April 20, 2004
Jets bonds to be tax-exempt
Bond Buyer reports that the quasi-public Empire State Development Corporation is in talks to use tax-exempt bonds to finance the planned $1.4 billion Manhattan stadium for the Jets. If true, this enables us to calculate the maximum lease payments the Jets would be making to their landlords, the public. Here's how it works:
Federal tax law requires that tax-exempt bonds can only be used for "private use" projects such as stadiums if no more than 10% of the bond cost is repaid by revenues from the project itself. (If this seems like a stupid requirement, it's because it was an attempt to close an earlier tax loophole that allowed overuse of tax-exempt bonds for for-profit projects. As reforms go, it didn't work too well.) If the entire $1.4 billion is bonded out by ESDC, annual bond payments would be on the order of $90 million a year. So ten percent of that - $9 million - would be the most the Jets could pay in rent without running afoul of the IRS.
Except for one thing: the Jets are also committing $800 million of their own money (some of it actually the NFL's money, but let that be for the moment) to the project, and that money would count against the 10% cap. So let's assume only the $600 million in public funds would get the tax-exempt treatment. That would mean, let's see, maybe $40 million a year in bond payments, leaving the Jets with a maximum rent of ... $4 million a year. This is the deal that Mayor Mike Bloomberg called "the best rental anybody has ever done in the history of the world."
There are other ways the Jets could kick in money - the Baltimore Ravens, for example, got around the 10% limit by paying stadium operating costs in lieu of rent. But given that the Jets have already indicated they won't share revenue from non-football events with the city, it's hard to see how the public would make back its $600 million investment.
