Revealed: state is prepared to issue up to $400 million in tax-exempt bonds so FCR could save on Atlantic Yards infrastructure
According to a previously unrevealed action in September, developer Forest City Ratner could benefit from $400 million in state-authorized tax-exempt bonds for much more than the planned arena.
The recently-formed Brooklyn Arena Local Development Corporation (BALDC) is prepared to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure, thus allowing FCR to save tens of millions of dollars and filling a funding gap discernible in project documents.
This raises significant questions:
--When, if ever, would such bonds be issued?
--What revenues would back bond payments?
--Could the state be on the hook to pay off the bonds?
--Would the bonds be used to build the new railyard?
--Would the full $400 million be issued?
--Why wasn't this funding mentioned in the Modified General Project Plan issued in 2006 or its update in 2009?
--How could bonds be paid off in the "delayed buildout" scenario envisioned in the Technical Memorandum (p. 55) issued in June by the Empire State Development Corporation (ESDC)?
Partial answers
We know answers to some of the questions, but I'm waiting for the ESDC to provide additional answers (and will update this post when I get them).
After the BALDC was formed, I reported on 1/26/09 that its scope contemplated financing for infrastructure improvements beyond the arena. (No dollar figure was attached, however.) That function had not been mentioned in other ESDC documents and has not been mentioned since.
The infrastructure bonds, ESDC officials said at the time, would be paid back via a development fee to be paid by Forest City affiliate(s) leasing certain development parcels. If bondholders aren't paid, they could exercise leasehold rights, which would be subordinate to the ESDC's rights, so lien holders could develop the project only in accordance with the ESDC’s General Project Plan (which can be amended).
Though ESDC officials said in January that the state would not have obligations to bondholders, last week, BALDC and ESDC officials, when asked (at about 2:25 of the video below) if the state could bail out arena bondholders, refused to definitively rule it out, saying "That's speculation" and "That's not foreseeable."
No disclosure
The size of this important funding component--revealed in response to a Freedom of Information Law (FOIL) request--was not disclosed by the Empire State Development Corporation (ESDC) during the public comment period earlier this year regarding the revised Atlantic Yards plan nor before the ESDC approved the plan in September.
There was no opportunity for the public to comment at the November 24 BALDC meeting authorizing arena bonds.
(The BALDC authorized up to $825 million for the arena, including $150 million in taxable bonds, though in September it set a cap of $1.1 billion. Thus, while the infrastructure cap is $400 million, that total need not be issued.)
"[W]e are issuing governmental bonds and there is no federal or state requirement for a hearing," ESDC spokeswoman Elizabeth Mitchell stated before the meeting. "The distinction is based on the fact that governments are already subject to a public process, in our case ESDC's prior hearings, for governmental projects."
But the public process did not include any mention of tax-exempt financing for infrastructure. Thus, the public costs of such tax-exempt bonds were not available to those examining the project, such as the New York City Independent Budget Office.
Questions pending
I submitted several questions to the ESDC early last Wednesday afternoon before the Thanksgiving holiday and then sent more on Friday morning. Though Friday was a business day, many people were out of the office and I was told a response might not come until today.
Timing issues
The ESDC voted on September 17; the two BALDC documents--an Inducement Resolution and a document listing multiple resolutions adopted by written consent--were signed on September 11.
I received them in response to a Freedom of Information Law request dated October 31. The documents were mailed on November 23, which ensured that I would not see them before the 10 am public meeting of the BALDC on November 24.
State law requires agencies to grant or deny access to FOIL requests in five days or, if more time is needed, to respond within 20 additional business days. While the response to my request fell within the boundary, I suspect that the records sent to me could have been made available within just a few days.
Special-purpose subsidiary
The BALDC last week authorized the issuance of some $800 million in bonds (mostly tax-exempt, with $150 million taxable) for the Atlantic Yards arena.
After the meeting, BALDC President (and ESDC CFO) Frances Walton was asked (at about 3:26 in the video below), "Is there any provision to sell bonds in the future, either taxable rental bonds, kinda like, y'know, the Yankees did, in 2006, they did taxable rental bonds, and they did again, this year."
The recently-formed Brooklyn Arena Local Development Corporation (BALDC) is prepared to authorize up to $400 million in tax-exempt bonds for Atlantic Yards infrastructure, thus allowing FCR to save tens of millions of dollars and filling a funding gap discernible in project documents.
This raises significant questions:
--When, if ever, would such bonds be issued?
--What revenues would back bond payments?
--Could the state be on the hook to pay off the bonds?
--Would the bonds be used to build the new railyard?
--Would the full $400 million be issued?
--Why wasn't this funding mentioned in the Modified General Project Plan issued in 2006 or its update in 2009?
--How could bonds be paid off in the "delayed buildout" scenario envisioned in the Technical Memorandum (p. 55) issued in June by the Empire State Development Corporation (ESDC)?
Partial answers
We know answers to some of the questions, but I'm waiting for the ESDC to provide additional answers (and will update this post when I get them).
After the BALDC was formed, I reported on 1/26/09 that its scope contemplated financing for infrastructure improvements beyond the arena. (No dollar figure was attached, however.) That function had not been mentioned in other ESDC documents and has not been mentioned since.
The infrastructure bonds, ESDC officials said at the time, would be paid back via a development fee to be paid by Forest City affiliate(s) leasing certain development parcels. If bondholders aren't paid, they could exercise leasehold rights, which would be subordinate to the ESDC's rights, so lien holders could develop the project only in accordance with the ESDC’s General Project Plan (which can be amended).
Though ESDC officials said in January that the state would not have obligations to bondholders, last week, BALDC and ESDC officials, when asked (at about 2:25 of the video below) if the state could bail out arena bondholders, refused to definitively rule it out, saying "That's speculation" and "That's not foreseeable."
No disclosure
The size of this important funding component--revealed in response to a Freedom of Information Law (FOIL) request--was not disclosed by the Empire State Development Corporation (ESDC) during the public comment period earlier this year regarding the revised Atlantic Yards plan nor before the ESDC approved the plan in September.
There was no opportunity for the public to comment at the November 24 BALDC meeting authorizing arena bonds.
(The BALDC authorized up to $825 million for the arena, including $150 million in taxable bonds, though in September it set a cap of $1.1 billion. Thus, while the infrastructure cap is $400 million, that total need not be issued.)
"[W]e are issuing governmental bonds and there is no federal or state requirement for a hearing," ESDC spokeswoman Elizabeth Mitchell stated before the meeting. "The distinction is based on the fact that governments are already subject to a public process, in our case ESDC's prior hearings, for governmental projects."
But the public process did not include any mention of tax-exempt financing for infrastructure. Thus, the public costs of such tax-exempt bonds were not available to those examining the project, such as the New York City Independent Budget Office.
Questions pending
I submitted several questions to the ESDC early last Wednesday afternoon before the Thanksgiving holiday and then sent more on Friday morning. Though Friday was a business day, many people were out of the office and I was told a response might not come until today.
Timing issues
The ESDC voted on September 17; the two BALDC documents--an Inducement Resolution and a document listing multiple resolutions adopted by written consent--were signed on September 11.
I received them in response to a Freedom of Information Law request dated October 31. The documents were mailed on November 23, which ensured that I would not see them before the 10 am public meeting of the BALDC on November 24.
State law requires agencies to grant or deny access to FOIL requests in five days or, if more time is needed, to respond within 20 additional business days. While the response to my request fell within the boundary, I suspect that the records sent to me could have been made available within just a few days.
Special-purpose subsidiary
The BALDC last week authorized the issuance of some $800 million in bonds (mostly tax-exempt, with $150 million taxable) for the Atlantic Yards arena.
After the meeting, BALDC President (and ESDC CFO) Frances Walton was asked (at about 3:26 in the video below), "Is there any provision to sell bonds in the future, either taxable rental bonds, kinda like, y'know, the Yankees did, in 2006, they did taxable rental bonds, and they did again, this year."
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