Are PILOTs a subsidy? At Assembly hearing, Brodsky goes around and around with reps from city, Yankees
Yesterday’s hastily-called Assembly hearing on the New York Yankees’ request for some $370 million in additional tax-exempt bonds featured antagonists who disagree fundamentally and easily reach the edge (and beyond) of civility: Assemblyman Richard Brodsky vs. New York City Industrial Development Agency Chairman Seth Pinsky and New York Yankees President Randy Levine, both present only via subpoena.
Levine, who has less reason to maintain comity, declared the Assemblyman "worthy of the grandstanding hall of fame," while Pinsky questioned "deliberately inflammatory and misleading language" used by stadium critics. Brodsky, dialing back on the bombast, pressed steadily for answers.
I’ll defer to Neil deMause’s excellent Village Voice wrap-up, which details some stretchers from both sides but concludes that the IDA has leverage to force the Yankees to accept more-expensive taxable bonds (also see coverage in the Times) and focus below on the overall financing plan, similar to that planned for the Atlantic Yards arena, which involves a debatable use of city property taxes to pay for construction.
Good Jobs New York, which cited "a mirage of benefits" at the stadium, commented on the justification for the new bonds, "To get funding for the project, the Yankees needed to threaten to leave New York. Many sports experts question the validity of this threat and NYC officials admit that they didn’t independently verify the Yankees claim. Considering the new Stadium is on track to open this April, the chance the team would leave is highly unlikely, especially since the Yankees made a legally binding commitment in 2006 to remain in The Bronx."
(Emphasis in original)
Tax-assessments gamed?
Given the focus on matters before an IDA hearing this morning (and scheduled vote Friday), the hearing didn’t address whether the tax assessments for the land underneath the stadium were gamed, a big issue for Brodsky (and Rep. Dennis Kucinich).
Brodsky declared, “Other matters, including the concerns about the New York City Department of Finance’s artificial manipulation of property tax assessments for the Yankee Stadium deal, are the subject of continuing interest.”
PILOTs and subsidies, Yankees vs. Nets
Second, as deMause details, the big news was the city Independent Budget Office upped its estimate of project subsidies significantly, to $854.7 million. Note that the IBO did not say that the PILOTs (payments in lieu of taxes) deal with the Yankees represents a cost to the city for the $1 billion-plus in foregone property taxes. (deMause disagrees, calculating $416.6 million in foregone taxes.) IBO does calculates the public costs for the first round of Yankees tax-exempt financing to be $205.2 million and the new round $72 million, with some 97% of that cost falling on federal taxpayers--which is why Kucinich is interested.
Nor did IBO say the PILOTs plan for the Atlantic Yards arena represents a full subsidy, though many AY critics think so. Brodsky hasn't opined on the issue, but if he's consistent, it seems he'd have to maintain the same posture that he has in the case of the Yankees.
There are some significant differences, however. Notably, because the land underneath the arena would be tax-exempt, and part of it is the MTA’s Vanderbilt Yard, “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 said in 2005.
It didn’t exactly happen, given that the MTA accepted a cash bid less than half the appraised value.
Demi-hearing
The PILOTs issue was encapsulated in the moments beforehand, where Brodsky (left) took questions from a group of reporters--who, as deMause points out, were far more interested than when the Yankees deal began.
(Photos from Village Voice)
Q: Why are you counting in the subsidy the amount of money the Yankees are paying?
RB: The city, in sworn documents to the IRS, said the city is choosing to use its property taxes to build and construct and operate Yankee Stadium. Now that’s not me.
Q: Wouldn’t there be no property taxes to pay, if there wasn’t this project?
RB: The Yankees are not constitutionally, or by God-given right, exempt from paying taxes. Like every other taxpayer, they have to pay taxes.
Q: But just to play devil’s advocate, they were allowed to do this by the IDA and the IRS.
RB: They were allowed to do it by the IDA, and I disagree with that decision. But that’s a choice, not an inevitability. The Yankees are a hugely profitable business. Someone explain to me why every other business in the city pays taxes, and the Yankees say they don’t have to. That’s not fair.
It may not be fair, but it's not true that every other business in the city pays taxes. A lot of companies have deals of some sort.
I’m going to read the words the City of New York used in writing, in order to get these bonds approved: “The city has determined to use its property taxes to finance the construction and operation of the stadium.” Okay? That’s not Richard Brodsky. That’s New York City... swearing to the IRS.
Q: Given the fact that mayor appoints the majority of IDA members, what realistically do you hope to achieve here?
RB: To tell the truth, to let the truth out and see what power it has. Look, the mayor’s already backed off on the luxury suite. Things happen.
Back to the future
The testimony reprised but expanded on testimony regarding PILOTs at a hearing Kucinich held in October.
“Congressman, the private payments are the taxes they owe,” Brodsky said at the time. “It’s as though you built an extension on the house and you said to the taxing authority: send my payments to the bank to pay off the mortgage. The notion that this is being paid for by the Yankees is delusional.”
Levine responded, “Mr. Brodsky, he really knows better. We don’t pay taxes now. We’re a tenant. We don’t pay taxes at the old Yankee Stadium. As I said before, there would not have been a new stadium, unless this mechanism was put into place.”
The new facility will be owned by a city entity, and “the money we will pay this entity will go to service the bonds.” There’s no money coming out of the city treasury that could go to schools or hospitals, he said. (He left out the various infrastructure improvements and other costs.)
Yesterday, city officials handed out supportive editorials from the New York Post and the New York Observer questioning Brodsky's motives.
Levine’s testimony
Levine, at left with Pinsky, stated:
Let me be very clear. The New York Yankees, not the taxpayers, are paying for the construction and operations of the new stadium. All of the money to finance the construction of the new stadium is from the Yankees and private investors. Those who keep repeating that the city is paying are either deliberately misrepresenting the facts or simply do not understand the financial mechanism that is available to build large-scale projects.
The mechanism is this: an entity controlled by the city issues bonds to build the new stadium. Those bonds are purchased by private investors, not the taxpayers. The Yankees have a long-term lease with the city entity that owns the building. That city entity doesn’t pay any taxes, no real property taxes. The Yankees make a payment in lieu of real estate taxes called a PILOT and this amount, and only this, and nothing additional from the government or the taxpayers pays back the private bondholders. Since the city entity and not the Yankees owns the stadium, this use of PILOTs does not cost the city anything. Zilch. The city does not lose anything, because city entities do not pay property taxes. The city does not collect property taxes at the present Yankee Stadium....
And without this financing, as members of the committee know... the Yankees would not have built a new stadium and thus no new taxes would have ever been received, at all.
In addition, the city saves money, because in the old Yankee Stadium, the city was responsible for tens of millions of dollars in maintenance costs... In the new stadium, the Yankees have that obligation.
This structure is better for New York City than others commonly used for stadium deals. And I submit, if you go to colleagues in all the other 49 states that have built arenas or stadia or any sports facilities and you said, Can I have the deal the Yankees have with the IDA or the deal that they put forward? 49 would say they’d rather have the deal that the city negotiated with the Yankees. In those stadium cases, direct taxes otherwise collected by municipalities were used to pay back the debt on stadium bonds, sales taxes, property taxes, rental taxes, income taxes, car rental taxes. In the Yankees deal, the taxpayers lose nothing that they would otherwise get. No money is diverted from the city’s capital or operating budget that will affect city operation or the building of schools, highways, or any other capital projects.
Moreover, in a very difficult economic climate, the new stadium projects creates jobs and is a stimulus for the local economy. For example, we have already employed 6000+ union construction workers during a period of reduced economic activity.
A good portion of the hearing room at 250 Broadway was occupied by construction workers.
Brodsky vs. Pinsky
Brodsky was a mix of prosecutorial, professorial, and faux-quizzical. At one point, he described himself as “just a country lawyer from Greenburgh,” even though, as his antagonists pointed out, he represents a wealthy suburban constituency.
Pinsky was resolute, but periodically snippy. At one point, as if aping Brodsky's faux self-deprecating description, he protested, “Look, I’m new to this game, I’m a simple rabbi’s son from the Midwest.” (He surely remembered the hearing last July, when Brodsky, a fellow Harvard Law School graduate of an earlier vintage, denigrated his legal analysis.)
RB: Now, on the merits, Mr. Pinsky, you’re an attorney, right?
SP: I am, but I’m not here in my capacity as being an attorney.
RB: Are you familiar with the applications made by the IDA to the Internal Revenue Service?
SP: Yes, I am.
RB: Do you recall representations made by the IRS by the IDA as to whether or not the money that is going to repay bondholders is taxpayer money or not taxpayer money?
SP: The substance of your question is--
RB: No, no--
SP: --No, I’m going to answer my question the way I want to answer it. You asked the question; I heard what you asked.
RB: Then answer if you want but don’t characterize the substance--
SP: That’s fine, I’m telling you that I think--I don’t think you can tell me what to think--I think that the substance of your question is: is the PILOT structure that we described a net payment from the city to--
RB: --No, no.
SP: --I’m going to answer it this way anyway. Is it a payment from the city to the IRS... The facts are these, the way this structure works is that, in order to make the bonds that are financing the stadium tax-exempt, they have to be backed by payments of generally applicable taxes or payments in lieu of generally applicable taxes, which is the case here, PILOTs, so the simple answer to your question is yes. The payments are payments in lieu of taxes to the city. And those payments are in turn being used to pay the bondholders. But I think that it’s very important to look at effectively what is happening here.
RB: Can you explain 'effectively,' so I understand what you mean by 'effectively'?
SP: Why don’t you let me finish and you can tell me if you don’t understand. Effectively what is happening here is that the city currently into its general funds receives nothing from the New York Yankees and the stadium. We also receive nothing from the property where new stadium is being constructed. The reason we don’t at the current stadium is that it’s city owned. The reason we don’t at the new stadium is that it used to be parkland. After the project is completed, we will be paid PILOTs… by the Yankees. Those payments will not go to the city’s general fund, but instead will go to repay the bonds. So effectively, the city will be in exactly the same position with respect to real estate taxes, both before and after this transaction, that is, it has not received money in real estate taxes from the Yankees and will not receive money from real estate taxes from the Yankees.
What is different between the current situation and the situation at the new stadium is that, every year, the Yankees are now writing a giant check, which I think this year is going to total over 50 million dollars, and that check is the sole security for the payment of the bonds.
RB: Let me turn to the effective part of your analysis--
SP: Absolutely--
RB: --as opposed to the legal part. The Yankees don’t pay taxes now is what I heard you say, therefore, one, they should never pay taxes?
SP: No, that’s not the argument. The argument is that, if the Yankees don’t pay taxes now and don’t pay taxes in the future, but--excuse me, if the city does not receive net taxes from the Yankees now and the city does not receive net taxes in the future, then the city is in the same position, we are no worse off than we were. If the Yankees, though, are making a payment now and didn’t make a payment before and that payment is the sole security for the bonds that were issued, then effectively the Yankees are paying for a new stadium. The city is no worse off. And let me just note for the record that I’m sure your constituents in Greenburgh appreciate very much your zealous protection of the city’s real estate taxes.
RB: That was irony, right?
SP: You can define it however you wish. And also if I can note for the record--
RB: Mr. Pinsky, no, no, no--
SP: --that the City Council was aware of this structure and approved this structure.
RB: Now, I just want to, having understood the effective part, I want to understand the legal part. In the IDA’s sworn statements to the IRS, they say, quote, “The city has determined to use its property taxes, in this case PILOTs, to finance the construction and operation of the stadium.” Is that an accurate statement?
SP: Absolutely. It’s how we’ve described this from the beginning.
RB: So your effective analysis differs somewhat from your legal analysis.
SP: You can characterize it however you want, I think I’ve characterized it multiple times--
RB: You believe your legal analysis differs from your effective analysis?
SP: I stand with my characterization, thank you.
RB: I understand your characterization and I accept it as that. Now, here’s a separate question: Does your legal analysis differ from your effective analysis?
SP: I’m not making a legal analysis. You can read the IRS letter as well as I can; we’ve discussed this on multiple occasions in the past.
RB: Thank you. Then I have concluded that statements the city made sworn to the IRS differ dramatically from what has been said publicly and that, as the city says, these are tax dollars that are paying for the construction and operations.
SP: Then I disagree with you.
Levine, earthy and not without bluster--"I have a lot to say," he warned at the outset--tried to intervene.
RL: If I can--
RB: Mr. Levine, not yet. You’ll get all the opportunity you want.
RL: But it’s very relevant.
RB: Mr. Levine, not yet, thank you.
RL: I forgot, you’re in total control. I apologize, Mr. Chairman.
RB: If I was in total control, Mr. Levine, this hearing would’ve started at 10:45.
There were some groans from the audience. The hearing actually started at 10 a.m. What Brodsky meant is that Levine and Pinsky were due at 10:45 a.m., but were a few minutes late.
Brodsky vs. Levine
Brodsky brought up the issue later in the hearing.
RB: Mr. Levine, Let me just explain the concern about jobs… 22 permanent jobs [actually: 57] is an extraordinarily low number of permanent jobs with respect to a subsidy of the kind we’re talking about. The 1000 or 1300... part-time jobs is relevant. You’ve not heard a peep from me about the virtue and value of those jobs being small. But when you measure it against the subsidy, it becomes an extraordinarily out of balance number. That’s the fundamental concern of the committee.
RL: Mr. Chairman, I don’t believe we’re getting any subsidy.
RB: I don’t interrupt you... Look, I’m going to return to this question, because I had a colloquy with Mr. Pinsky about it, but, understand, that if we’re right, and you happen to be wrong, and it’s happened.... If you’re wrong, then the amount of taxpayer dollars that are going to Yankee Stadium are as much as 5 or 50 or 500 million dollars a job. If you don’t agree, we’ll get to that in a minute. Please understand that if our reading of legal documents is correct, the subsidy is extraordinary at a time of crisis. Now I have two other brief areas--
($500M a job? His math was a little off.)
RL: May I respond?
RB: Please.
RL: That hypothetical is like me saying if I could fly the next space shuttle mission, I would go to the moon. I’ve already testified, very clearly, and have been saying it, that we don’t believe there’s a subsidy, but, more importantly, in reality, it’s clear to the record, if this financing mechanism wasn’t in place, there would not be a new stadium. There would not be any taxes paid to anybody. And today nobody pays taxes… so we’re dealing with a whole phantom situation. Now, I don’t believe we’re getting any subsidy, I think we’re paying for the construction and maintenance of this entire stadium, and I would also--
RB: --Let me interrupt, because I’m going to read you the document and want your comment on it. Fair enough. This is the sworn basis for the IRS granting permission to issue the bonds. This is a quote: “The city has determined to use its property taxes, in this cases, PILOTs, to finance the construction and operation of the stadium.” That is dramatically different than what you just said.
RL: It’s totally consistent. What I said and have said is that the Yankees are making a PILOT payment, and the city... is using those payments to pay for the construction of the stadium. Those payments originated with New York Yankees and would have not existed.... There would’ve been no new stadium whatsover if this financing arrangement wasn’t in place.
RB: Do Yankees have obligation to pay taxes like everybody else?
RL: We pay a lot of taxes. We pay taxes up and down, all kinds of taxes. But tenants, Mr. Chairman, don’t pay property taxes.
RB: But under an IDA deal, they pay PILOTs, which are legally taxes, aren’t they, Mr. Levine?
RL: Let me say it again, I’m not a bond expert, I’m not a tax expert. So I defer to Mr. Pinksy and to all of the people who are my tax and bond attorneys. The Yankees are making a PILOT payment which goes to the city, which is then used to pay for the construction of the stadium. If this financing mechanism was not in place, there would be no stadium that’s built. There would be no money that’s going to anybody. The city doesn’t receive anything now. The city is the owner of the property, so they wouldn’t be paying property taxes at all.
RB: I respectfully want you to understand that that explanation is inconsistent with the legal basis under which you got the bonds.
RL: And I totally disagree with you.
Then again, he's not a tax expert. Maybe the next hearing will feature a tax expert or two.
Levine, who has less reason to maintain comity, declared the Assemblyman "worthy of the grandstanding hall of fame," while Pinsky questioned "deliberately inflammatory and misleading language" used by stadium critics. Brodsky, dialing back on the bombast, pressed steadily for answers.
I’ll defer to Neil deMause’s excellent Village Voice wrap-up, which details some stretchers from both sides but concludes that the IDA has leverage to force the Yankees to accept more-expensive taxable bonds (also see coverage in the Times) and focus below on the overall financing plan, similar to that planned for the Atlantic Yards arena, which involves a debatable use of city property taxes to pay for construction.
Good Jobs New York, which cited "a mirage of benefits" at the stadium, commented on the justification for the new bonds, "To get funding for the project, the Yankees needed to threaten to leave New York. Many sports experts question the validity of this threat and NYC officials admit that they didn’t independently verify the Yankees claim. Considering the new Stadium is on track to open this April, the chance the team would leave is highly unlikely, especially since the Yankees made a legally binding commitment in 2006 to remain in The Bronx."
(Emphasis in original)
Tax-assessments gamed?
Given the focus on matters before an IDA hearing this morning (and scheduled vote Friday), the hearing didn’t address whether the tax assessments for the land underneath the stadium were gamed, a big issue for Brodsky (and Rep. Dennis Kucinich).
Brodsky declared, “Other matters, including the concerns about the New York City Department of Finance’s artificial manipulation of property tax assessments for the Yankee Stadium deal, are the subject of continuing interest.”
PILOTs and subsidies, Yankees vs. Nets
Second, as deMause details, the big news was the city Independent Budget Office upped its estimate of project subsidies significantly, to $854.7 million. Note that the IBO did not say that the PILOTs (payments in lieu of taxes) deal with the Yankees represents a cost to the city for the $1 billion-plus in foregone property taxes. (deMause disagrees, calculating $416.6 million in foregone taxes.) IBO does calculates the public costs for the first round of Yankees tax-exempt financing to be $205.2 million and the new round $72 million, with some 97% of that cost falling on federal taxpayers--which is why Kucinich is interested.
Nor did IBO say the PILOTs plan for the Atlantic Yards arena represents a full subsidy, though many AY critics think so. Brodsky hasn't opined on the issue, but if he's consistent, it seems he'd have to maintain the same posture that he has in the case of the Yankees.
There are some significant differences, however. Notably, because the land underneath the arena would be tax-exempt, and part of it is the MTA’s Vanderbilt Yard, “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 said in 2005.
It didn’t exactly happen, given that the MTA accepted a cash bid less than half the appraised value.
Demi-hearing
The PILOTs issue was encapsulated in the moments beforehand, where Brodsky (left) took questions from a group of reporters--who, as deMause points out, were far more interested than when the Yankees deal began.(Photos from Village Voice)
Q: Why are you counting in the subsidy the amount of money the Yankees are paying?
RB: The city, in sworn documents to the IRS, said the city is choosing to use its property taxes to build and construct and operate Yankee Stadium. Now that’s not me.
Q: Wouldn’t there be no property taxes to pay, if there wasn’t this project?
RB: The Yankees are not constitutionally, or by God-given right, exempt from paying taxes. Like every other taxpayer, they have to pay taxes.
Q: But just to play devil’s advocate, they were allowed to do this by the IDA and the IRS.
RB: They were allowed to do it by the IDA, and I disagree with that decision. But that’s a choice, not an inevitability. The Yankees are a hugely profitable business. Someone explain to me why every other business in the city pays taxes, and the Yankees say they don’t have to. That’s not fair.
It may not be fair, but it's not true that every other business in the city pays taxes. A lot of companies have deals of some sort.
I’m going to read the words the City of New York used in writing, in order to get these bonds approved: “The city has determined to use its property taxes to finance the construction and operation of the stadium.” Okay? That’s not Richard Brodsky. That’s New York City... swearing to the IRS.
Q: Given the fact that mayor appoints the majority of IDA members, what realistically do you hope to achieve here?
RB: To tell the truth, to let the truth out and see what power it has. Look, the mayor’s already backed off on the luxury suite. Things happen.
Back to the future
The testimony reprised but expanded on testimony regarding PILOTs at a hearing Kucinich held in October.
“Congressman, the private payments are the taxes they owe,” Brodsky said at the time. “It’s as though you built an extension on the house and you said to the taxing authority: send my payments to the bank to pay off the mortgage. The notion that this is being paid for by the Yankees is delusional.”
Levine responded, “Mr. Brodsky, he really knows better. We don’t pay taxes now. We’re a tenant. We don’t pay taxes at the old Yankee Stadium. As I said before, there would not have been a new stadium, unless this mechanism was put into place.”
The new facility will be owned by a city entity, and “the money we will pay this entity will go to service the bonds.” There’s no money coming out of the city treasury that could go to schools or hospitals, he said. (He left out the various infrastructure improvements and other costs.)
Yesterday, city officials handed out supportive editorials from the New York Post and the New York Observer questioning Brodsky's motives.
Levine’s testimony
Levine, at left with Pinsky, stated:Let me be very clear. The New York Yankees, not the taxpayers, are paying for the construction and operations of the new stadium. All of the money to finance the construction of the new stadium is from the Yankees and private investors. Those who keep repeating that the city is paying are either deliberately misrepresenting the facts or simply do not understand the financial mechanism that is available to build large-scale projects.
The mechanism is this: an entity controlled by the city issues bonds to build the new stadium. Those bonds are purchased by private investors, not the taxpayers. The Yankees have a long-term lease with the city entity that owns the building. That city entity doesn’t pay any taxes, no real property taxes. The Yankees make a payment in lieu of real estate taxes called a PILOT and this amount, and only this, and nothing additional from the government or the taxpayers pays back the private bondholders. Since the city entity and not the Yankees owns the stadium, this use of PILOTs does not cost the city anything. Zilch. The city does not lose anything, because city entities do not pay property taxes. The city does not collect property taxes at the present Yankee Stadium....
And without this financing, as members of the committee know... the Yankees would not have built a new stadium and thus no new taxes would have ever been received, at all.
In addition, the city saves money, because in the old Yankee Stadium, the city was responsible for tens of millions of dollars in maintenance costs... In the new stadium, the Yankees have that obligation.
This structure is better for New York City than others commonly used for stadium deals. And I submit, if you go to colleagues in all the other 49 states that have built arenas or stadia or any sports facilities and you said, Can I have the deal the Yankees have with the IDA or the deal that they put forward? 49 would say they’d rather have the deal that the city negotiated with the Yankees. In those stadium cases, direct taxes otherwise collected by municipalities were used to pay back the debt on stadium bonds, sales taxes, property taxes, rental taxes, income taxes, car rental taxes. In the Yankees deal, the taxpayers lose nothing that they would otherwise get. No money is diverted from the city’s capital or operating budget that will affect city operation or the building of schools, highways, or any other capital projects.
Moreover, in a very difficult economic climate, the new stadium projects creates jobs and is a stimulus for the local economy. For example, we have already employed 6000+ union construction workers during a period of reduced economic activity.
A good portion of the hearing room at 250 Broadway was occupied by construction workers.
Brodsky vs. Pinsky
Brodsky was a mix of prosecutorial, professorial, and faux-quizzical. At one point, he described himself as “just a country lawyer from Greenburgh,” even though, as his antagonists pointed out, he represents a wealthy suburban constituency.
Pinsky was resolute, but periodically snippy. At one point, as if aping Brodsky's faux self-deprecating description, he protested, “Look, I’m new to this game, I’m a simple rabbi’s son from the Midwest.” (He surely remembered the hearing last July, when Brodsky, a fellow Harvard Law School graduate of an earlier vintage, denigrated his legal analysis.)
RB: Now, on the merits, Mr. Pinsky, you’re an attorney, right?
SP: I am, but I’m not here in my capacity as being an attorney.
RB: Are you familiar with the applications made by the IDA to the Internal Revenue Service?
SP: Yes, I am.
RB: Do you recall representations made by the IRS by the IDA as to whether or not the money that is going to repay bondholders is taxpayer money or not taxpayer money?
SP: The substance of your question is--
RB: No, no--
SP: --No, I’m going to answer my question the way I want to answer it. You asked the question; I heard what you asked.
RB: Then answer if you want but don’t characterize the substance--
SP: That’s fine, I’m telling you that I think--I don’t think you can tell me what to think--I think that the substance of your question is: is the PILOT structure that we described a net payment from the city to--
RB: --No, no.
SP: --I’m going to answer it this way anyway. Is it a payment from the city to the IRS... The facts are these, the way this structure works is that, in order to make the bonds that are financing the stadium tax-exempt, they have to be backed by payments of generally applicable taxes or payments in lieu of generally applicable taxes, which is the case here, PILOTs, so the simple answer to your question is yes. The payments are payments in lieu of taxes to the city. And those payments are in turn being used to pay the bondholders. But I think that it’s very important to look at effectively what is happening here.
RB: Can you explain 'effectively,' so I understand what you mean by 'effectively'?
SP: Why don’t you let me finish and you can tell me if you don’t understand. Effectively what is happening here is that the city currently into its general funds receives nothing from the New York Yankees and the stadium. We also receive nothing from the property where new stadium is being constructed. The reason we don’t at the current stadium is that it’s city owned. The reason we don’t at the new stadium is that it used to be parkland. After the project is completed, we will be paid PILOTs… by the Yankees. Those payments will not go to the city’s general fund, but instead will go to repay the bonds. So effectively, the city will be in exactly the same position with respect to real estate taxes, both before and after this transaction, that is, it has not received money in real estate taxes from the Yankees and will not receive money from real estate taxes from the Yankees.
What is different between the current situation and the situation at the new stadium is that, every year, the Yankees are now writing a giant check, which I think this year is going to total over 50 million dollars, and that check is the sole security for the payment of the bonds.
RB: Let me turn to the effective part of your analysis--
SP: Absolutely--
RB: --as opposed to the legal part. The Yankees don’t pay taxes now is what I heard you say, therefore, one, they should never pay taxes?
SP: No, that’s not the argument. The argument is that, if the Yankees don’t pay taxes now and don’t pay taxes in the future, but--excuse me, if the city does not receive net taxes from the Yankees now and the city does not receive net taxes in the future, then the city is in the same position, we are no worse off than we were. If the Yankees, though, are making a payment now and didn’t make a payment before and that payment is the sole security for the bonds that were issued, then effectively the Yankees are paying for a new stadium. The city is no worse off. And let me just note for the record that I’m sure your constituents in Greenburgh appreciate very much your zealous protection of the city’s real estate taxes.
RB: That was irony, right?
SP: You can define it however you wish. And also if I can note for the record--
RB: Mr. Pinsky, no, no, no--
SP: --that the City Council was aware of this structure and approved this structure.
RB: Now, I just want to, having understood the effective part, I want to understand the legal part. In the IDA’s sworn statements to the IRS, they say, quote, “The city has determined to use its property taxes, in this case PILOTs, to finance the construction and operation of the stadium.” Is that an accurate statement?
SP: Absolutely. It’s how we’ve described this from the beginning.
RB: So your effective analysis differs somewhat from your legal analysis.
SP: You can characterize it however you want, I think I’ve characterized it multiple times--
RB: You believe your legal analysis differs from your effective analysis?
SP: I stand with my characterization, thank you.
RB: I understand your characterization and I accept it as that. Now, here’s a separate question: Does your legal analysis differ from your effective analysis?
SP: I’m not making a legal analysis. You can read the IRS letter as well as I can; we’ve discussed this on multiple occasions in the past.
RB: Thank you. Then I have concluded that statements the city made sworn to the IRS differ dramatically from what has been said publicly and that, as the city says, these are tax dollars that are paying for the construction and operations.
SP: Then I disagree with you.
Levine, earthy and not without bluster--"I have a lot to say," he warned at the outset--tried to intervene.
RL: If I can--
RB: Mr. Levine, not yet. You’ll get all the opportunity you want.
RL: But it’s very relevant.
RB: Mr. Levine, not yet, thank you.
RL: I forgot, you’re in total control. I apologize, Mr. Chairman.
RB: If I was in total control, Mr. Levine, this hearing would’ve started at 10:45.
There were some groans from the audience. The hearing actually started at 10 a.m. What Brodsky meant is that Levine and Pinsky were due at 10:45 a.m., but were a few minutes late.
Brodsky vs. Levine
Brodsky brought up the issue later in the hearing.
RB: Mr. Levine, Let me just explain the concern about jobs… 22 permanent jobs [actually: 57] is an extraordinarily low number of permanent jobs with respect to a subsidy of the kind we’re talking about. The 1000 or 1300... part-time jobs is relevant. You’ve not heard a peep from me about the virtue and value of those jobs being small. But when you measure it against the subsidy, it becomes an extraordinarily out of balance number. That’s the fundamental concern of the committee.
RL: Mr. Chairman, I don’t believe we’re getting any subsidy.
RB: I don’t interrupt you... Look, I’m going to return to this question, because I had a colloquy with Mr. Pinsky about it, but, understand, that if we’re right, and you happen to be wrong, and it’s happened.... If you’re wrong, then the amount of taxpayer dollars that are going to Yankee Stadium are as much as 5 or 50 or 500 million dollars a job. If you don’t agree, we’ll get to that in a minute. Please understand that if our reading of legal documents is correct, the subsidy is extraordinary at a time of crisis. Now I have two other brief areas--
($500M a job? His math was a little off.)
RL: May I respond?
RB: Please.
RL: That hypothetical is like me saying if I could fly the next space shuttle mission, I would go to the moon. I’ve already testified, very clearly, and have been saying it, that we don’t believe there’s a subsidy, but, more importantly, in reality, it’s clear to the record, if this financing mechanism wasn’t in place, there would not be a new stadium. There would not be any taxes paid to anybody. And today nobody pays taxes… so we’re dealing with a whole phantom situation. Now, I don’t believe we’re getting any subsidy, I think we’re paying for the construction and maintenance of this entire stadium, and I would also--
RB: --Let me interrupt, because I’m going to read you the document and want your comment on it. Fair enough. This is the sworn basis for the IRS granting permission to issue the bonds. This is a quote: “The city has determined to use its property taxes, in this cases, PILOTs, to finance the construction and operation of the stadium.” That is dramatically different than what you just said.
RL: It’s totally consistent. What I said and have said is that the Yankees are making a PILOT payment, and the city... is using those payments to pay for the construction of the stadium. Those payments originated with New York Yankees and would have not existed.... There would’ve been no new stadium whatsover if this financing arrangement wasn’t in place.
RB: Do Yankees have obligation to pay taxes like everybody else?
RL: We pay a lot of taxes. We pay taxes up and down, all kinds of taxes. But tenants, Mr. Chairman, don’t pay property taxes.
RB: But under an IDA deal, they pay PILOTs, which are legally taxes, aren’t they, Mr. Levine?
RL: Let me say it again, I’m not a bond expert, I’m not a tax expert. So I defer to Mr. Pinksy and to all of the people who are my tax and bond attorneys. The Yankees are making a PILOT payment which goes to the city, which is then used to pay for the construction of the stadium. If this financing mechanism was not in place, there would be no stadium that’s built. There would be no money that’s going to anybody. The city doesn’t receive anything now. The city is the owner of the property, so they wouldn’t be paying property taxes at all.
RB: I respectfully want you to understand that that explanation is inconsistent with the legal basis under which you got the bonds.
RL: And I totally disagree with you.
Then again, he's not a tax expert. Maybe the next hearing will feature a tax expert or two.
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