Field of Schemes
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July 09, 2004

Curiouser and curiouser

The case of the New York Jets and the tax-exempt bonds just keeps getting weirder. The whole brouhaha, you'll recall, started on Monday, when Newsday ran a front-page story asserting that the Jets were considering tax-exempt financing for their $800 million share of a $1.4 billion stadium project. That story, in turn, was drawn from a Freedom of Information Act investigation of documents produced by Wall Street firms bidding to become underwriters for the project; one typical passage, by Lehman Bros., goes:

Debt issued to pay for the privately funded Jets Stadium may qualify for tax-exempt status through the use of PILOT payments and other payments that serve as proxies for generally applied taxes. So long as these payments constitute the source of repayment for all or a specific series of the bonds used to finance the Jets Stadium, the bonds would qualify for tax-exempt status.

Oll korrect, as far as it goes. The catch is that the PILOTs ("payments in lieu of taxes," for those playing guess-the-acronym) need to be collected in place of "generally applied taxes." That means either property, income or sales taxes - a special Jets ticket tax, say, wouldn't be considered "generally applied."

It's already been established that the Jets wouldn't pay property taxes on their stadium, being that it would sit on land owned by the state-run Metropolitan Transportation Authority. That leaves sales and income taxes. Here's what New York Deputy Mayor Dan Doctoroff said about them at the June 3 city council hearing:

"The City will earn its return through the new taxes that are generated out of the activity in the building, which is, we've estimated, roughly $70 million for the City and State together."

Added state development czar Charles Gargano:

"The state income tax on the players, sales tax, other taxes, when you add them all together ... the added revenue annually will be $32 million to the State."

The city's Independent Budget Office says that $70 million figure is overstated by at least 20%, but never mind that for the moment. The upshot is that we're left with two possibilities: Either the Jets will be paying off their $800 million with other revenues, in which case tax-exempt bonds would be illegal; or the city and state will be kicking back sales and income taxes to pay off the bonds, which would increase the public subsidy by hundreds of millions of dollars - and would mean that both Doctoroff and Gargano lied to the council.

The bet here is that the Wall Street firms just threw in the tax-exempt business without knowing the full details of the stadium financing, and it sat around in the paperwork for months until Newsday dug it up - though that still leaves the question of why the Jets haven't disowned the prospect of tax-exempt bonds, as well as why Gargano's office issued a statement this week noting that "stadiums have often been constructed as public arenas with public financing along with tax-exempt debt." More info on this as it becomes available, but don't get your hopes up that it'll clarify any of the increasing murk that swirls around this project.

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