After a plethora of coverage that has largely left the funding Forest City Ratner's Atlantic Yards plan unquestioned, today comes an article in the New York Post that casts a critical eye on the funding, notably an apparent no-risk plan to build the arena.And that critical eye is a tabloid one, making a sweet deal look even sweeter. Note that only the online version of the article contains the crucial news that state and city officials say it's too soon to comment on whether Forest City would get the increased subsidies it seeks.
The article, published on p. 19 of today's Post--way behind the Marilyn Monroe sex tape story and a Yankees story, which earned the cover--has the headline YOUR 'NET' LOSS, subtitled "$2B in taxes to Ratner," which isn't quite correct. (Click to enlarge.)
While the article states that the $4 billion plan is "in line to receive [updated] $2,157,260,000 worth of government subsidies," which means the public is in line to pay half of it, that deserves some caveats. First, there's a difference between direct subsidies and tax breaks, though they both add up to savings for the developer.
Total cost needs update
Second, the calculation of savings to the developer may be up to date, but the total cost of the plan is not. Nearly half of that $2.14 billion estimate is payments in lieu of taxes (PILOTs) that the developer would make to pay off the arena bond. While the cost of such payments has been updated to account for the current arena cost estimate of $950 million, the cost of the project as a whole has not been updated.
In other words, if the cost of the arena has grown by more than $300 million, from $637.2 million when the project was approved, so has the cost of the project as a whole. So the $2.14 billion estimate should be compared against a new estimate.
And an independent body should perform its own analysis. Indeed, some of the tax breaks do not directly offset the cost of the project.
Sweetheart deals
The article begins:
Developer Bruce Ratner's Atlantic Yards project in Brooklyn is boosted by so many sweetheart deals that the public stands to pay for more than half the cost of his controversial $4 billion plan, a Post analysis found.
Note that the "analysis" is not so much by the Post but by project critic Michael D.D. White.
More corporate welfare
The article continues:
The project - which would bring an NBA arena and 16 residential and office towers to Prospect Heights - is in line to receive at least [updated] $2,157,260,000 worth of government subsidies, according to project records and interviews with past and present state and city officials.
And the developer is gearing up to ask for even more corporate welfare.
The president of Ratner's parent company said in a conference call with investors last week that the project will "still need more" subsidies.
The state and city say Ratner has yet to ask for extra assistance, but the developer last month admitted that a sagging economy is holding up construction of the project's residential and office space.
As typical with the Post, it doesn't credit other news outlets for previous coverage; note that AYR last Monday reported on the developer's statement, made the previous Wednesday, about needing more subsidies.
No-risk arena
The article continues:
Among the biggest revelation of the Post analysis is what project skeptics have feared for years - that Ratner can build the planned 18,000-seat arena for his New Jersey Nets to move to with little financial risk.
It's not quite a Post analysis. Read on:
"The setup is basically like paying taxes on your home and then having the government use that money to help you pay off your mortgage," said Michael D.D. White, a former vice president and top lawyer for the state finance authorities.
White - who provided the newspaper with subsidy projections based on his own review of project documents --estimates that Ratner would save slightly over $1 billion in tax payments through a Payment in Lieu of Taxes deal with the state.
Under the deal, he said these payments would be "intercepted" and go directly towards settling debt service on state bonds to build an $950 million arena that Ratner will "all but own," with remaining cash going towards arena operating costs.
While the state will technically own the arena, Ratner under a cozy $1-a-year lease deal, will control it and all its potential profits.
This is an important point, one made previously by the Brooklyn Paper and on AYR but not prominently in a daily paper. As I wrote in January:
Moreover, the maximization of private participation in this instance arguably gives the developer the arena for free. Yes, tax-free bonds will be issued to build the arena, but FCR will pay off those bonds via Payments in Lieu of Taxes (PILOTs) to the local development corporation set up to nominally own the arena. (See page 6 of the Memorandum of Understanding between developer, city, and state.) The PILOT will not exceed the real estate taxes were the site not publicly-owned and tax-exempt. (See “R-TIFC-PILOT”.)
The IBO analysis
Note that the Independent Budget Office, in its September 2005 Fiscal Brief analyzing the economic impact of the arena, did not count the arena financing--or, at least, the vast majority of it--as a special benefit for Forest City Ratner, instead concluding:
IBO’s estimate of new property tax revenue lost to the arena PILOT does not include a loss of property taxes for the MTA land that would be part of the arena building foot print. The city currently receives no tax payment from the MTA for the rail yard because the MTA, like other state entities, is exempt from local property tax. Under the MTA’s Request for Proposals, any developer acquiring the development rights to the site would probably enter into a long-term lease, leaving the MTA in place as the owner. Therefore, the property would likely remain off the city’s tax roll, resulting in no impact on the city budget. Indeed, the MTA has an incentive to make a deal that maintains the tax exemption in order to maximize the price it receives for the development rights.
The IBO isn't quoted in today's article; indeed, the office's narrow task was to calculate the fiscal impact on the city, not the fiscal benefit to Forest City Ratner, two very different things.
But the IBO's point--that the MTA had an incentive to maximize the price it received--raises questions about whether the MTA did do that.
Arena benefits
The Post article continues:
Anticipated arena financial windfalls include a record $400 million naming-rights deal signed with Barclays Bank and up to $35 million annually through the sale of luxury suites.
Ratner has an option to buy the arena at market value after 30 years, records say. But it doesn't pay because the average life span of an NBA arena is about three decades, and he is eligible to continue the buck-a-year lease arrangement for up to 99 years.
Indeed, the naming-rights deal and the sale of suites, as I've suggested, should be able to pay off the PILOTs. No wonder Ratner wants to go ahead with building the arena. Note that the paragraph directly above appears only online.
Some calculations
The online article continues:
Other benefits for Ratner include:
* Saving $261.25 million in taxes through tax-free bonds that will finance affordable housing, White said.
Note that this number doesn't appear in the print article; it's worth getting current officials to confirm it. Tax-free bonds for affordable housing are not special benefits; everyone building such housing applies for them. The problem, however, is that as of now there's too limited a pool of such bonds.
More savings
The online article continues:
* $150 million in tax credits through special state legislation set up to benefit Atlantic Yards, officials said.
* Saving $114.5 million buying the Atlantic Rail Yards site for the project at less than the MTA's own appraised price.
Note that the two points above, as well as the PILOT deal and $305 million in direct subsidies, are part of the graphic in the print article.
Note that the MTA did not sell the 22-acre "Atlantic Rail Yards site" but instead the 8.5-acre Vanderbilt Yard. (Forest City contends that the value of railyard improvements ups the value of its bid. Develop Don't Destroy Brooklyn disagrees. Note that the DDDB analysis here responds to a $50 million cash bid from FCR; it was raised to $100 million.)
FCR's response
The article quoted the developer:
Ratner spokesman Loren Riegelhaupt refuted most of the subsidy estimates made by White and the Post, adding "it is too early to know" the exact tally and that the only subsidies currently guaranteed are $305 million coming from the state and city for infrastructure and land-acquisition costs.
"Yes, there's investment from the city and state, but what they get back is even greater," he said.
He added that the entire project will eventually be built and bring in nearly $1 billion in net tax revenues over the first 30 years, create over 21,000 permanent jobs and construction jobs and 2,250 units of affordable housing for low- and middle-income families.
The print article ends here. I'm not sure that Riegelhaupt refuted the calculations, since refute, to me, means "to prove wrong," but the dictionary says a secondary meaning is simply to "deny the truth or accuracy of."
Online only
The rest of the article didn't appear in print, and it contained some of the most important news:
Assemblyman Richard Brodsky (D-Westchester) warned that Ratner must deliver what was promised when the state approved the project in December 2006.
"All the big projects -- the 7-line, downtown Manhattan, Hudson Yards, Atlantic Yards -- they're all hanging by a tread, and the notion the taxpayers are going to invest money while the developers don't meet their commitments, if that's what people expect, there is going to be a fight about it," said Brodsky, who chairs the Assembly committee that oversees state entities that approved these projects.
Spokespersons for the city and state said it's unclear whether Ratner would receive more subsidies if he asked, adding it would need to be reviewed. But some Brooklyn-based council members have said their dead set against giving Ratner more cash.
If "it's unclear," that means the door is still open and, given that new elected officials eventually will emerge, the "Atlantic Yards permanent campaign" is hardly over.
Closing words:
The article closes:
While Riegelhaupt said Ratner plans to break ground on the arena and one of the residential towers later this year, construction on other parts of Atlantic Yards is being pushed back because of the downtown in the economy.
Project opponents, however, are still attempting to block the entire project through pending lawsuits.
It's not just the downturn in the economy; there are no housing bonds as of now.
The Post's calculations
The online version of the article provides these calculations:
RATNER'S NETS GAIN
PROJECTED ATLANTIC YARDS SUBSIDIES (SAVINGS TO BRUCE RATNER)
* 1. Arena real estate tax savings through 30-year Payment in Lieu of Taxes (PILOT) agreement with state = $1,032,740,000
* 2. Taxes saved on $1.406 billion federal-state-local tax-free bonds to create affordable housing = $261.25 million
3. Cash from New York City for infrastructure and/or land acquisition costs = $205 million
* 4. Taxes saved on estimated $1.032 billion fed-state-local tax-free bonds to finance $950 million arena = $191.9 million
5. Tax credits through special 421-a "carve out" state legislation = $150 million
6. Savings from purchase of Atlantic Rail Yards at price less than MTA appraisal= $114.5 million
7. Cash from New York State for infrastructure costs= $100 million
* 8. Mortgage recording tax exemption (on residential buildings) = $39.37 million
* 9. Value of city land under arena given to developer= $27.1 million
* 10 Potential tax credits for low-income housing units= $18 million
* 11. Sales tax exemptions (only arena) = $17.4 million
12. Sale tax exemptions (other than arena) = Undetermined
13. Extra funds for "extraordinary infrastructure costs"= Undetermined
14. Credits for public utilities relocation= Undetermined
GRAND TOTAL=AT LEAST $2,151,890,000
* Estimations by Michael D.D. White, an urban planner and former top lawyer for New York State's finance authorities, after reviewing public documents. Other figures based New York Post examination of state records and interviews with government officials.
Note: Atlantic Yards is estimated to cost $4 billion.
Remember, the project would cost more than $4 billion.
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