding. The three authorities that issued this type of debt also issue other types of debt....

How Does Debt Impact Taxpayers?
State-Guaranteed - The State makes payments on this debt only if the original borrower fails to do so. This is debt whereby the State unconditionally guarantees the payment for three authorities: the New York State Thruway Authority, the Job Development Authority and the Port Authority of New York and New Jersey. Only the JDA has this type of debt outstanding or can issue any new debt of this type.
Would the state ever pay non-recourse debt? Maybe, says the Comptroller (though the BALDC is not a public authority and thus more distant):
Non-recourse and Revenue - The State is under no obligation to make payments to the public authority to meet debt service requirements on these bonds. Although the State is not obligated to pay this debt, a default may affect other State debt by making it more costly for public authorities to borrow. As such, it might be financially advantageous for the State to make payments in the case of a default by a public authority.
From the the State Constitution

ARTICLE VII, State Finances

[Gift or loan of state credit or money prohibited; exceptions for enumerated purposes]

§8, subdivision 3. Nothing in this constitution contained shall prevent the legislature from authorizing the loan of the money of the state to a public corporation to be organized for the purpose of making loans to non-profit corporations or for the purpose of guaranteeing loans made by banking organizations, as that term shall be defined by the legislature, to finance the construction of new industrial or manufacturing plants, the construction of new buildings to be used for research and development, the construction of other eligible business facilities, and for the purchase of machinery and equipment related to such new industrial or manufacturing plants, research and development buildings, and other eligible business facilities in this state or the acquisition, rehabilitation or improvement of former or existing industrial or manufacturing plants, buildings to be used for research and development, other eligible business facilities, and machinery and equipment in this state, including the acquisition of real property therefor, and the use of such money by such public corporation for such purposes, to improve employment opportunities in any area of the state, provided, however, that any such plants, buildings or facilities or machinery and equipment therefor shall not be (i) primarily used in making retail sales of goods or services to customers who personally visit such facilities to obtain such goods or services or (ii) used primarily as a hotel, apartment house or other place of business which furnishes dwelling space or accommodations to either residents or transients, and provided further that any loan by such public corporation shall not exceed sixty per centum of the cost of any such project and the repayment of which shall be secured by a mortgage thereon which shall not be a junior encumbrance thereon by more than fifty per centum of such cost or by a security interest if personalty, and that the amount of any guarantee of a loan made by a banking organization shall not exceed eighty per centum of the cost of any such project. (Formerly §1. Derived in part from former §9 of Art. 8. Renumbered and amended by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938; further amended by vote of the people November 6, 1951; November 7, 1961; November 8, 1966; November 6, 1973; November 8, 1977; November 5, 1985; November 6, 2001.)


[Liability of state on bonds of a public corporation to finance new industrial or manufacturing plants in depressed areas]

§8. Notwithstanding any provision of this or any other article of this constitution, the legislature may by law, which shall take effect without submission to the people, make or authorize making the state liable for the payment of the principal of and interest on bonds of a public corporation to be created pursuant to and for the purposes specified in the last paragraph of section eight of article seven of this constitution, maturing in not to exceed thirty years after their respective dates, and for the principal of and interest on notes of such corporation issued in anticipation of such bonds, which notes and any renewals thereof shall mature within seven years after the respective dates of such notes, provided that the aggregate principal amount of such bonds with respect to which the state shall be so liable shall not at any one time exceed nine hundred million dollars, excluding bonds issued to refund outstanding bonds. (New. Added by vote of the people November 7, 1961. Formerly duplicate §7 added by vote of the people November 7, 1961; renumbered and amended by vote of the people November 4, 1969; further amended by vote of the people November 3, 1981; November 5, 1985; November 5, 1991.)


  1. What happened to the issue that these bonds via the BALDC might not be legally repayable with PILOTs? Is that still simmering somewhere?

  2. We'll see--though note that Perkins's letter focused on the avoidance of PACB review.


Post a Comment

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…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

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…