Foregone property taxes on Barclays Center now estimated at $122.7M, tiny decrease. Other venues see growth. PILOTs pay off tax-exempt construction debt.

OK, it's time for the annual look at the foregone property taxes for the Barclays Center and the other major New York City sports venues. 

While the non-paid taxes for the Brooklyn arena had risen from $53.7 million to $123.6 million, as of last year, as I reported, this year, there's been a slight reversal, to $122.7 million, as indicated in the screenshot below, according to the New York City Department of Finance's Annual Report on Tax Expenditures.

That, of course, dwarfs the $5 million a year "invested" since 2020 by the Social Justice Fund of the Joe and Clara Tsai Foundation, the philanthropic venture of the arena company owners

By contrast, as shown in the screenshot below, the tax exemption for Citifield, home of the New York Mets, rose from $159.7 million to $165 million and the exemption for Yankee Stadium (NYC Dept. of Parks and Recreation), home of the New York Yankees, rose from $129.5 million to $133.3 million.

They get their tax break via the city Industrial Development Authority, or IDA, while the arena gets its via the Urban Development Corporation, or UDC, which operates as Empire State Development, or ESD.

The numbers are somewhat arbitrary.

Also, the exemption for MSG Arena, home to the New York Knicks and New York Islanders, rose marginally, from $42.9 million to $43.3 million.

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

In other words, these numbers are not definitive.

But they do indicate that the city and state have left a lot of money on the table.

It's a nice deal for the billionaire owners of the sports teams, who also operate the venues, which are "public" thanks to a fig leaf that enables the tax exempt land and tax-exempt financing.

The big picture

As I wrote last year, the tax exemptions fuel cheap financing, since paying off tax-exempt bonds cost the Barclays Center operator far less than taxable ones--and a 2016 refinancing helped even more. 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 [note: no longer] 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 that direct subsidies for the project total $305 million, with a large portion--more than "tens of millions"--going to the arena itself.

By the way, for a while that PILOT has no longer "approximate[d] the amount of the forgone tax bill." 

It doesn't have to match it. Rather, it can't exceed 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.

The public interest

Let's break it down. As watchdog New York State legislator Richard Brodsky, testifying before Congress, suggested in October 2008, "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."

Brodsky then was focusing on Yankee Stadium, but the same issue applies to all such sports venues. In 2020, in fact, nine City Council Members signed a letter calling for sports venues to pay taxes.  Didn't happen.

As then-New York Times columnist Michael Powell wrote in April 2016, regarding Yankee Stadium:

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.

Same for the Brooklyn team and arena company, now valued--thanks to an investment from the Koch family--at some $6 billion, including the New York Liberty and ancillary properties.

The publicly supported and tax-exempt arena--a venue in the nation's media capital--is crucial to that valuation.

What next?

For two years, I've I asked: how long should sports teams use their property taxes to instead pay their mortgage?

That question persists.

New York State, at least, has leverage regarding the Barclays Center, if it wishes to use it. If the plaza is made permanent by moving the bulk of the unbuilt flagship tower, once slated to loom over the arena, across Flatbush Avenue to Site 5, that's a huge boost to the arena operator, enabling crowds to gather and surfaces to be monetized.

Why can't the public get paid for that?

That's not, apparently, on the table.

Instead, public funds of $4 million are going to bolster a small business loan fund attributed in significant part to the Social Justice Fund, which put up $1 million. That's nice leverage.