The Empire State Development Corporation (ESDC) claims that the Atlantic Yards project would provide a huge fiscal boost, $1.4 billion in new city and state revenues in excess of "the public contribution" over the next 30 years.
The problem: there's no way to see how the ESDC, in the General Project Plan (GPP), arrives at that calculation.
How exactly is "the public contribution" toted up? Does it consist of direct subsidies? Yes. Some tax breaks? Yes. Costs for public safety, education, and sanitation services? Subsidies for housing? There's no evidence that it does.
The GPP, along with the associated Draft Environmental Impact Statement (DEIS), goes into great detail about the projected benefits of Atlantic Yards. But they provide scant information on the costs, rendering these lengthy documents much less useful than previous reports by the Independent Budget Office and even Forest City Ratner consultant Andrew Zimbalist.
Professor Tom Angotti of the Hunter College Center for Community Preservation and Development points out that the ESDC “gives us no information about the public costs, and we need to know that to assess the costs and benefits.”
ESDC: not yet
The ESDC hasn't been forthcoming. When I asked for the documents that explained how the fiscal impact was calculated, s spokeswoman Jessica Copen responded: "When we go back to our Board with the final GPP and EIS, we will release supplementary info on the economic benefits with a more detailed explanation."
In other words, only when the ESDC is ready to vote on the project--and a 'yes' vote is inevitable--would the public be able to scrutinize the claims made for the project.
Perhaps, as noted below, this issue deserves scrutiny from State Comptroller Alan Hevesi, who has conducted independent audits of other economic development projects.
What the GPP says
A section of the GPP, headlined "Economic Impact," states:
ESDC has performed an independent economic impact analysis of the Project. ESDC has Projected that the Project will have the following impacts during construction and for the first 40 years of operations:
[Note: 40 years? The standard period for analysis is 30 years. Copen told me weeks ago that it's a typo. But it hasn't been corrected yet.]
(i) Construction of the Project will generate 15,344 new direct job years and 26,803 total job years (direct, indirect and induced);
(ii) Direct personal income related to construction activities will be $721.0 million and total personal income will be $1.5 billion (direct, indirect and induced);
(iii) Total construction employment will generate $50.4 million in City personal income tax and sales tax on consumption expenditures and $109.5 million for New York State;
(iv) Operations at the Arena and additional spending in the region will support an annual average 6,573 new jobs in New York City (direct, indirect and induced) and an annual average 7,378 jobs (direct, indirect and induced) in New York State (inclusive of New York City); and
(v) On a present value basis, the Project will generate $845.5 million of City tax revenues and $1.1 billion of State tax revenues. Thus the Project will generate $1.4 billion in net tax revenues in excess of the public contribution to the Project.
The Thus in the last paragraph glides over some complicated issues. Even if the benefits calculated are accurate, we don't know the costs. Note that the $1.4 billion is expressed in present value, which is the value of the money as if it were in hand today.
Public contribution vs. public costs
In a section headlined ECONOMIC BENEFITS OF AND PUBLIC FINANCING FOR PROPOSED PROJECT, the DEIS Executive Summary cites jobs, taxes, and other benefits, citing a total effect on the local economy, measured as economy output or demand, is projected at between $5.1 and $5.2 billion in New York City and between $6.7 and $6.8 billion overall in New York State.
It discusses both direct contributions and tax breaks, but not public costs for additional public services like schools and public safety:
The City and the State would each provide $100 million in funding to the proposed project. State funding would be used for infrastructure improvements necessary to construct the arena and for the redevelopment of the rail yard. City funding would also be used for necessary infrastructure and rail yard improvements. The City’s contribution could also be used for acquisition costs related to the arena site...
Also discussed: an exemption from sales taxes on construction materials; exemptions from State and City mortgage recording taxes (customary for affordable housing developments); and tax-exempt and taxable bonds for construction, issued by a local development corporation.
$200 million in capital investment
Despite acknowledgement of tax breaks, the document reverts to the narrow analysis that the project would require only $200 million, at least as expressed in capital investment rather than public costs.
It states:
As noted above, the public benefits generated by the operation of the proposed project would be substantial, including thousands of direct and indirect jobs as well as substantial tax revenues over and above real estate tax revenues. The proposed project would generate substantial revenues for the City and State exceeding their combined $200 million capital investment after the second year of operations.
(Emphasis added)
$492.9 million in subsidies?
A 7/24/06 article in the Bond Buyer, headlined NEW YORK TALLYING ARENA AID, quoted the ESDC as saying that the total in subsidies would be $492.9 million, including $200 million in direct assistance plus $292.9 million from mortgage recording and sales tax exemptions.
That number, however, significantly underestimates the total costs of public contributions. According to the IBO:
In his analysis of the Atlantic Yards proposal, Andrew Zimbalist provides a present value estimate of $321.4 million for the combined costs for sanitation and education services over 30 years. (Zimbalist assumes that the new police and fire expenses would be negligible.) IBO’s present value estimate for these costs is $475 million.
Subsidized housing costs
None of the documents estimated the public subsidy for affordable housing, which could be substantial. The Brooklyn Papers reported last 7/16/05:
[O]fficials from the Housing Development Corporation, a city housing fund that finances development projects, committed $67.5 million in subsidies. An article this week in the New York Sun estimated as much as $76 million in taxpayer-funded subsidies.
FCR's numbers
Zimbalist concluded that "there is a net positive fiscal impact with a present value of $1.55 billion in the General Project Plan," which is $150 million more than what the ESDC calculated.
Zimbalist's conclusion, however, deserves some major footnotes. First, as the IBO estimated, public costs likely would be much higher than his estimate. Second, Zimbalist's revenue figures depend on calculating the income taxes paid by new residents, a dubious tactic which the ESDC explicitly chose to ignore, as noted in Chapter 4, Socioeconomic Conditions:
For either variation, projected tax receipts do not include income tax paid by the residents at the proposed project or income tax from secondary employment generated by such residents. Such revenue would be additional.
The ESDC came up with a fiscal impact figure much like Zimbalist's total by using a completely different methodology.
Can Hevesi help?
More insight is needed, and perhaps it's a job for State Comptroller Hevesi. On August 10, he took a skeptical look at a proposal to build a major resort complex at Belleayre Mountain in Catskill Park. The proposal, Hevesi charged, understates the potential environmental impacts and economic risks of the project and is based on faulty assumptions regarding profitability and comparable developments in other areas.
He continued:
There are simply too many unknowns in the Belleayre proposal as it stands now. Information put forth by the developer to date has not adequately acknowledged the huge environmental impacts and economic risks of this planned resort complex, and appears to have been skewed to discourage consideration of scaled-down options,” Hevesi said, citing worries that state taxpayers would have to pay for "filtration systems for the New York City water supply and other major infrastructure improvements.
Hevesi's report points out that a Department of Environmental Conservation administrative law judge has identified deficiencies in the developer’s Draft Environmental Impact Statement (DEIS) and permit application materials, and set 12 issues for further adversarial proceedings.
Most of the issues are environmental, but some are economic. For example, the judge found that the DEIS lacked sufficient economic detail to permit adequate analysis of development alternatives.
What triggers an audit?
I contacted Hevesi's office and asked how the report came about. It was "based on our ongoing interest in economic development issues around the state,"
Deputy Press Secretary Dan Weiller told me.
The Comptroller, who serves as the state's chief fiscal officer, is charged with auditing government operations, including
Conducting management and financial audits of State agencies and public benefit corporations;
Issuing reports on State finances;
Overseeing the fiscal affairs of local governments, including New York City;
Reviewing State contracts, payrolls and payments before they are issued;
OSC monitors, reports on, and coaches other public entities, and works to ensure that governments at all levels are discharging their responsibilities in an efficient, effective, and timely manner.
Weiller said audits by the comptroller's office can be triggered by a range of things, including press and public interest. He said the office welcomes citizen input, though a request from the public does not guarantee an investigation.
The problem: there's no way to see how the ESDC, in the General Project Plan (GPP), arrives at that calculation.
How exactly is "the public contribution" toted up? Does it consist of direct subsidies? Yes. Some tax breaks? Yes. Costs for public safety, education, and sanitation services? Subsidies for housing? There's no evidence that it does.
The GPP, along with the associated Draft Environmental Impact Statement (DEIS), goes into great detail about the projected benefits of Atlantic Yards. But they provide scant information on the costs, rendering these lengthy documents much less useful than previous reports by the Independent Budget Office and even Forest City Ratner consultant Andrew Zimbalist.
Professor Tom Angotti of the Hunter College Center for Community Preservation and Development points out that the ESDC “gives us no information about the public costs, and we need to know that to assess the costs and benefits.”
ESDC: not yet
The ESDC hasn't been forthcoming. When I asked for the documents that explained how the fiscal impact was calculated, s spokeswoman Jessica Copen responded: "When we go back to our Board with the final GPP and EIS, we will release supplementary info on the economic benefits with a more detailed explanation."
In other words, only when the ESDC is ready to vote on the project--and a 'yes' vote is inevitable--would the public be able to scrutinize the claims made for the project.
Perhaps, as noted below, this issue deserves scrutiny from State Comptroller Alan Hevesi, who has conducted independent audits of other economic development projects.
What the GPP says
A section of the GPP, headlined "Economic Impact," states:
ESDC has performed an independent economic impact analysis of the Project. ESDC has Projected that the Project will have the following impacts during construction and for the first 40 years of operations:
[Note: 40 years? The standard period for analysis is 30 years. Copen told me weeks ago that it's a typo. But it hasn't been corrected yet.]
(i) Construction of the Project will generate 15,344 new direct job years and 26,803 total job years (direct, indirect and induced);
(ii) Direct personal income related to construction activities will be $721.0 million and total personal income will be $1.5 billion (direct, indirect and induced);
(iii) Total construction employment will generate $50.4 million in City personal income tax and sales tax on consumption expenditures and $109.5 million for New York State;
(iv) Operations at the Arena and additional spending in the region will support an annual average 6,573 new jobs in New York City (direct, indirect and induced) and an annual average 7,378 jobs (direct, indirect and induced) in New York State (inclusive of New York City); and
(v) On a present value basis, the Project will generate $845.5 million of City tax revenues and $1.1 billion of State tax revenues. Thus the Project will generate $1.4 billion in net tax revenues in excess of the public contribution to the Project.
The Thus in the last paragraph glides over some complicated issues. Even if the benefits calculated are accurate, we don't know the costs. Note that the $1.4 billion is expressed in present value, which is the value of the money as if it were in hand today.
Public contribution vs. public costs
In a section headlined ECONOMIC BENEFITS OF AND PUBLIC FINANCING FOR PROPOSED PROJECT, the DEIS Executive Summary cites jobs, taxes, and other benefits, citing a total effect on the local economy, measured as economy output or demand, is projected at between $5.1 and $5.2 billion in New York City and between $6.7 and $6.8 billion overall in New York State.
It discusses both direct contributions and tax breaks, but not public costs for additional public services like schools and public safety:
The City and the State would each provide $100 million in funding to the proposed project. State funding would be used for infrastructure improvements necessary to construct the arena and for the redevelopment of the rail yard. City funding would also be used for necessary infrastructure and rail yard improvements. The City’s contribution could also be used for acquisition costs related to the arena site...
Also discussed: an exemption from sales taxes on construction materials; exemptions from State and City mortgage recording taxes (customary for affordable housing developments); and tax-exempt and taxable bonds for construction, issued by a local development corporation.
$200 million in capital investment
Despite acknowledgement of tax breaks, the document reverts to the narrow analysis that the project would require only $200 million, at least as expressed in capital investment rather than public costs.
It states:
As noted above, the public benefits generated by the operation of the proposed project would be substantial, including thousands of direct and indirect jobs as well as substantial tax revenues over and above real estate tax revenues. The proposed project would generate substantial revenues for the City and State exceeding their combined $200 million capital investment after the second year of operations.
(Emphasis added)
$492.9 million in subsidies?
A 7/24/06 article in the Bond Buyer, headlined NEW YORK TALLYING ARENA AID, quoted the ESDC as saying that the total in subsidies would be $492.9 million, including $200 million in direct assistance plus $292.9 million from mortgage recording and sales tax exemptions.
That number, however, significantly underestimates the total costs of public contributions. According to the IBO:
In his analysis of the Atlantic Yards proposal, Andrew Zimbalist provides a present value estimate of $321.4 million for the combined costs for sanitation and education services over 30 years. (Zimbalist assumes that the new police and fire expenses would be negligible.) IBO’s present value estimate for these costs is $475 million.
Subsidized housing costs
None of the documents estimated the public subsidy for affordable housing, which could be substantial. The Brooklyn Papers reported last 7/16/05:
[O]fficials from the Housing Development Corporation, a city housing fund that finances development projects, committed $67.5 million in subsidies. An article this week in the New York Sun estimated as much as $76 million in taxpayer-funded subsidies.
FCR's numbers
Zimbalist concluded that "there is a net positive fiscal impact with a present value of $1.55 billion in the General Project Plan," which is $150 million more than what the ESDC calculated.
Zimbalist's conclusion, however, deserves some major footnotes. First, as the IBO estimated, public costs likely would be much higher than his estimate. Second, Zimbalist's revenue figures depend on calculating the income taxes paid by new residents, a dubious tactic which the ESDC explicitly chose to ignore, as noted in Chapter 4, Socioeconomic Conditions:
For either variation, projected tax receipts do not include income tax paid by the residents at the proposed project or income tax from secondary employment generated by such residents. Such revenue would be additional.
The ESDC came up with a fiscal impact figure much like Zimbalist's total by using a completely different methodology.
Can Hevesi help?
More insight is needed, and perhaps it's a job for State Comptroller Hevesi. On August 10, he took a skeptical look at a proposal to build a major resort complex at Belleayre Mountain in Catskill Park. The proposal, Hevesi charged, understates the potential environmental impacts and economic risks of the project and is based on faulty assumptions regarding profitability and comparable developments in other areas.
He continued:
There are simply too many unknowns in the Belleayre proposal as it stands now. Information put forth by the developer to date has not adequately acknowledged the huge environmental impacts and economic risks of this planned resort complex, and appears to have been skewed to discourage consideration of scaled-down options,” Hevesi said, citing worries that state taxpayers would have to pay for "filtration systems for the New York City water supply and other major infrastructure improvements.
Hevesi's report points out that a Department of Environmental Conservation administrative law judge has identified deficiencies in the developer’s Draft Environmental Impact Statement (DEIS) and permit application materials, and set 12 issues for further adversarial proceedings.
Most of the issues are environmental, but some are economic. For example, the judge found that the DEIS lacked sufficient economic detail to permit adequate analysis of development alternatives.
What triggers an audit?
I contacted Hevesi's office and asked how the report came about. It was "based on our ongoing interest in economic development issues around the state,"
Deputy Press Secretary Dan Weiller told me.
The Comptroller, who serves as the state's chief fiscal officer, is charged with auditing government operations, including
Conducting management and financial audits of State agencies and public benefit corporations;
Issuing reports on State finances;
Overseeing the fiscal affairs of local governments, including New York City;
Reviewing State contracts, payrolls and payments before they are issued;
OSC monitors, reports on, and coaches other public entities, and works to ensure that governments at all levels are discharging their responsibilities in an efficient, effective, and timely manner.
Weiller said audits by the comptroller's office can be triggered by a range of things, including press and public interest. He said the office welcomes citizen input, though a request from the public does not guarantee an investigation.
Norman, you included the following two paragraphs:
ReplyDelete"(v) On a present value basis, the Project will generate $845.5 million of City tax revenues and $1.1 billion of State tax revenues. Thus the Project will generate $1.4 billion in net tax revenues in excess of the public contribution to the Project."
and:
"The Thus in the last paragraph glides over some complicated issues. Even if the benefits calculated are accurate, we don't know the costs. Note that the $1.4 billion is expressed in present value, which is the value of the money as if it were in hand today."
Present value calculations are very simple. The missing items are the interest rates used to complete the present value calculation.
In other words, the present value (today's value of a stream of payments to be made over the coming 30 years) is $845.5 million of city taxes plus $1.1 billion of state taxes, or $1.945.5 billion.
The report cites NET tax revenue of $1.4 billion.
Therefore, the number you are looking for is the difference between the two, or $1.945.5 billion minus $1.4 billion, which equals $545.5 million.
However, what is not clear is whether the $1.4 billion figure is a present-value figure. You have assumed it is. But it is not identified as such.
Of course that "typo" -- is it a 30-year period or a 40-year period -- makes a lot of difference in calculations of this sort.
In any case, presenting streams of cash flows occuring over many years as a single figure in today's dollars is standard stuff.
There are two key rates embedded in the calculation.
First, the discount rate used to bring all the future payments back to the present.
Second, the escalation rate for taxes. Taxes will rise over the next 30 oe 40 years.
Meanwhile, all claims about future revenue are no more than estimates and projections. As always, estimates and projections reflect no more than what is known today about the future. That's not to suggest the numbers are picked from thin air.
To estimate the interest rates in the calculation I would do the following.
I would base the discount rate on the 30-year Treasury Bond rate. That's around 5%.
I would base the tax escalation rate on the historical rate of increase seen over the last 30 years.
Chris