March 04, 2006
Yanks, Mets subsidies reach $1.1 billion
With all the trees that have been killed for documentation of the New York Yankees' and Mets' $1.8 billion worth of stadium plans, you'd think there would be no surprises left. You would be wrong. Yesterday, the New York City Industrial Development Agency issued cost/benefit analyses of the bonds that would actually pay for stadium construction, and they contained a bunch of bombshells.
First off is the bonds themselves. Previously the city had indicated it would sell $800 million in bonds for the Yankees, and $444 million for the Mets; that's now up to $930 million and $632 million, respectively, with the extra dough going to cover overruns and financing costs. And while the teams would still be on the hook for repaying the bonds - with the help of all those tax and rent breaks we've discussed previously - there's another surprise: Almost all of the bonds would be tax-exempt, with only a small fraction taxable.
Why does that matter? Because tax-exempt bonds represent a public subsidy - the city, state, and federal governments are absolving bondholders from paying income tax on their earnings, in order to lower the bonds' interest rate, and reduce the teams' costs. I'd previously assumed that the tax-exempt share of the bonds would be limited to about $200 million for each team (more on why in a minute). Upping that to $866 million (Yanks) and $528 million (Mets) would increase the public bond subsidy to an estimated $238 million (Yanks) and $145 million (Mets). Adding those to our existing stadium-subsidy figures, we now get:
- YANKEES: $606 million ($136m in city land/infrastructure funds, $13m in city rent rebates on current stadium, $70m in state garage subsidies, $238m in tax-exempt bond subsidies, $44m in property-tax savings, $22m in sales-tax breaks on construction materials, $22m in forgone mortgage recording tax, $103m in forgone city rent revenues, $11m in operational and reserve funds, less $43m in new city garage revenues and $10m from memorabilia sales from the old stadium)
- METS: $523 million ($85m in city funds, $13m in city rent rebates on current stadium, $75m in state funds, $96m in forgone city parking revenues, $145m in tax-exempt bond subsidies, $39m in property-tax savings, $16m in sales-tax breaks on construction materials, $54m in forgone city rent revenues)
Even if most of the new costs would be borne by the federal government, that's still a whole lotta public smackers.
It also could very well be illegal. As you might recall, Congress outlawed the use of tax-exempt bonds for stadium bonds 20 years ago, for the very reason that it was costing the U.S. treasury bucketloads of money. However, it left a loophole: Tax-exempt bonds could be used if they were repaid using "generally applicable" taxes collected on the stadiums, or payments in lieu of those taxes (PILOTs). The Yanks and Mets plan to take advantage of this loophole by calling their tax-exempt bond payments "payments in lieu of property taxes."
There's a problem, though: They can only make "payments in lieu of" what they would actually be paying in property taxes - they can't just make up a number and then call it a PILOT. This is why the Mets and Yanks have to use some taxable bonds, and why I previously assumed only a small share of the bonds would be tax-exempt.
How big would the PILOTs have to be to pay off the new bond figures? For the Yanks' $866 million, it would be on the order of $60 million a year. By comparison, Madison Square Garden, sitting atop one of the most valuable pieces of real estate on the planet, is currently assessed to pay about $12 million a year in property taxes. (It doesn't pay them, but that's because of yet another sports tax-subsidy deal dating from the 1980s.) Now, it's certainly possible that a baseball stadium, even one in the South Bronx, would be more valuable than the World's Most Famous Arena, but five times as valuable strains credulity. Even if the Yanks get to classify some of their payments as "in lieu of" other things like mortgage recording taxes, this still seems like something that would raise red flags at the IRS - if anyone there is paying attention to the law, that is, and not just George Steinbrenner and Fred Wilpon's bond attorneys.
Other revelations hidden within the new IDA documents:
- The estimated cost of Yankees parking garages has soared, from $235 million in November to $320 million now. While the public's share remains the same - $70 million in state subsidies - this means private garage developers would now be on the hook for a full quarter-billion dollars in costs. Given that the city still hasn't even issued its Request For Proposals for developers to bid on the project, and it looks like it'd be a horrible investment, there's a fair chance the city will end up having to either offer additional incentives or build the garages itself, racking up still more public costs.
- The IDA lists full exemption from mortgage-recording taxes and construction sales taxes as two of the benefits the teams would get - then doesn't say how much these tax breaks would cost the city. Nice "cost/benefit analysis," guys.
The teams are billion dollar corporations. With that in mind do you real want them to flee to a more friendly enviroement. (ex. NJ) Unlike alot of other teams in the country they are shouldering the bulk of the bill.
Posted by tom on March 4, 2006 11:27 AM
Actually, they're shouldering about half of the bill - less than that for the Mets. Either team would lose a tremendous amount of money moving to New Jersey in media revenues alone, and it's not like NJ is rushing to throw stadium money at them anyway. New York actually has all the leverage here; the mayor just either doesn't realize it or doesn't care.
Posted by Neil on March 4, 2006 08:30 PM
You always blame the teams. Blame New York State, that taxes everything they can. If they could tax the air we breathe they would. New York just isn't competitve with other states. Teams might not get the media revenues(which you know as well as I do they would STILL draw the fans from NYC)they would most certainly make up in less tax. Plus if they were to build in the Meadowlands they could be like the Jets and Giants and still call themselves NY, and still make $$ off the media revenues that you say the would lose. If New York state was competitive, we wouldn't need an IDA to grant all these "tax exemptions"
Posted by Eric on March 6, 2006 10:14 AM
To Eric....
The Jets and Giants play 8 games each a year at the Meadowlands.....and take note....When the Jets and Giants build a new Stadium they will be changing thier names to the Jersey Jets and Jersey Giants. The state of New Jersey is not giving land and tax incentives to 2 New York Teams a second time around..But thats for another discussion. The Nets and Devils play 40 home games and rarely sell out. The Devils don't even sell out Playoff games! Baseball has 81 home games. The Yankees would not sell out a Stadium in the Meadowlands. This game was played in the early to mid 90's and I do not have time to explain it to you....The fact is Steinbrenner has no leverage by threatening a move to New Jersey.
To Eric....
The Jets and Giants play 8 games each a year at the Meadowlands.....and take note....When the Jets and Giants build a new Stadium they will be changing thier names to the Jersey Jets and Jersey Giants. The state of New Jersey is not giving land and tax incentives to 2 New York Teams a second time around..But thats for another discussion. The Nets and Devils play 40 home games and rarely sell out. The Devils don't even sell out Playoff games! Baseball has 81 home games. The Yankees would not sell out a Stadium in the Meadowlands. This game was played in the early to mid 90's and I do not have time to explain it to you....The fact is Steinbrenner has no leverage by threatening a move to New Jersey.
To Eric....
The Jets and Giants play 8 games each a year at the Meadowlands.....and take note....When the Jets and Giants build a new Stadium they will be changing thier names to the Jersey Jets and Jersey Giants. The state of New Jersey is not giving land and tax incentives to 2 New York Teams a second time around..But thats for another discussion. The Nets and Devils play 40 home games and rarely sell out. The Devils don't even sell out Playoff games! Baseball has 81 home games. The Yankees would not sell out a Stadium in the Meadowlands. This game was played in the early to mid 90's and I do not have time to explain it to you....The fact is Steinbrenner has no leverage by threatening a move to New Jersey.
