Skip to main content

Net gain to Ratner, loss to public: IBO says developer saves $726M on arena; city loses $40M plus another $180M in opportunity costs

In the absence of any effort to update the flawed fiscal impact reports from the city and state on Atlantic Yards, the Independent Budget Office (IBO), at the request of several elected officials, has updated its September 2005 Fiscal Brief on Atlantic Yards, with far more pessimistic results.

Unlike the previous report, which found a modest net gain for the city over 30 years, the new report, titled The Proposed Arena at Atlantic Yards: An Analysis of City Fiscal Gains and Losses, estimates that net revenues would be negative for the city and modestly positive for the state and the Metropolitan Transportation Authority (MTA)--at least until significant lost opportunity costs were added.

Moreover, the losses for the city would be far greater--another $180.5 million--were opportunity costs to be calculated. Such opportunity costs--foregone gains thanks to tax exemptions and other below-market benefits--were not fully calculated in the 2005 report.

Indeed, the combination of subsidies and tax breaks, including $194 million in federal tax breaks on tax-exempt bonds, adds up to what the IBO calculates as $726 million in savings on the arena for developer Forest City Ratner. And that's without assuming--as does Assemblyman Richard Brodsky, in the case of the new Yankee Stadium--that the use of PILOTs (payments in lieu of taxes) to pay for a sports facility constitutes a full subsidy in itself.

[Clarification 2/20/12: The $726 million is likely overstated by some $50 million, given that it's based on $678 million in tax-exempt bonds, rather than the $511 million ultimately sold. But the overall subsidies for the project, including not-yet-allotted housing bonds, surely would lift the total well over $726 million.]
Arena focus

The IBO report, which follows up testimony by IBO Deputy Director George Sweeting at the 5/28/09 state Senate oversight hearing, focuses only on the arena, not the project as a whole. The previous report, which similarly was limited to the arena, did attempt to estimate additional costs for education, sanitation, police, and fire services.

Still, the IBO backs up new concerns--in a report from the Council of Brooklyn Neighborhoods submitted to the Empire State Development Corporation--that the project benefits, promised in a decade, are unlikely in that time frame, citing "much greater uncertainty about the timetable for the rest of the project," with weakened credit markets and lower demand for office space and luxury housing.

The highlights

From the report:
• Over a 30-year period, the arena would cost the city nearly $40 million more in spending under current budget plans than it will generate in tax revenues (present value, 2009 dollars). The costs total nearly $170 million from financing city expenditures on the arena and the loss of existing tax revenues at the site.
• For the state, the arena would have a net fiscal benefit of $25 million as new tax revenues would exceed spending currently budgeted for the facility. The Metropolitan Transportation Authority would garner nearly $6 million in new tax revenues.
• The new direct and indirect economic activity generated while the arena is under construction in 2010–2011 includes an annual average of 3,282 new jobs in the city, most in the building trades. When the facility is open there will be an average of 955 new jobs, many of them part time, and mostly in performing arts and spectator sports.
• For the developer, Forest City Ratner Companies, the mix of special government benefits result in total savings of $726 million.

The project also includes tax exemptions and other provisions that reduce the level of potential additional revenues the arena might generate for the city, state, and Metropolitan Transportation Authority. These opportunity costs total $181 million for the city and $16 million for the state, plus another $22 million for the transportation authority due to its below market rate sale of land. Were governments not denied these revenues, the city would realize a substantial net fiscal gain from the arena instead of a net loss.
As-of-right benefits

Beyond the uncertainty about the timetable for the rest of the project, the IBO says that "the arena accounts for virtually all of the discretionary benefits flowing to the project" while the rest of the benefits are either as-of-right or special arrangements that would result in benefits that are consistent with those as-of-right programs.

Still, the diversion of scarce housing bonds to Atlantic Yards as opposed to other projects could be seen as a partial subsidy, if the per-unit costs for this project are considerably more.

Calculating benefits

What are the benefits? The IBO cites "direct contributions of cash, capital investment and property; access to tax-exempt financing; exemptions from property, sales, and mortgage taxes; and a below market sale of MTA property."

While the city initially gave $100 million to the project, then another $105 million, IBO says that a portion of the latter "would likely have occurred in the absence of the project," so it only counts $50 million.

Also, the tax-exempt bonds for the arena would save the developer $194 million, with nearly all the cost born by federal taxpayers. That makes the financing arrangement a tempting tactic for city and state officials, but a more questionable one from a federal perspective, especially given an underutilized arena across state lines in Newark.

Upping lost property taxes

The IBO states:
The PILOT financing structure depends on the arena tax blocks being exempt from city property tax, but granting this exemption represents an estimated $146 million (present value) opportunity cost. That amount reflects IBO’s estimate of the property tax that would have been owed over 30 years if the arena were assessed as if it were privately owned.5 Forest City Ratner’s savings are just equal to the city’s revenue loss.

This estimate of the cost to the city of the arena’s property tax exemption is considerably larger than we estimated in 2005. The MTA portion of the land is currently tax-exempt because the land is publicly owned. IBO’s latest estimates assume that if FCRC or any alternative developer operating solely with as-of-right benefits purchased the rail yard from the MTA, the exemption would expire. In our 2005 report we had assumed that the exemption would continue through a leasing arrangement—even if the arena site were transferred to another developer—because that would maximize the proceeds for the MTA. It is clear that the MTA’s ability to maximize its return from property sales has been constrained. Moreover, the latest modified project plan stipulates that FCRC must pay the equivalent of full property tax to the city for all but the arena portion of the project.


New revenues

In calculating arena revenues, IBO states:
IBO assumes half of the money spent by Nets fans, concert-goers, and other spectators at the new arena and surrounding area would amount to an infusion of new spending into the New York City economy (the other half being spending shifted within the city by residents). This estimate assumes that a portion of existing Nets fans would travel to Brooklyn for games, and that a team in Brooklyn would be able to attract fans from Long Island as well as from the city. Most of the new spending occurring in the city, however, is spending that would otherwise have taken place elsewhere in the metropolitan region.
(Emphasis added)

Previously, IBO estimated that nearly 60 percent of the revenue would be new to the city's economy; now, apparently, there's a recognition of greater attrition among New Jersey fans. I've previously pointed out that a smaller number of New Jersey fans crossing state lines would result in lowered revenue. The IBO does not explain its calculations, however.

Nor does the IBO acknowledge the impact of the new arena in Newark, which opened in 2007, on the market for and revenues from non-basketball events in Brooklyn.

Elected officials

The elected officials who requested the report are Assembly Members James Brennan, Hakeem Jeffries, and Joan Millman; state Senators Bill Perkins and Velmanette Montgomery; and Council Members Letitia James and David Yassky.

Comments

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 …

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 Matzav.com 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…

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

Click on graphic to enlarge. This is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change, and the project is already well behind that tentative timetable.


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 …

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…