March 15, 2006
NYC comptroller questions stadium bonds
As expected, the New York City Industrial Development Agency gave preliminary approval to the city's $1.56 billion in Yankees and Mets stadium bonds yesterday. And not as expected, the city comptroller's office raised the question I asked two weeks ago about whether the bonds would be legal, saying "we must learn in detail the financial terms of the bond transactions before we can make a final determination whether the transactions are prudent ones," and demanding that the IDA supply proof that the IRS will allow tax-exempt bonds to be used for $1.4 billion worth of the project. According to Metro New York, "the IDA is still waiting for this approval."
As more details of the stadium bonds trickle out, we also learn more about just how much the Yanks and Mets owners would be spending on their new stadiums. Most news outlets - including this one - have repeated the teams' line that the Yankees would be paying the $800 million construction cost of their stadium, while the Mets would be paying the $444 million cost of theirs. But that's not strictly accurate. In fact, the IDA would be selling bonds to pay for construction costs - $930 million in the case of the Yankees, and $632 million for the Mets - and the teams would be responsible for making the annual bond payments.
How much will those bond payments come to? Yesterday's Bond Buyer lays out a range of possibilities: Tax-exempt bond payments would amount to between $40 million and $60 million a year over 20 to 30 years for the Yankees, and between $30 million and $45 million for the Mets. Figuring the present value of those payments (using a 6% discount rate, for those who care about such things), and adding in the taxable bonds ($64 million Yanks, $104 million Mets, which should be roughly the present value of the taxable bond payments as well), we get total bond costs of:
YANKEES COST TO PAY OFF $930M IN BONDS: $523 million - $890 million METS COST TO PAY OFF $632M IN BONDS: $448 million - $723 million
Clearly the Yankees in particular stand to get a significant discount off their stated stadium costs thanks to the use of city-sponsored tax-exempt bonds. (And that's before accounting for their cost savings from other tax rebates and revenue-sharing benefits.) With any luck, we'll find out more details on April 7, when the city council finance committee has tentatively scheduled a hearing on the stadium bonds.
In related news, Good Jobs New York will be holding a breakfast forum on Wednesday, March 22, at 9 am on the two stadium projects, at the New York Foundation, Room 2901 of the Empire State Building. Panelists include Bettina Damiani of GJNY, Majora Carter of Sustainable South Bronx, Joyce Hagi of Save Our Parks, and Kate Slevin of the Tri-State Transportation Campaign - RSVP to gjny@goodjobsfirst.org or 212-721-7996 of you plan to attend.
—Neil deMause
Your analysis does not make any sense. Are you really trying to tell me that the holders of $900mm + in bonds would accept payments of $523mm? That is illogical. The correct analysis would show what their total debt service payments at a taxable rate would be vs. their payments at the tax exempt rate. And it should be in nominal dollars, not present value dollars at an arbitrary interest rate.
That panel sounds great, too. Real balanced slate of speakers they have there. I'm surprised they didn't drag out Jim Butin (or whatever that guy's name is) and Daniel Goldsmith (or whatever his name is). Hell, why not Ralph Nader too?
Posted by SoBX on March 15, 2006 06:03 PM
Of course the taxpayers would accept lower payments, because their earnings wouldn't be taxable. That's the whole point of tax-exempt bonds: They charge a lower interest rate, because bondholders don't have to pay income tax on their earnings.
Calculating in nominal dollars doesn't make any sense, unless you're the type to go around bragging that you just spent $1 million on an apartment, because over 30 years you'll pay off the $300,000 purchase price plus $700,000 in interest. This is precisely what present value calculations are designed for: Comparing apples to apples, taking into account that some of those apples won't be picked until the year 2039.
Comparing taxable debt service to tax-exempt debt service is something I plan to do, but it's going to take me another day or so to get to it. Try not to hold your breath until you turn blue.
Posted by Neil on March 15, 2006 06:49 PM
"Of course the taxpayers would accept lower payments..." Since when are the taxpayers accepting any payments? These are private activity bonds. The payments go to the bond holders.
The larger point is that the "analysis" that you have put in a large font on your website is grossly misleading, which I am sure is your intention since you aren't particulary good at telling both sides of any story. You are suggesting that the Yankees will only pay $532 million for a stadium that costs $910 million. That is simply wrong. In fact, the Yankees will pay far more than $910 million, becuase as you just pointed out, they will have to pay back both the $910 million in principal on the bonds, but they will also have to pay back hundreds of millions of dollars in interest on that $910 million in bonds. Therefore, the correct analysis would be to compare how much in interest they would be paying on a taxable issuance vs. how much they would be paying on the tax-exempt issuance. And by showing that difference in nominal dollars, you are showing the ACTUAL amount of savings without applying an arbitray discount rate to that amount. In fact, I would think you would want to use a nominal amount, becuase it will make your "findings" even more sensational in nature.
FYI - calculating debt service takes most people about 12 keystrokes and 10 seconds or so on a standard financial calculator. I hope you don't turn pink trying to figure it out.