Skip to main content

NYC EDC cost-benefit analysis emerges: certain costs finally calculated, but fundamental flaws remain, as revenues based on full buildout in 10 years

Well, I've finally gotten a copy of the New York City Economic Development Corporation's (NYC EDC) updated Atlantic Yards fiscal analysis (aka cost-benefit analysis) and it's very much a mixed bag.

On the one hand, it's more responsible than the analysis released in 2005, given that it acknowledges a good number of costs. (In fact, the estimated net benefit to the city over 30 years is down more than 20%, from $524 million to $411.3 million.)

But it still suffers from some fundamental flaws:
  • it presumes a ten-year buildout, without assessing alternatives
  • it presumes a full buildout, without assessing alternatives
  • it ignores some opportunity costs and the costs of increased service provision
  • it (apparently) still counts income taxes from new residents
Too short

Moreover, the document, at three pages (versus its eight-page predecessor), is quite thin. While it provides overall calculations, it does not, as per the previous document, provide supporting calculations. (I had to ask to get some of the breakdowns.)

The document does not, for example, explain the difference in fiscal impact between four office towers and one tower. It should, especially since an Empire State Development Corporation analysis drastically lowered the fiscal impact in December 2006 in response to a reduction in office space.

Document emerges

Remember, the analysis was cited by NYC EDC President Seth Pinsky at a May 2009 hearing and promised a few days later. I criticized the previous document and asked for the updated version via a Freedom of Information Law (FOIL) request; in December, the request was denied.

Pinsky brought it up the analysis at a March 2010 City Council hearing and again at a hearing in May. (I'll discuss that testimony tomorrow.) His agency finally provided it this week to City Council Member Brad Lander, who passed it on to me.

It's clear that the document was not, in fact, available last June.

NYC EDC spokesman Dave Lombino explained, "We produced the updated cost benefit analysis late last year as we were finalizing the business deal with FCR. We released it to some press who inquired in March. I believe WNYC did something on it."

Well, I sure hadn't seen it.

While the initial document was dated 6/27/05, the follow-up document is undated, though, given that the fiscal impact is measured in 2009 dollars, it was presumably completed last year.

(The document I received, according to the Properties tab, was created 3/9/10 by NYC EDC Chief Economist Francesco Brindisi, though that's not conclusive.)

A changing AY program

The earlier version was based on the proposal at the time:
the Atlantic Yards project (“Atlantic Yards”) as proposed by Forest City Ratner (“FCR”), including the proposed Brooklyn Arena (“Arena”) and the surrounding mixed-use development (the “MUD”), comprised of 2 million SF of office space, 4,500 units of residential housing, 300,000 square feet of retail space, and 6 acres of open space.
The more recent document is based on an updated plan:
The development program herein represents the City’s determination of a reasonably likely build program consistent with the General Project Plan and Environmental Impact Statement. The proposal includes a 675,000 gross square feet (GSF) Arena to host basketball games and other events, 581,000 GSF of office space, 225,000 GSF of retail space, 150 commercial parking spaces (in addition to those required for the Arena), approximately 6,400 residential units and 8 acres of public space.
(Emphasis added)

What's likely?


Reasonably likely
? Well, that's the proposal, but a much smaller project is also reasonably likely.

For example, the 2009 Modified General Project Plan approved by the ESDC in September 2009 expects "up to 2.1 million gsf of residential use" in Phase 1.

However, the Development Agreement signed in December gives Forest City Ratner 12 years to build 1.5 million square feet of Phase 1. That allows for a smaller and slower project, and thus one with a lower return to the public.

I asked Lombino if NYC EDC considered multiple scenarios, such as a 15- or 25-year buildout, noting that, in October 2008, Port Authority of NY/NJ Chairman Christopher Ward reported on the rebuilding plans at Ground Zero, offering both a target date and a “probabilistic” date, based on computer analysis of all the many random things that might go wrong.

"The analysis assumes the timetable described in the EIS [Environmental Impact Statement]," Lombino responded.

There's a logic to that, but it's also misleading.

Why? Because the EIS was produced in 2006 and, while no Supplemental EIS was produced in 2009, the ESDC did produce a Technical Memorandum. The latter, while calculating that no SEIS was required (because the impacts would be attenuated--a debatable conclusion), did acknowledge the potential for a delayed buildout:
The delay of the full build out of the project would result in a delay in the realization of the full economic benefits of the project as disclosed in the FEIS.
While the Technical Memorandum analyzed only a five-year delay (a Build Year of 2024) regarding such things as traffic, a much longer delay is of course possible. The document also analyzed a potential four-year delay in the completion of Building 1, the main office tower.

It states that there would be no "significant adverse environmental impacts not already identified in the FEIS." Unmentioned, however, is that such a delay would further delay "the realization of the full economic benefits of the project."

The NYC EDC's bottom line


Here's the overall 30-year impact, from the 2005 document:

Here's the new calculation:
Notice a big difference? Only the newer document folds in costs to the city. Though that calculation is incomplete, as I'll show below, it's a significant change.

Perhaps someone at NYC EDC read my 6/2/09 critique after Pinsky's 2009 testimony pointing out the absence of costs in the 2005 analysis.

Looking more closely

I pointed out that footnote 1 refers to revenue that will be "unrealized," including sales taxes waived on construction materials, certain mortgage recording taxes, PILOT benefits in respect of actual real property taxes, and certain income taxes associated with tax-exempt bonds issued to finance the project, which are not to be collected in connection with the project.

Does the $681 million figure disregard such unrealized fiscal income, or does it calculate it, as suggested by the term "net"?

Lombino responded:
We did not simply disregard the taxes that comprise the “unrealized fiscal income.” Those values were calculated in the model and netted out of the gross benefit for the purpose of simplifying the summary table. While it is not explicitly shown in the table, the benefit gross of unrealized fiscal income was estimated to be $726.2 million. The $45.2 million of unrealized fiscal income that was netted out of that gross number breaks down as follows:
  • $9.4M for construction sales tax waivers
  • $18.2M for mortgage recording tax waivers
  • $8.2M in PILOT benefits
  • $9.3M in forgone income taxes associated with tax-exempt bonds issued.
In terms of how those values were calculated:
  • The construction sales tax waiver is estimated by assuming a certain percentage of the construction budget is spent on materials, and that amount was multiplied by the NYC sales tax rate and discounted according to our “net new” methodology.
  • The mortgage recording tax waiver is the product of the construction mortgage amount, the NYC MRT rate, and the appropriate net new percentage.
  • To estimate PILOT benefits, we estimated the amount of property taxes that would be due in the absence of a PILOT agreement (using DOF’s current AVs and assessment guidelines) and estimated fiscal revenue under the assumed PILOT agreement in which FCRC pays $1 from 2010 through the end of construction for each tower. After adjusting the values to reflect net new impacts, we took the difference of those two cash streams to arrive at the value of the PILOT benefits.
  • The forgone income taxes resulting from the bond issuance were calculated assuming a city income tax rate of 3.648% and 35% city ownership of the bonds.
Note that those numbers are both higher and lower than those calculated (below) by the New York City Independent Budget Office (IBO).

However, NYC EDC omits the $146 million in opportunity costs that IBO calculated regarding the arena property tax exemption:
That amount reflects IBO's estimate of the property tax that would have been owed over 30 years if the arena were assessed as if it were privately owned.
Direct and indirect city costs

The new NYC EDC analysis states:
As indicated in Table 1 and footnotes 2 and 3 above, the costs to the City of the Atlantic Yards project reflect City capital contributions, City-funded infrastructure improvements (some of which are not directly related to the project, but which have been included in the analysis in order to ensure that it is as conservative as possible), the subsidy implicit in Housing Development Corporation (HDC) second mortgages available to certain residential portions of the project (which are generally consistent with benefits available to other affordable housing projects in the City), and foregone fiscal revenues from the below-market sale or contribution of certain property interests (e.g., street beds that are to be demapped in connection with the project).

In reviewing the foregoing, it should be noted that many of the taxes deemed to be “foregone” herein would not be collected if the project were not to proceed and therefore could be argued not actually to be a “cost” to the City. However, to ensure that this analysis is as conservative as possible, all such foregone taxes are being treated as “lost revenue”.
As I've written, I think there's evidence that the $178.7 million total undercounts the city contribution, but I'll have more on that shortly.

Note that the IBO did not calculate the cost of housing bonds. Nor did it try to estimate the full costs of increased city services, though in 2005 it noted that, contra Forest City Ratner consultant Andrew Zimbalist, "costs to the city for policing the new Nets arena could be significant."

The NYC EDC did not estimate such new public costs.

Counting new residents

The new analysis states:
6 It was assumed that the residents and workers who are estimated to be new to NYC as a result of Atlantic Yards are two mutually exclusive population groups and thus, there should not be any double counting of fiscal impacts between the personal income tax and sales tax associated with households and the personal taxes calculated from onsite jobs.
The earlier analysis:
Given the current shortage of housing in New York City, the analysis assumes that all 4,500 new units to be constructed as part of the MUD will represent an equivalent increase in households Citywide, either directly in the project itself or as infill in units vacated by households relocating to the project.

Income tax revenue is based on an average income of $45,000, the Citywide average for all industries. This is consistent with the assumption that these units would be net new to the City overall, thus residents in these units are likely to be employed in any industry in the City. Total income was then escalated annually at a rate of 3.0% and adjusted to reflect the anticipated construction timeframe. The multiplier of 1.5 was then applied to the direct revenues to estimate indirect effects.

ALSO: The fiscal impact analysis, however, assumes that only 30% of these jobs, or just over 2,000 workers, are new to the New York economy. This number is equivalent to one medium-sized (500,000 sf) office building and is compatible with current estimations of the Brooklyn allocation of office-using employment from City-wide projections for employment growth. This assumption was also used in the analysis to address double counting of residents who both live and work in the mixed-use development and are already accounted for in the residential analysis.
That does seem to be a change, but either way, I think there's a major flaw.

If new residents are counted as an increase in taxes, any builder of speculative luxury condos would be an economic development titan simply by creating new housing--rather than creating jobs.

That has not, however, proven to be the case, given foreclosures and empty buildings, which is why economist James Parrott said, "I don't know of any serious cost-benefit analyses of mixed-used economic development projects that count the taxes of residents."

NYC EDC vs. IBO

The new NYC EDC report states:
It should also be noted that, unlike the analyses that NYC’s Independent Budget Office (IBO) completed in 2005 and 2009, the analysis contained herein does not simply set the costs of the entire project against the benefits of the Arena portion only. Instead, this analysis includes a comprehensive assessment of costs and benefits of the entire project.
There's a fundamental methodological divide. The IBO stated:
Analytically, we are only interested in calculating the returns to the public fisc from the discretionary benefits being granted to this project above and beyond the as-of-right benefits that would be available to any developer at this site or elsewhere in the city. In the case of Atlantic Yards, the arena accounts for virtually all of the discretionary benefits flowing to the project.
And there's a practical one:
If Forest City Ratner used the maximum time available under the new modified project plan, construction could extend until after 2020. Given this uncertainty about the timing of completion of individual buildings and the ultimate timing for full build out, IBO has chosen not to estimate the fiscal impact of the full project over the next 30 years.



NYC EDC 2005 Atlantic Yards Analysis

NYC EDC Atlantic Yards Cost-Benefit Analysis 2009

NYC IBO Atlantic Yards Fiscal Brief September 2009

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

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…

So, Forest City has some property subject to the future Gowanus rezoning

Writing yesterday, MAP: Who Owns All the Property Along the Gowanus Canal, DNAinfo's Leslie Albrecht lays out the positioning of various real estate players along the Gowanus Canal, a Superfund site:
As the city considers whether to rezone Gowanus and, perhaps, morph the gritty low-rise industrial area into a hot new neighborhood of residential towers (albeit at a fraction of the height of Manhattan's supertall buildings), DNAinfo reviewed property records along the canal to find out who stands to benefit most from the changes.
Investors have poured at least $440 million into buying land on the polluted waterway and more than a third of the properties have changed hands in the past decade, according to an examination of records for the nearly 130 properties along the 1.8-mile canal. While the single largest landowner is developer Property Markets Group, other landowners include Kushner Companies, Alloy Development, Two Trees, and Forest City New York.

Forest City's plans unc…