Atlantic Yards/Pacific Park delivered $4.5 million in payments in lieu of sales tax--to Empire State Development. (Could it have supported more oversight?)

I found an interesting nugget in the Board Materials (bottom) from the 6/29/17 meeting of Empire State Development (ESD; previously ESDC), the state authority overseeing and shepherding Atlantic Yards/Pacific Park:

The Corporation's cash, cash equivalents and temporary investments totaled approximately $290.6 million and $282.5 million at March 31, 2017 and 2016, respectively. The increase is primarily due to the receipt of $4.5 million in payments in lieu of sales tax for the Atlantic Yards Project. 

This is apparently not uncommon with ESD projects, and also with New York City projects, but it is the first mention I've seen regarding any payments to the state. (And I haven't noticed it again, in the ensuing three years.) 

So that money goes not to general public coffers but to the budget of the state authority.

For example, such payments in lieu of sales tax on construction materials purchased by developers within the Hudson Yards District went not to the city but to Hudson Yards Infrastructure Corporation (HYIC), a special purpose local development corporation created by the city, according to a New York City Bar report.

Where does/could the money go?

It's unclear how the money has been used, but likely for general purposes. 

That said, in a different world, it might be used to bolster oversight and transparency toward Atlantic Yards/Pacific Park. Maybe that would go beyond current lawyers and consultants funded by the project developers, who rarely--at least what's emerged publicly--seem to find much to question.

Previous mention

This aspect of project financing got very little discussion in previous documents, as far as I can tell. The state's 2009 Modified General Project Plan, as with its 2006 predecessor, states:

ESDC will retain title to the land underlying other Project developments through their initial construction periods and will lease development parcels to the individual entities created for each of these developments for $1.00. FCRC shall be required to remit payments in lieu of sales taxes to ESDC under the lease or access agreement for each portion of the Project Site equal to all sales and compensating use taxes, if any, which FCRC would have been required to pay in connection with the development of such portion of the Project Site absent ESDC's ownership thereof, other than the Arena Sales Tax Exemption.

(Emphasis added) 

According to the 2/18/05 Memorandum of Understanding between city, state, and original developer Forest City Ratner, ESDC would "consider utilizing its statutory powers to. provide exemptions" from not just mortgage recording taxes but also "sales taxes for construction materials for the Project" and fixtures for the arena.

So ESD provided an exemption from taxes, but required the payments instead to go to the authority.

A similar exemption benefits the arena

We've heard much more about the benefit to the arena--a separate entity--from a similar sales tax exemption. From the Socioeconomics chapter of the 2006 Final Environmental Impact Statement:

In addition to the public capital investment, the arena would receive an exemption from sales taxes on materials used in the initial construction and fit-out and on capital repairs and replacements. The City commonly uses sales tax waivers on construction materials to encourage large scale economic development, including for the development of the Jacob Javits Convention Center, Battery Park City, 42nd Street Redevelopment Project, and MemorialSloane Kettering Cancer Center, among many others.

The September 2009 Independent Budget Office (IBO) report on Atlantic Yards, which focused on the arena, stated:

Sales Tax Exemption on Arena Construction Materials. Under the latest modified project plan, ESDC will grant Forest City Ratner an exemption from city, state, and MTA sales tax on construction materials and fixtures installed in the arena. This is a discretionary benefit that state economic development law allows ESDC to grant to projects it sponsors. Based on an estimated hard construction cost of $604 million, IBO estimates that this exemption will save FCRC $20 million (present value), with $10 million coming from lost city sales tax revenue, $9 million in lost state sales tax, and $1 million in foregone MTA sales taxes.

That hard construction cost estimate, based on a different arena design, is in the ballpark. A construction monitor for the bond trustee in 2012 cited $617.3 million in hard costs for arena and transit connection construction.

Note that the IBO chose not to address the fiscal impacts of the larger mixed-use project, citing both the uncertainty over timing as well as the fact that the arena would get "virtually all of the discretionary benefits," while "[t]he rest of the project would receive benefits that are available as-of-right to all qualified developments or else special arrangements that will result in benefits that are consistent with those as-of-right programs."

I'm not sure that the full suite of exemptions were as-of-right or consistent with as-of-right programs, but they were consistent with other politically favored projects.

Page 83 of ESD June 29, 2017 board materials contract amounts

Contributed to DocumentCloud by Norman Oder (Atlantic Yards/Pacific Park Report) • View document or read text