Foregone property taxes on Barclays Center site now estimated at $110.2M. Payments in lieu of (some) taxes go not to NYC but pay off cheap construction debt

In May 2022, I reported that foregone property taxes for the Barclays Center continued to rise, reaching $85 million, from $61.3 million in 2017 and, oddly enough, $53.7 million in 2018.

Today they're more than double the low point, according to the New York City Department of Finance's Annual Report on Tax Expenditures, reaching $98.6 million last year and $110.2 million this year.

That's all a nice gift to arena operators and team owners.

FY 2023

In Fiscal Year 2023, the foregone taxes for the arena reached $98.6 million. Note the larger tax expenditures for the two addresses directly above it, Citifield and Yankee Stadium, which also benefit from tax-exempt land.

Also note the oddly depressed tax break, as calculated by the city for MSG Arena, only $42.4 million. Surely the Madison Square Garden Site is move valuable than the Brooklyn site. 

That's because, as the Independent Budget Office has suggested, the valuation is artificially depressed, given that the city, knowing of the tax break, doesn't devote the resources to fully examine the Garden.

FY 2024

In Fiscal Year 2024, the foregone taxes for the arena have now reached $110.2 million. The value of the Citifield and Yankee Stadium sites has continued to rise, while, again, MSG Arena is oddly depressed.

The big picture

As Doug Turetsky wrote in 2022 for Hell Gate:

Barclays' property tax break is part of a financing scheme that helped the arena's developers get around a 1986 federal law aiming to limit the use of tax-exempt bonds to finance stadium construction. By transferring the ownership of the land the arena sits on to the state, the bill for property tax to the city was canceled. Instead of paying the city, the arena's owner [technically the arena company owner], Joe Tsai, a cofounder of the e-commerce giant Alibaba, makes a payment in lieu of taxes, known as a PILOT. This payment, which approximates the amount of the forgone tax bill, goes to pay the annual debt service on the bonds used to finance the arena's construction. This is on top of tens of millions of dollars in other direct subsidies the city provided for the arena’s construction.

Note: the tax-exempt bonds cost the arena builder far less than taxable bonds, and a refinancing helped again.

By then, the PILOT no longer "approximate[d] the amount of the forgone tax bill." 

But the PILOTs scheme requires that the annual payment is no larger than that imaginary tax bill, and the rising tide of valuations makes that ever unlikely, given that PILOTs are scheduled to peak at $55 million in 2043.

As Turetsky noted:

It's an arrangement that the Times columnist Michael Powell likened to a new homeowner persuading the city to let them use their property taxes to instead pay their mortgage.

That formulation, by the way, goes back to watchdog New York State legislator Richard Brodsky, who testifying before Congress in October 2008, suggested, "It is as though you built an extension on your house and said to the local taxing authority, send my tax payments to the bank to pay off the mortgage."

The public interest

Powell was focusing on the Yankees, but also mentioned Barclays. 

He quoted State Assemblymember  Brodsky as saying the public subsidy should've ensured affordable seats, but those were scarce. Added Powell:

Maybe the better bet was to treat this as a business investment. Since the Yankees came into possession of a new stadium, the value of the franchise has nearly doubled, to more than $3 billion. A clever city official might have sought an ownership stake.

Ditto for the new Brooklyn team, right?

As I've written, the presence of the arena can't be divorced from the skyrocketing valuation of the Brooklyn Nets. The valuation continues to rise, perhaps to $4.8 billion,

So how long should sports teams use their property taxes to instead pay their mortgage?