Nets arena questions and answers (and more questions)

The Brooklyn Nets arena hearing was scheduled to start at 1 pm, and by noon, close to 300 people were outside: members of the community group ACORN and union members (SEIU, UFCW), chanting “Jobs, Housing and Hoops!”; and on the opposing side, members of the community group Develop Don’t Destroy, bearing giant mock billion-dollar checks made out to Nets owner Bruce Ratner. At curbside, a man dispensed “Jobs, Housing and Hoops” t-shirts and pins from a box addressed to “Scott Cantone, Forest City Ratner.”

I asked the city council security officer how many people the hearing room held. “Sixty seated. Another 10 can stand.”

In the end, more than 100 people crammed into the tiny hearing room across the street from New York City Hall for four hours of testimony that made clear… well, not much, actually. Forest City Ratner revealed that it was considering cutting some office buildings and adding more housing to its development plan – a no-brainer, considering the white-hot housing market and the weak demand for commercial space in Brooklyn. Bertha Lewis, head of ACORN, discussed her group’s recent agreement with Ratner to retain 50% of the housing for low- and middle-income residents (though Ratner has been insisting this would be the case for more than a year now). And George Sweeting of the Independent Budget Office, in a line sure to be quoted repeatedly by Ratner’s forces, testified that after a preliminary analysis by his office, he was “pretty confident that the final results will show a fiscal surplus” for the city from the Atlantic Yards project – though most of the fiscal benefits would come from the accompanying housing and office space, not the arena, just as Andrew Zimbalist concluded last year.

Meanwhile, the list of unanswered questions about the Nets project keeps growing. Some of these can get a bit technical, but I’m going to go into them in some detail here, because they’re an important example of just how difficult it can be to accurately calculate just who’s paying for what in the convoluted world of sports facility finance:

1. Who gets the Nets PILOTs? Ratner’s memorandum of understanding, or MOU, with the state-run Empire State Development Corporation states that the developer will pay ESDC payments in lieu of property taxes, or PILOTs, equal to the assessed value of the arena land. (The entire project site would be taken over by the state, and so exempt from property taxes.) These PILOTs would then be used to pay off the arena’s tax-exempt construction bonds.

Meanwhile, the state-run Metropolitan Transportation Authority, in somewhat of a surprise move, put out a request for proposals (RFP – take a deep breath, the acronyms only get worse from here) yesterday for bids to develop the MTA-owned rail yards where the arena would be built. And in that document, it states that the developer would pay PILOTs to the MTA. Who’s right? It’s anyone’s guess, especially since neither the ESDC MOU nor the MTA RFP has the force of law.

2. Should the Nets PILOT payments be considered a public subsidy? This sounds straightforward, but in fact gets trickier the more closely you examine it. Ratner wouldn’t be paying taxes on the arena property, which would generally be considered a subsidy. (The general term for this is a “tax expenditure.”) However, much development in Brooklyn is already tax-free under a 20-year-old city program called the Industrial and Commercial Incentive Program (ICIP), which gives 15-year tax breaks to anyone building industrial or commercial property outside of Manhattan.

Would a basketball arena qualify for ICIP? I buttonholed several development experts at today’s hearing, and got three different flavors of “maybe” in reply. It’s an important question, because it would determine whether Ratner’s “pay his taxes and keep them too” plan is a special subsidy, or an “as-of-right” one available to all developers. (The IBO’s fiscal analysis, for example, considers only special subsidies to be “costs” to the city, since whatever development took place on the site would be eligible for as-of-right subsidies like ICIP.)

3. What will the Nets pay the MTA for the land? This is a repeat of the New York Jets situation in Manhattan, where the team wanted to use its PILOT payments to pay off its own stadium costs, while simultaneously paying a land price that treats the PILOTs as taxes that make the property that much less valuable. Similarly, Ratner’s MOU with the MTA says that the MTA “must take into account” PILOT costs “prior to the fair market value determination” on the land – which could result in a subsidy of hundreds of millions of dollars from the MTA to Ratner. The MTA RFP, meanwhile, makes no mention of this PILOT-discounted “fair market” price. Curiouser and curiouser…

4. Are there any additional public costs to the project? Beyond the $200 million in city and state cash for the project, the IBO identified less than $100 million in additional special subsidies, primarily $76 million from federal taxpayers by allowing the project to use low-interest tax-exempt bonds, and $13 million in lost property taxes that would be collected under ICIP (which phases out its exemption after 22 years) but not under the Ratner plan (which would get a 30-year exemption).

ICIP tax breaks, though, are undeniably a subsidy – it’s just one that’s available to anyone building outside Manhattan. (Many people have raised objections to whether this still makes sense in an age of booming outer-borough real estate, but then, screwing itself out of property taxes is the city’s specialty.) Add those back in, and it’s hundreds of millions of dollars more in public tax expenditures on the Ratner project. Moreover, when it comes to development projects, predicting the consequences of your actions can be a tricky business; one traffic study cited during testimony at today’s hearing estimated that “the economic cost of the additional cars and density [from the Atlantic Yards project] is expected to be $76 million per year” – which, if true, could amount to an additional one billion dollar loss to the city.

The line of the day went to Mafruza Khan of the Pratt Institute Center for Community and Environmental Development, an urban planning center at a school about a mile from the proposed arena site. Testified Khan, shortly before the hearing finally adjourned after 5 pm:

“Given the wide divergence in [subsidy] estimates, from $200 million to over $1 billion, we do want to emphasize that it is impossible for the public to know whether this project is a good deal without knowing how much it will cost to taxpayers. It is being asked to buy something without knowing how much it will cost.”

And you know what they call that.

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