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Privately financed? Court documents finally specify the housing bonds behind Atlantic Yards funding

For years, developer Forest City Ratner and governmental allies have danced around an essential fact: more than half of the funding for the Atlantic Yards project depends on government resources, both direct aid and a limited pool of tax-exempt financing.

And while CEO Bruce Ratner may have said at the outset that the project "will be almost exclusively privately financed," that was always a fudge.

The Empire State Development Corporation's (ESDC) General Project Plan released to the public (right and below) offered hard numbers regarding the uses of project funding but offered only a general outline of the sources of such funding. (Click on graphics to enlarge.)

It was made clear--though government officials wouldn’t reveal number--that Atlantic Yards, given the substantial affordable housing component planned, would rely significantly on scarce tax-free bonds authorized by the New York City Housing Development Corporation (HDC).

Such bonds allow the developer to borrow money at a lower interest rate, serving, essentially, as a discount mortgage.

Before the project was approved by the ESDC board on 12/8/06, specific funding amounts were never enumerated by government agencies, including the ESDC.

Indeed, New York City's Department of Housing Preservation and Development (HPD) refused to provide such information when I filed a Freedom of Information Law request. HPD works closely with HDC, and HPD Commissioner Shaun Donovan serves as HDC chairman.

Curiously, the memo prepared for the ESDC meeting simply refers to funding for the apartments as "private financing," as at above right. The memo surfaced as part of the lawsuit challenging the environmental review of the project.

Sources specified

When the project hit crunch time, however, before the Public Authorities Control Board's (PACB) 12/20/06 vote, the ESDC gave the PACB some confidential information The ESDC finally offered a more granular explanation of the financing for the $4 billion project: more than half would come either directly from the government or from government-assisted resources:
--$637.2 million in tax-free bonds to finance the arena
--$100 million from New York City (city expenditures are now $205 million)
--$100 million from New York State
--$1.4 billion in tax-free bonds to finance the affordable housing

That represents more than half the project financing. While the $2 billion-plus in government-authorized bonds (housing bonds via HDC and arena bonds via ESDC) wouldn’t represent a direct grant to Forest City Ratner, the bonds would back low-cost mortgages, at a far more attractive interest rate than the developer could find on the open market. That thus would lower the developer’s costs and add to profit.

(How much lower? Perhaps 15%--see below. As the New York Observer reported last week, the privately issued bonds "can save developers 1 to 1.65 percentage points a year in interest.")

Such bonds are so scarce, in fact, that HPD Commissioner Shaun Donovan on May 24 told Congress the city faced a “crisis” threatening to stall some 6700 affordable housing units in the city’s pipeline. And that pipeline precedes the 2250 units promised for Atlantic Yards. (More on the delay.)

Document surfaces

The key sources-and-uses document surfaced as part of the lawsuit filed by Develop Don't Destroy Brooklyn and 25 other groups challenging the Atlantic Yards environmental review. It was attached to an affidavit filed by Todd Scheuerman, Assistant Chief Budget Examiner in the New York State Division of the Budget, supporting the PACB's opposition to the lawsuit.

(The document given to the PACB and excerpted above offers more details than a previous document released in March by the ESDC, which offered project cash flows, in response to pressure from Assemblyman James Brennan. Analyst David Smith had criticized the cash flow document for failing to provide sources and uses.)

Scheuerman's affidavit was the subject of a brief interchange between Supreme Court Justice Joan A. Madden and Assistant Attorney General Peter Sistrom during the 5/3/07 hearing.

“There is no piece of confidential information not in Mr. Scheuerman’s affidavit,” Sistrom told the judge.

“The confidential information he reviewed is no longer confidential?” Madden asked.

“Yes,” Sistrom replied.

Had that hearing been covered by more than two journalists, and had more people read the documents in the lawsuit, the details in this article surely would've surfaced a lot sooner.

Who fudged? Ratner, or the Times?

Both press accounts and Forest City Ratner public relations material have long fudged the issue. A press release the developer issued 12/10/03 explained that the arena would be mostly financed privately, but left out the question of the project as a whole:
The Arena will be primarily privately funded. Incremental revenues will be derived from sales taxes on tickets, food and merchandise sold at the new Arena.

Press accounts expanded on that. The Times reported 12/11/03:
"This started with basketball, a Brooklyn sport," Mr. Ratner said. "This was always the site. But it became clear it was not economically viable without a real estate component...
Mr. Ratner said that the project "will be almost exclusively privately financed," although taxes derived from elements of the project will be diverted to help pay for it.

In other words, he was suggesting a model for arena financing.

Without access to the original transcript, we can’t tell if Ratner was fudging--conflating the arena with the project as a whole--and the Times let him get away with it, failing to press him on the funding for the project as a whole. Alternatively, the Times may simply have misunderstood Ratner, extrapolating his words about the arena to the project as a whole. (The Times did err regarding Frank Gehry’s statement.)

According to video of the press conference, Ratner was emphatic about protecting the taxpayer but elusive about details. He said, "Another major concept here is: we understand the city’s position and the state’s position and the taxpayer’s position. And it is our goal—in fact we will only use taxes that are generated out of this arena from the public. We do not want to go and get taxes from elsewhere, from the existing base.”

Neither Ratner's statement nor the press release encompassed the direct government aid and tax-exempt bonds.

Bloomy, Ratner both mislead

In other cases, however, the city and the developer clearly misled the public. Mayor Mike Bloomberg, in a 1/23/04 radio interview, claimed that the developer had to raise the entire project funding (then $2.5 billion) on his own:
Look, if you listen to every “but,” you would never do anything. “Well, this guy Ratner should do this, that, and the other thing.” He’s gotta raise $2.5 billion.

A 2004 flier mailed by Forest City Ratner to Brooklynites promised that Atlantic Yards--the entire project--"will be funded primarily by private development dollars, and with a small portion of the very large new tax revenues generated by the project."

That may be technically accurate, given private investors buy the tax-free bonds, but it doesn't indicate that the bonds represent a scarce government resource.

The web site also fudges the issue:
The City and State of New York have each agreed to contribute $100 million to Atlantic Yards, representing less than six percent of the total investment in the development. These monies will be used to fund infrastructure improvements and site preparation on and around the arena site (including streets, sidewalks, utility relocation, environmental remediation, open space improvements and public parking garages).

Certain as-of-right tax benefits may also be available to FCRC as they would be for any other developer, including: tax-exempt financing; real estate tax abatements through the Commercial ICIP program; the residential 421a program; the exemption from the mortgage recording tax for construction and permanent financing for the development; and the exemption from sales taxes for construction materials and fixtures for the arena.

(Emphasis added)

Actually, the tax-exempt financing is a scarce resource and thus not necessarily available to "any other developer.".

Flexibility, and savings

A 12/22/06 article in the Bond Buyer, headlined Atlantic Yards' Developer Filed Preliminary Paperwork for Up to $2.17B, reported that the developer had filed nonbinding paperwork for 19 potential buildings, thus allowing for flexibility rather than adding buildings, adding up to $2.17 billion. (The more accurate document provided to the PACB, as noted above, indicated a sum two-thirds of that.)

In the article, the Bond Buyer offered some context for how Ratner might benefit:
By comparison, the New York Yankees and New York Mets together sold about $1.4 billion of tax-exempt bonds for their new ballparks and are expected to save $160 million to $200 million over 40 years.

That apparently represents a saving of up to nearly 15 percent, thanks to public subsidies, for the Yankees and the Mets together, and also, perhaps, for the project involving the Nets.


  1. Great work, Norman. When, oh when, will the local press pick up this story again?


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