Questions remain about Yankees bonds

With the New York Yankees stadium land-use plan officially approved, the city council today moved on to consideration of the $930 million in bonds the team wants sold to finance construction costs. (The Mets bonds were discussed as well, but unfortunately I had to leave before that point.) There was no earth-shattering news from the council finance committee’s hearing – most of the questioning was along the lines of majority leader Joel Rivera’s query whether “about 80% of new stadiums have been built within the last ten years” – but a bunch of interesting tidbits did emerge:

  • As I noted a couple of weeks ago, the city’s direct spending on the stadium project has gone up by about $25 million, to a new total of $160 million. The explanation, according the parks department’s Josh Laird: A new agreement to build a temporary running track for use during construction of the new stadium, plus overall inflation in construction costs, has driven the estimated price tag up. Interestingly, the city Industrial Development Authority appears not to have accounted for these new figures in its cost-benefit analysis of the project: Its Powerpoint presentation at the hearing still had “cost of new parkland” at $88.9 million, whereas Laird gave the current figure as $128 million – a discrepancy that would all but wipe out the city’s claim that the new stadium would leave the city $41.3 million in the black.

  • The process by which the teams would pay back the stadium bonds – paying off bondholders under the guise of “payments in lieu of property taxes,” or PILOTs – is, testified city Independent Budget Office director Ronnie Lowenstein, “a very, very aggressive interpretation of the IRS code.” The two main unresolved questions, according to Lowenstein: Will the IRS approve the financing scheme at all, and if it does, will the PILOT payments – which, remember, can’t be more than what the stadium would pay in property tax, if it were taxed – be enough to pay off the Yanks’ proposed $866 million in tax-exempt bonds? The IBO estimated it wouldn’t, projecting a shortfall of about $29 million a year; the city said it would, but only by projecting that the new stadium’s market value would be $1.025 billion – 40% more than its entire construction cost – while valuing the land it sits on at $204 million – even though the city finance department values the land under the current Yankee Stadium at a mere $7 million. Asked what happens if the assessed value ultimately comes in below the city’s projections, city Economic Development Corporation chief Andrew Alper replied, “I’m not sure what would happen to the debt,” which is hardly reassuring.

  • The Yankees would be able to reduce their costs via two previously unreported benefits from the deal: Not only would they be exempt from sales tax on materials for constructing the new stadium, but they’d be sales-tax-free for subsequent capital improvements as well; and if their annual PILOT payments turn out to be more than what’s needed to pay off the bonds, anything in excess could be used to defray their own maintenance costs. There’s no way to know how much either of these benefits would be worth to the Yankees, but it’s definitely something more than zero.

  • Pressed on why the city was providing the Yankees with tax-exempt bonds and other subsidies, without asking them to pay any rent or property taxes – under the new plan, the Yankees would pay no money at all into the city treasury – the EDC’s Alper protested: “If it gets too expensive, the project can’t happen. … We can’t force the Yankees to build a stadium.” Alper left unexplained why the city would want to – especially since the whole impetus for this project, in the city’s own words, is that the Yankees are insisting on a new stadium.

Mostly, though, it was a day for confusion, as councilmembers with only the dimmest grasp of economics tried to figure out how the Yankees’ payments could be both “tax money” and a private contribution. As the IBO’s Lowenstein explained it: “Part of what makes this so difficult to get your mind around is that these guys aren’t paying property taxes now, but we’re structuring something to look like a property tax so that it meets the Internal Revenue Service code test that allows them to do the tax-exempt financing.”

Further confusing matters were statements like the one by Yankees president Randy Levine, who insisted under questioning: “The revenues from the Yankees, not a dedicated tax, are paying for [the new stadium].” That may have sounded good to the city council; whether the IRS agrees when it comes time to certify the tax-exempt bond scheme, we’ll have to wait and see.


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