Council Members call to kill MSG's tax exemption, end tax breaks for sports venues like Barclays Center, and have PILOTs increased (?) to help city
No more tax-free ride for the Yankees, Knicks or Rangers, council members demand, Crain's New York Business wrote yesterday, citing a letter from nine members of the City Council to Mayor Bill de Blasio and Gov. Andrew Cuomo that also calls for the Barclays Center to pay taxes.
“For far too long, this city has given a free pass to our beloved teams when it comes to property taxes, out of fear they’ll somehow pack up their bricks and beams and head across the Hudson River,” stated the letter, led by Council Member Costa Costantinides (a former Queens Borough President candidate) and signed by Brooklyn Council Member Brad Lander but no others representing districts near the Barclays Center.
The arguments deserve teasing out, and mostly--though not completely--make sense to me. Then again, it's not necessarily the best time to make this case, since those venues aren't earning any money during the pandemic.
MSG's property tax exemption
The clearest case is Madison Square Garden, which has a tax exemption since 1982, estimated by the Council Members as worth $1 billion by 2030, and enacted when there was a fear that the home of the New York Knicks and New York Rangers--the city's premier venue now--would leave town.
As the New York City Independent Budget Office recently stated in in its Budget Options publication, excerpted at right, that was worth $42 million in 2019.
Summarizing the arguments, the IBO noted that "proponents could argue that the historical motivation for the exemption likely no longer applies," given the rise and team and venue values and the location in the heart of the nation's media market
"Opponents might argue that the presence of the teams continues to benefit the city economically and that foregoing $42 million is reasonable compared with the risk that the teams might leave the city," the IBO said, summarizing a very weak argument and adding that tax exemptions for other teams justify those for the Garden.
Well, the point of the new letter is to continue to level the playing field.
About PILOTs
The letter says the new venues for the Mets, Yankees and Nets "were financed with tax-exempt bonds from the Industrial Development Agency," and the teams must "give the City payments in lieu of taxes only for their amount of debt service."
That's not correct, at least for the Barclays Center. The tax-exempt bonds issued by the Brooklyn Arena Local Development Corporation, and offshoot of the Job Development Authority, an alter ego of Empire State Development, go to a bond trustee and then to pay off investors.
"That betrays the intention of PILOTs, however flawed they may be—which is to pay an amount commensurate with the assessed property value to invest in the surrounding area,” the letter says.
I'm not sure of that reading, because "invest in the surrounding area," in this case, was interpreted as invest in the building.
That said, there were multiple opportunities for the state to get more from the Barclays Center tenants, as I wrote.
The original Memorandum of Understanding said that arrival of a second pro sports team would mean "additional rent" to New York State. That was not discussed when the New York Islanders were announced or, more recently, when the New York Liberty was announced.
Meanwhile, the refinancing of the bonds in 2016 saved the arena operator $90 million.
What next?
Besides asking to repeal MSG's tax break, the Council Members asked for new policy to end tax breaks and require proper compensation to the city for any public land they occupy. (With Barclays, a large segment was state land, owned by the Metropolitan Transportation Authority and transferred in what many believed to be a sweetheart deal, plus some city property.)
Both those could be voted.
“For far too long, this city has given a free pass to our beloved teams when it comes to property taxes, out of fear they’ll somehow pack up their bricks and beams and head across the Hudson River,” stated the letter, led by Council Member Costa Costantinides (a former Queens Borough President candidate) and signed by Brooklyn Council Member Brad Lander but no others representing districts near the Barclays Center.
The arguments deserve teasing out, and mostly--though not completely--make sense to me. Then again, it's not necessarily the best time to make this case, since those venues aren't earning any money during the pandemic.
MSG's property tax exemption
The clearest case is Madison Square Garden, which has a tax exemption since 1982, estimated by the Council Members as worth $1 billion by 2030, and enacted when there was a fear that the home of the New York Knicks and New York Rangers--the city's premier venue now--would leave town.As the New York City Independent Budget Office recently stated in in its Budget Options publication, excerpted at right, that was worth $42 million in 2019.
Summarizing the arguments, the IBO noted that "proponents could argue that the historical motivation for the exemption likely no longer applies," given the rise and team and venue values and the location in the heart of the nation's media market
"Opponents might argue that the presence of the teams continues to benefit the city economically and that foregoing $42 million is reasonable compared with the risk that the teams might leave the city," the IBO said, summarizing a very weak argument and adding that tax exemptions for other teams justify those for the Garden.
Well, the point of the new letter is to continue to level the playing field.
About PILOTs
The letter says the new venues for the Mets, Yankees and Nets "were financed with tax-exempt bonds from the Industrial Development Agency," and the teams must "give the City payments in lieu of taxes only for their amount of debt service."
That's not correct, at least for the Barclays Center. The tax-exempt bonds issued by the Brooklyn Arena Local Development Corporation, and offshoot of the Job Development Authority, an alter ego of Empire State Development, go to a bond trustee and then to pay off investors.
"That betrays the intention of PILOTs, however flawed they may be—which is to pay an amount commensurate with the assessed property value to invest in the surrounding area,” the letter says.
I'm not sure of that reading, because "invest in the surrounding area," in this case, was interpreted as invest in the building.
That said, there were multiple opportunities for the state to get more from the Barclays Center tenants, as I wrote.The original Memorandum of Understanding said that arrival of a second pro sports team would mean "additional rent" to New York State. That was not discussed when the New York Islanders were announced or, more recently, when the New York Liberty was announced.
Meanwhile, the refinancing of the bonds in 2016 saved the arena operator $90 million.
What next?
Besides asking to repeal MSG's tax break, the Council Members asked for new policy to end tax breaks and require proper compensation to the city for any public land they occupy. (With Barclays, a large segment was state land, owned by the Metropolitan Transportation Authority and transferred in what many believed to be a sweetheart deal, plus some city property.)
Both those could be voted.
They also asked for the PILOT payments "on Yankee Stadium, Citi Field and Barclays Center" to be increased. I'm not sure how simple it would be to reopen those arrangements.
But PILOTs are supposed to be related to tax assessments, so the issue may not be the amount of PILOTs but the component of those PILOTs that goes to the public interest.
But PILOTs are supposed to be related to tax assessments, so the issue may not be the amount of PILOTs but the component of those PILOTs that goes to the public interest.
In the case of Barclays, the PILOTs stayed constant after a refinancing that lowered interest rates, but the gap between PILOTs and bond payments went back into operations and maintenance (O&M).
For now, the teams/venues might be seen as risky investments. But if events resume, and current low interest rates persist, it's not out of the question that the debts would be refinanced at lower interest rates than current, requiring public approvals. (For the Barclays Center, that would be a second refinancing.)
So if previously set PILOTs remain constant, that would mean a lowered annual payment to bondholders, with some component of the remainder available to serve the public interest.
No comment
As Crain's reported, "Representatives for Barclays declined to comment, and representatives for the Garden, the Yankees, the Mets, Cuomo and de Blasio did not respond to requests for comment."
That's not surprising.
Losses and the big picture
Operators of Barclays, at least, might argue that the arena, even before the pandemic, was losing money.
Still, Joe Tsai, owner of the Brooklyn Nets and the Barclays Center operation company, is worth more than $14 billion and the arena--and its presence in the country's media capital--drove the high price he was willing to pay for the Nets.
Trojan horse
Note a line from the letter: "The Barclays Center was supposed to be a boon for Downtown Brooklyn, but it [was] merely a high-priced trojan horse for gentrification around the Atlantic Yards that many consider a disaster."
A disaster for those displaced, a boon for some property and business owners, very much a mixed bag for the public interest and very much less than was promised.
What does "around the Atlantic Yards" mean? It's the name of a project, not a place.
Trojan horse
Note a line from the letter: "The Barclays Center was supposed to be a boon for Downtown Brooklyn, but it [was] merely a high-priced trojan horse for gentrification around the Atlantic Yards that many consider a disaster."
A disaster for those displaced, a boon for some property and business owners, very much a mixed bag for the public interest and very much less than was promised.
What does "around the Atlantic Yards" mean? It's the name of a project, not a place.
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