The last time the nation’s tax code was overhauled, in 1986, Congress tried to end a big corporate giveaway.About the arena
But this valuable perk — the ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes — has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.
A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of the Goldman Sachs Group and the Bank of America Tower in New York — all of these projects, and many more, have been built using the tax-exempt bonds that are more conventionally used by cities and states to pay for roads, bridges and schools.
In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times.
At a time when Washington is rent by the politics of taxes and deficits, select companies are enjoying a tax break normally reserved for public works. This style of financing, called “qualified private activity bonds,” saves businesses money, because they can borrow at relatively low interest rates. But those savings come at the expense of American taxpayers, because the interest paid to bondholders is exempt from taxes.
very odd omission of the arena and the Atlantic Yards project last December in its "United States of Subsidies" series.
For the Atlantic Yards arena, the New York City Independent Budget Office in 2009 estimated $194 million in federal tax breaks on tax-exempt bonds, based on $678 million sold. Given that $511 million in bonds were sold, the federal tax break was likely cut about 25%.
The city and state tax savings on the bonds is minor, though there are significant other direct subsidies and tax breaks.
Times commenter Michael A. Livingston wrote:
I worked on tax-exempt bonds in Congress in the 1980s and it is quite astounding what they are used for. When it is for schools roads and court houses I don't think most people object. But for Barclays Center?This tax break was also used to build the new stadiums for the Yankees and the Mets. (Here's an interview with Neil deMause of Field of Schemes regarding this financing scheme.)
Killing the subsidy "could bring in $50 billion for the federal government over 10 years," the Times reports, though the Obama administration instead would cap the value of the tax break, which has an unspecified benefit. (There's no indication it would be retroactive.)
Field of Schemes's Neil deMause is skeptical, pointing out that such talk in the past has gone nowhere.
Who benefits? Prokhorov
He's on the cover of the latest Forbes World Billionaires issue, with a respectful profile describing his political ambitions, Russian Billionaire Mikhail Prokhorov: From Oligarch To President?:
We cross the East River and head down Atlantic Avenue to Barclays Center. A car elevator dumps Prokhorov right in the center of the building, designed by Ellerbe Becket and SHoP Architects. On the way to his private box he is mobbed by strangers–as with his players, he’s hard to miss. Prokhorov waves, shakes hands, promises two kids in Nets jerseys he’ll give them an autograph later. “You’ve put your tie on! Do I need a tie now?” asks his partner in the Brooklyn venture, real estate developer Bruce Ratner, who pulls a cravat out of his own jacket pocket and playfully waves it in the air.Self-made? Mike Taibbi wrote in 2010:
...The third member of an odd trio is hip-hop sensation Jay-Z, who performed at the opening of the center last September. (He has a reported cut of the action.) Or maybe not so odd: They’re all self-made, outsize successes. Prokhorov says there is “a natural bond” between him and Jay-Z. :
The auctions, at least by American standards, were shamelessly, transparently, hilariously rigged. The essence of the scam was the transfer of the state-controlled industrial jewels of the Soviet empire into the hands of a very small group of politically connected individuals. And the best example of them involved Norilsk Nickel... Prokhorov's bank, Oneximbank, helped run the auction, then got itself declared the winner after bidding $170 million to manage a 38 percent stake in a company then worth $1.2 billion. Irrelevant was the fact that another firm had bid twice as much.Prokhorov's the 69th richest man in the world at $13 billion and the 10th richest in Russia, according to Forbes. Those numbers are down from an $18 billion peak in 2011, but surely leave a great cushion.
describes him admiringly:
Mikhail Prokhorov has been, by turns, banker, athlete, metals mogul, playboy, investor, media player, politician, NBA owner (the Brooklyn Nets) and now, again, politician. He rocked Russia when he jumped into its 2012 presidential race against strongman Vladimir Putin. No one expected him to win but he managed to get 8% of the vote, even though he ran an unexceptional campaign. (He did, however, rap on TV, perhaps suggesting that some of his friendship with Jay-Z is rubbing off). While the 6-foot-8-inch bachelor and martial arts enthusiast moved the Nets to a new arena in Brooklyn's Atlantic Yards, and often jets in to watch a game, he has no plans to settle in the U.S. He insists that his serious interest is Russian politics, and he has created a new party, the Civic Platform, that he intends to expand until it's strong enough to go head-to-head with Putin's United Russia. He has the money to see it through. In late February 2013 he sold his 37.8% share of Polyus Gold International Ltd. for $3.6 billion.