Skip to main content

New Treasury Department regulations would grandfather in tax-free bonds for Atlantic Yards arena

[updated 9:21 pm]
In a big boost for developer Forest City Ratner, worth perhaps $165 million, the U.S. Treasury Department has issued a regulation (also below) that would grandfather in tax-exempt bonds for the planned Atlantic Yards arena under a rule the Chief Counsel of the Internal Revenue Service (a bureau of the Treasury Department) called a “loophole.”

The Treasury Department, not heeding a request from Rep. Dennis Kucinich (D-OH) to delay action until his inquiries into sports facility finance issues are concluded, on Monday filed a new regulation that, in fact, would eliminate the loophole for new projects. However, a “transitional rule for certain projects substantially in progress” would allow tax-free bonds for the arena, as well additional tax-free bonds for new stadiums under construction for the Yankees and Mets, as requested by city and state economic development agencies.

(That’s my reading of p. 13 and p. 20-21 the document; Treasury Department spokesman Andrew DeSouza told me “we wouldn’t be able to comment on a specific taxpayer.” Let’s expect a statement soon from Forest City Ratner and an acknowledgement in the press that the arena is not nearly as doomed as some believed. The Observer, which got confirmation from an unnamed state official, puts the gain at perhaps $100 million.)


"The IRS's attempt to favor Bruce Ratner to the tune of an estimated $165 million on the backs of federal taxpayers, for a project that does nothing for those taxpayers, is obscene and offensive in the midst of an historic $700 billion bailout and a national fiscal crisis," commented Develop Don't Destroy Brooklyn (DDDB) spokesman Daniel Goldstein. (DDDB claimed the regulation doesn't apply to the AY arena, though that's a minority view.)

Bettina Damiani, Project Director of Good Jobs New York, noted that part of the regulation seems written to help the three sports teams: "The mumbo jumbo language that will help the NYC applicants borders on the comical. Isn’t it interesting that in the midst of what some people have called a global economic crisis, officials found the time to give more tax breaks to rich sports franchises?"

"This is another example of powerful special interests getting access to public dollars under this administration," Assemblyman Richard Brodsky, a critic of the Yankees deal, told the AP. "The rules don't apply if you've got enough juice."

Forest City spokesman Joe DePlasco gave a statement to the Observer: “We are of course very pleased with the Treasury Department regulation. The tax exempt financing was always part of the plan for the development of the arena and the regulation released today acknowledges that. The regulation will help us move forward with a project that is critical to the on-going economic vitality of Brooklyn and the City.”

While tax-exempt financing (updated 8:12 a.m Wednesday: backed by PILOTs) was long part of the plan for the development of the arena, it certainly wasn't at first. The regulation, in effect, acknowledges projects for which tax-exempt financing had been planned, but it doesn't say anything specific about Atlantic Yards, nor anything about financing being "always part of the plan."

Potential snags

Forest City Ratner has said it expects $800 million in triple (city/state/federal) tax-exempt bonds for the $950 million arena, but even with the new regulation, there are some potential snags.

For one thing, the new regulation requires that bonds for the project be issued on or before December 31, 2009. While major litigation should be concluded by then, giving the developer a cushion, it’s possible that some new legal challenge might emerge.

Also, should the pending challenge to the project’s environmental impact statement (EIS) be successful, the courts could require a new such EIS—or declare the finding of blight illegitimate.

"We will consider all options if Ratner attempts to have issued a tax-exempt bond under this rule," Goldstein said.

Another potential roadblock involves whether city officials have “gamed” tax assessments for the arena, inflating them to be commensurate with the large PILOTs (payments in lieu of taxes) needed to pay off the arena bonds.

Kucinich, Chairman of the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform, has scheduled a hearing Friday to look into charges that the city did “game” such assessments for the new Yankee Stadium. The new regulation may well be under discussion, as well.

Can the regulation be challenged? Treasury Department spokesman DeSouza said, "Again, I want to emphasize that there was a long comment period for the proposed regulations when they were issued in October 2006. We took all of the comments into consideration when moving forward with the final regulations. I'll also note that the area in the tax code that deals with PILOTs is well established--back to the 1970s, and the tax code provides us very broad regulatory authority. That said, like any other piece of regulation or law, should someone have problems with the final regulations they have the ability to go to court."

When it started

The new regulation was promulgated on October 19, 2006, after the IRS—reluctantly, officials have said—provided private letter rulings (PLRs) allowing the issuance of fixed PILOTs (payments in lieu of taxes) for the new stadiums for the Mets and Yankees.

While property taxes typically fluctuate, the PLRs allowed fixed PILOTs, which make it much easier to sell bonds. (The new regulation, while it allows for some adjustment of PILOTs, requires them to more closely resemble taxes.)

“Substantially in progress”?

In agreeing to allow fixed PILOTs for the Atlantic Yards arena, the Treasury Department essentially agreed with arguments from the New York City Industrial Development Agency (IDA) and the Empire State Development Corporation (ESDC) that the Atlantic Yards arena was “substantially in progress” by October 19, 2006—surely a debatable issue.

DDDB's Goldstein commented, "It is clear that the IRS has written the 'Transitional rule for certain projects, substantially in progress,' in an attempt to specifically qualify Ratner for the tax-exempt bond, but that attempt fails as it does not apply to Ratner; no official action was taken on his arena prior to the IRS's Oct. 19, 2006 date.

City/state request

In the 5/8/08 letter to the Treasury Department, the city and state agencies had said that the proposed 120-day transitional period to complete ongoing transactions was insufficient:
Finally, the new regulations should not apply to bonds issued to finance a project that was described in a resolution, memorandum of understanding, or other preliminary approval adopted by a governmental entity prior to October 19, 2006. As we discussed, the Atlantic Yards project fits into this last category. The bonds for the Atlantic Yards project are expected to be issued in 2008, although there are several ongoing litigation appeals and there could be additional litigation-related delays.

Along with the deadline for issuing the bonds, the new regulations provide two other requirements for projects “substantially in progress”:
(i) A governmental person (as defined in §1.141-1) took official action evidencing its preliminary approval of the project before October 19, 2006, and the plan of finance for the project in place at that time contemplated financing the project with tax-exempt bonds to be paid or secured by PILOTs.
(ii) Before October 19, 2006, significant expenditures were paid or incurred with respect to the project or a contract was entered into to pay or incur significant expenditures with respect to the project.

Matter of debate

Whether Atlantic Yards was “substantially in progress” as of October 19, 2006, the date of the proposed regulations, remains a matter of significant debate. The project’s Draft Environmental Impact Statement was issued in July 2006, at the same time the appointed board of the Empire State Development Corporation (ESDC)--a governmental entity, though not an elected one--approved the General Project Plan. The project was formally approved by the ESDC board, however, only in December 2006.

DDDB earlier pointed out that the $47 million related to the Arena spent before 2007, as cited in the city/state letter, is a little less than 5% of the cost of the $950 million arena, and that the “expenditures are for needed basic infrastructure in the area, independently necessary for public purposes without regard to the proposed development.”

Timing issues

DDDB earlier also challenged the chronology in the city/state letter, which, in attempting to illustrate “substantial progress,” offered this claim:
The Project commenced in 2003; the Arena is anticipated to be completed in 2010, and the balance of the Project is expected to be built over the next decade.

DDDB argued:
These claims are palpably, self-servingly and cynically false.... This is one example of why the IRS should be reviewing all the assertions in the Ratner Arena Letter with rigorous skepticism and rejecting many of them.

Indeed, the developer now says that the arena would open in 2011, though 2012 is a more likely best-case scenario. Few believe that the project could be completed in a decade.

Indeed, as DDDB earlier pointed out, when the project was announced, the arena completion was set for 2006. DDDB also noted that the city/state letter fails to cite the State Funding Agreement that allows 6-plus years to build the arena after the close of litigation and delivery of property by eminent domain, 12-plus years to build the rest of Phase 1, and no timeline to build Phase 2, which would contain most of the project.

2008 Treasury Regulations on PILOTs


Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Atlantic Yards/Pacific Park graphic: what's built/what might be coming (post-dated pinned post)

This graphic, posted in November 2017, is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. Note the unbuilt B1 and the proposed shift in bulk to the unbuilt Site 5.

The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change. The project is already well behind that tentative timetable.

The previous graphic, from August 2017 (without the ghost B1)

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …