Well, the report was aimed at getting city and state officials to back the project. And they did, like lemmings--as did editorialists.
But this was no "solid and verifiable analysis," as Frank Rashid of the Tiger Stadium Fan Club at a 3/29/07 hearing told Congress should be required for publicly funded projects.
After all, had Zimbalist calculated the impact on the federal treasury, well, he would've had to tell the truth and call it a loss from that angle, given that the subsidy for tax-exempt bonds--now worth perhaps $165 million to FCR--falls largely on federal taxpayers. (The arena has more than doubled in cost since Zimbalist issued his report in 2004, so the federal tax exemption has grown significantly.)
Moreover, he would've had to quote his own, recently stated opposition to tax-exempt bonds for sports facilities, a new hot-button issue in New York City and Washington, given that the Internal Revenue Service wants to close a "loophole" that allowed a specific version of tax-exempt financing, using PILOTs (payments in lieu of taxes); the city and state want that loophole grandfathered in for the Atlantic Yards arena and additional Yankees and Mets stadium costs; and some in Congress want to get rid of tax-exempt financing altogether.
In other words, a full analysis of the plan, rather than one limited to the city and state treasuries, would have led Zimbalist to point out the uncomfortable truth that the arena financing plan might be bad public policy. But Consultant Zimbalist apparently trumped Scholar Zimbalist.
"No rationale" for federal subsidy
Like many professional economists, Zimbalist has looked at the evidence and found no support for a federal role. In his 2003 book, May the Best Team Win: Baseball Economics and Public Policy, he wrote (p. 140-141):
While one may legitimately question the costs and benefits to a particular metropolitan area of attracting a professional sports team, there appears to be no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host ball clubs. If there is a global welfare gain from the relocation of a team from city A to city B (because city B may be larger or wealthier or have more avid sports fans), then city B ought to able to pay for that gain without a subvention from Washington, D.C.
It appeared back in 1986 that Congress had convinced itself of the irrationality of allowing a tax exemption from the interest on municipal bonds for stadium construction projects. The 1986 Tax Reform Act had a provision that stipulated that the interest exemption would not apply to facilities where more than 10 percent of the bond debt service was financed from private sources (that is, from revenues generated at the facility). The apparent intention of this provision was to cease providing federal subsidies for sports facilities when the teams were privately owned. As Senator [Daniel] Patrick Moynihan of New York stated: "Congress intended to eliminate the issuance of tax-exempt bonds to finance professional sports facilities as part of the Tax Reform Act of 1986."
The provision, however, was replete with loopholes that have allowed almost complete circumvention of its intent... The same reasoning applies to naming rights, long-term luxury and club box leases, pouring rights, permanent seat licenses, and so on. Further, if the lease provided that instead of paying rent (which would count toward the limit), the team paid for facility maintenance, then again there would be no offset against the limit. Along with still other loopholes, the 1986 tax reform provision allowed teams to receive ever more favorable leases without rental payments and with less or no sharing of stadium-generated revenues.
Senator Moynihan, cognizant of this irony and concerned about the prospect in the mid- 1990s that New York City might build a $1 billion-plus new stadium for the Yankees, introduced bill S.1880 in June 1996. The bill would have eliminated the tax-exempt financing for professional sports stadiums. The bill did not make it out of committee.
Is there a loophole?
If you read on, you'll see that Zimbalist, in an effort at fairness, makes a suggestion that would seem to have given the OK to tax-exempt bonds for the Yankees and Mets (if not necessarily the plan using PILOTs), both with older stadiums. He wrote:
While it is arguable that there could be a small gain in net global welfare when a team relocates from a smaller to a larger city, it is clear that proper public policy should be oriented toward promoting an increase in the supply of baseball franchises so that all economically viable cities have a team. The best way to accomplish this is discussed shortly. Absent a successful policy to increase the supply of teams, it is appropriate for Congress to take up again the issue of the federal subsidy for stadium construction through the municipal exemption. Stadiums may generate positive externalities, consumer surplus, and public goods benefits for the residents of an area. Similar to a museum or a public park, these externalities might justify a level of public subsidization, even though in the case of a stadium the financial benefits are appropriated privately.
There is, however, no reason for the federal government to subsidize a process that picks one city over another. Thus it would be desirable for a new version of the Moynihan bill to be considered and passed. Moreover, at the end of 2002, nineteen of baseball’s had new stadiums (or stadiums being built) that benefited from the federal tax exemption. The new bill should therefore provide similar treatment for the eleven teams that have not had a stadium built since 1989. Those teams should be grandfathered for a period of up to five years. The principal goal here is to remove this exemption before the next round of stadium construction begins, which, if the past is an indication, should be around 2020.
What about the Nets?
And what about the Nets, who play in an arena that opened in 1981?
Well, maybe Zimbalist's rationale might apply. Then again, there's already a new arena in Newark, isn't there?
Zimbalist on AY
It's worth a look to see how Zimbalist finessed his report on AY:
The FCRC project at Brooklyn’s Atlantic Yards, I believe, distinguishes itself from the standard sports facility project in at least two important ways. First, New York City and New York State will benefit from a recapture of tax revenues presently generated in New Jersey.
The second reason was that it was--at least was projected to be--part of a larger development plan.
But Zimbalist's support for a project that might recapture tax revenues from another state is an argument for local and state support. It says nothing about the burden on federal taxpayers.
What about the Yankees?
Zimbalist notably opposed PILOT financing for the West Side Stadium but supported it for Yankee Stadium. In both cases, in op-eds for the New York Times, he was addressing a second-order question: would tax-exempt financing be paid off by PILOTs or not?
In both cases, he could have simply answered the primary question and opposed tax-exempt financing as bad public policy, given his well-known public stance.
He hasn't been called on it.
Peer review missed Zimbalist
Nor has the Times, as I wrote in May 2007, pursued peer review of Zimbalist's AY study, even though it did ask other scholars to review a study of bias by basketball referees.
There's ample evidence, as pointed out last October, that Zimbalist's AY study was a "promotional" one, the kind he has criticized.
Nevertheless, at the 3/29/07 Congressional hearing on subsidies for sports facilities, Zimbalist's study was uncritically endorsed by ranking minority member Rep. Darrell Issa (R-CA).