The issue surfaced Tuesday when Assemblyman Richard Brodsky and Assemblyman Sam Hoyt asked Seth Pinsky, president of both the New York City Economic Development Corporation (NYC EDC) and the New York City Industrial Development Authority (NYC IDA), its bond-issuing arm, whether the latter “had quietly increased its indebtedness for the new Yankee Stadium project by $400 million, probably as a result of cost overruns at the project.” (About $941 million in tax-exempt bonds have already been issued.)
NYC EDC spokeswoman Janel Patterson wouldn’t confirm that number, saying, "IDA has not increased the Yankees indebtedness.” She did confirm that limits on tax-exempt bonds pose an important challenge which the agency is trying hard to overcome.
“The Yankees have expressed an interest in receiving additional financing for their project,” she said in a statement. “ Currently, they are not permitted to do so on a tax-exempt basis pursuant to IRS regulation. If that were to change, we would be willing to consider the option, but have not made any final commitments or agreements. The City is working with the State in Washington to seek relief from the applicable IRS regulation, as this regulation has taken away a tool that would be useful for a number of important, New York economic development projects--not just Yankee Stadium."
Translation: other projects include the Nets arena.
Yankees President Randy Levine, who claimed to Reuters that “this will not affect the completion of the stadium," nevertheless confirmed the effort to gain an IRS waiver. "We are working under the strong leadership of the city and state to try to seek relief from the regulations," Levine said.
The flurry of statements left some apparent contradictions. While Brodsky told the AP that Pinsky "told me that the Yankees have said they may not complete the stadium if this issue is not resolved," Patterson later said that the Yankees have promised they intend to complete the project on time.
(Brodsky was more certain in the New York Post, saying "I was told authoritatively they needed the money to complete the project, and the Yankees said they couldn't complete the Stadium without additional financing”.)
The world “intend” may be a weasel word, but I’m not sure. In the Atlantic Yards context, remember, Bruce Ratner said in May, “We anticipate finishing all of Atlantic Yards by 2018.”
The IDA in 2006 sold $941 million of tax-exempt bonds for the Yankees and $548 million in such bonds for the Mets. To do so, the teams had to get a waiver from the Internal Revenue Service, which has limited such bonds. In its report, Insider Baseball, the watchdog group Good Jobs New York (GJNY) explained how the IDA “won a landmark ruling” from the IRS “to issue nearly $900 million in low-interest, triple tax-exempt bonds to finance the construction of the stadium, saving the Yankees an estimated $172 million in interest.” The same firm represented IDA in its negotiations with the IRS and also served as the Yankees’ bond counsel.
While the Federal Tax Reform Act of 1986 repealed the use of tax-exempt private activity bonds for sports facilities, Congress did not repeal the tax exemption for bonds that are paid off with tax dollars, thus apparently intending to preserve tax-sheltered financing for multi-use, publicly owned arenas, according to GJNY. The bonds, exempt from city, state, and federal taxes, have an interest rate about 25 percent below taxable bonds.
However, city lawyers asked the IRS for a special ruling allowing payments-in-lieu-of taxes (PILOTs) to be considered the legal equivalent of taxes for the purpose of servicing the bond debt. The IRS said yes, “despite language in its own regulations that seemed to contradict the ruling,” according to GJNY.
So now you know why the Atlantic Yards arena would be paid off by PILOTs--it’s the same deal. And now we know that not only pending lawsuits may hinder such tax-exempt bonds, but so might the IRS.
Bettina Damiani of GJNY warned to Metro that the Nets and Mets would likely similarly request such bonding from the city. “This is coming from the mayor who said he’d end corporate welfare as we know it,” she said. “It’s almost comical.”
The conduit in the Bronx
[corrected/updated] An interesting twist is the conduit for [certain] bonds must be a not-for-profit organization; for the Yankees' [parking garages], the IDA selected Bronx Community Initiatives Development Company (BCIDC), whose sole member is the Community Initiatives Development Corporation (CIDC), a non-profit corporation that operates in six states apparently just for such tax-exempt financing.
CIDC, headquartered in Hudson, NY, more than 100 miles north of New York City, is a well-connected organization, according to GJNY. Its senior VP, Joseph Seymour, is the former executive director of the Port Authority of New York and New Jersey. Its president, William Loewenstein, is a former city official and also a strategic partner with incentives procurement advisors Stadtmauer Bailkin Biggins. (And yes, that company, now known as Stadtmauer Bailkin, has worked with Forest City Ratner.)
A new avenue for debt
Brodsky also asked if the Capital Resource Corporation (CRC), a private, not-for-profit corporation that is an arm of the EDC, would issue debt formerly issued by the NYCIDA on behalf of other private not-for-profit corporations. No immediate answer came from EDC, but yesterday, at the CRC board meeting, appointees from Bronx Borough President Adolfo Carrion and City Comptroller William Thompson voted against a proposed amendment that would give the CRC power to issue such bonds, according to GJNY.
GJNY last week testified against the proposal: “We are concerned that projects that receive funding from the CRC would not have to abide by new reporting or job standards that could be required in future statewide IDA legislation. As you are aware, proposed legislation in Albany would codify comprehensive reporting on IDA recipients and ensure job and wage standards for employees at subsidized firms.”
For the amendment to pass, the staff of the EDC and members of the board holding veto power, including Thompson’s representatives, must reach consensus--so the issue isn’t dead.
Brodsky, who chairs the Assembly Committee on Corporations, Authorities, and Commissions, has been taking aim at nontransparent governance. "The explosion of public debt issued by obscure semi-public and private institutions is reaching unmanageable proportions,” he said. “These deals are usually negotiated secretly, with little accountability or public oversight, and directly or indirectly leave taxpayers on the hook. We must reform this entire process. The Yankee Stadium financing may or may not be a good thing, but it certainly should be done in the light of day.”