Field of Schemes: Net loss or Net gain?

September 08, 2005

Net loss or Net gain?

New Jersey Nets owner Bruce Ratner has upped his bid from $50 million to $100 million for the Metropolitan Transportation Authority railyard land in Brooklyn where he wants to build a new basketball arena and housing development. That's still less than the $150 million offered by rival developer Extell, and even more less (more less?) than the $214 million that an MTA appraisal said the land was worth. Nonetheless, reports the New York Times, "the board of the transportation agency could hold a special meeting as soon as Tuesday to approve the deal."

Meanwhile, the city Independent Budget Office issued a report (PDF file here) projecting that, after accounting for $224 million in public subsidies being sought by Ratner, the arena would generate a net fiscal benefit to the city and state of $107 million in present value. The New York Post immediately declared the Nets project to be "a surprising slam dunk for taxpayers."

There are two potential gaps in the IBO study, though, that could easily turn that benefit into a public loss. First of all, the IBO's conclusions result primarily from assumptions of how many current Nets fans would accompany the team from Jersey to Brooklyn, bringing their sales tax dollars with them - assumptions that, according to the IBO report, were provided by Ratner himself. Ratner's figures assume that "about half of those attending Nets games at the Atlantic Yards arena will be from the ranks of those attending now" - a debatable assumption given that it's quite a shlep from New Jersey to Brooklyn, not to mention that the proposed arena would hold 18,000 fans, and the Nets currently average fewer than 15,000 fans per game. Tweak the assumptions to have only 30% of Nets attendance represent new spending instead of 50%, and the arena would be a net loss.

Finally, while the IBO deducts the $224 million in direct cash subsidies (plus sales- and property-tax deductions) that the arena would get from the city and state, the actual public subsidy would be significantly greater - more like $451 million according to my estimates, though that could go down a bit once Ratner's increased bid is taken into account. Needless to say, tacking on an extra $227 million in costs would turn a $107 million windfall into a whole mess of red ink - so don't enter that "slam dunk" in your scorecard just yet.

COMMENTS

preach it brother.
Posted by: ratnerville at September 8, 2005 12:33 PM

the thing about nets fans shlepping from new jersey is a total red herring. ratner has to say that he'll retain his current fans, first, to appease new jerseyites who are very angry that he's moving the team and second to reassure the dolans that he's not going to steal knicks fans out of manhattan. the new arena will obviously draw a big long island crowd. granted that is new york state tax revenue staying in new york state, but it's pretty obvious that the arena will, on game nights, create a volume of economic activity in brooklyn and new york city that didn't exist before. no one really knows the numbers....
Posted by: franklin at September 9, 2005 10:34 AM

A volume of activity that didn't exist before? In NYC? Study after study has shown that what the new arena does is take existing activity and re-direct it to the arena and the team. The Knicks will be hurt by this, as there are some people in LI and Brooklyn who will go there rather than head for the Garden.
Posted by: leftwingcracker at September 9, 2005 05:01 PM

I don't think it's unreasonable to assume that some people will come in from Long Island on the LIRR to see a game - or, more likely, stop off for a game after work before heading home on the LIRR - when they otherwise wouldn't. Heck, I don't think it's unreasonable that some people from Jersey would go to games in Brooklyn - I just don't think it's going to be 9,000 people a night. I'd love to see a real study of this, since it's the key to Ratner's arguments that his arena would be good for NYC, but unfortunately so far everyone's just been taking Ratner's figures at face value.
Posted by: Neil at September 9, 2005 06:09 PM

Ratner plans to build a tunnel from the subway hub and LIRR terminal directly into the arena. this will ensure that any volume of economic activity will occur in the arena, not in the surrounding neighborhoods. as as Leftwingcracker wrote, its not new activity, just shifted activity, aka the substitution effect.
Posted by: ratnerville at September 12, 2005 02:47 PM

You're confusing leakage (money that doesn't get recirculated back into the local economy) with substitution (money that be spent in the local economy anyway). Both the state and city of New York (and the MTA) would collect sales taxes on money spent at the Ratn-arena, so if it's spending transferred from New Jersey, that does represent a revenue increase. How much of a revenue increase, of course, depends on how many attendees would otherwise be spending the evening in Jersey - as I said, I'd guess not many, but it would be more than zero. Whether it'd be enough to make up for the $400m-plus in public expense is another story.
Posted by: Neil at September 12, 2005 05:29 PM