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October 21, 2006
When is a Net not a net?
Three weeks after insisting it wouldn't release details of its economic impact study of Bruce Ratner's proposed Brooklyn Nets arena, the New York State-run Empire State Development Corporation this week released ... well, a memo (PDF here). The seven-page letter from one ESDC staffer to another laid out an estimated $1.5 billion in projected public revenues from the project, but failed to estimate projected public costs - making it hard to assess the validity of the ESDC's earlier claim that taxpayers would turn a net $1.4 billion profit.
After several rounds of subsequent e-mails with ESDC spokesperson Jessica Copen, I've finally gotten some answers:
- While the ESDC memo projects $1.545 billion in new city and state revenues, the figure "should actually be $1.911 billion," according to Copen. The $366 million difference consists of: $160 million in sales tax on construction materials, $147 million in income tax on Nets and visiting players, $42 million in sales tax on player spending, $15 million in sales tax on tickets and concessions, and $2 million in hotel taxes. (The memo says it includes these revenues, but according to Copen, they were actually left out of the accompanying charts.)
- The ESDC counts $492.9 million in public costs: $41.9 million in sales-tax exemptions for arena construction ($20m city, $20m state, $1.9m Metropolitan Transportation Authority), $199.2 million in mortgage-recording tax exemptions ($181.4m city, $17.8m state), and $251.8 million in "bond financing" ($113.5m city, $138.3m state), which presumably means the cash payments that have been agreed to. Subtract this from the $1.911 billion in projected benefits, and voila, you have $1.4 billion in taxpayer profit.
The problems, as I've noted on the Village Voice website, include that there's no indication whether the numbers were adjusted for the substitution effect (money spent at Atlantic Yards might otherwise be spent elsewhere in the city) and leakage (money going to the Nets is less likely to recirculate in the local economy). The memo also states that all Nets players would be expected to live in New York state (and 30% of those in New York City), which is odd, considering that plenty of players on the city's existing teams choose to live in the New Jersey suburbs.
Finally, there's no way to tell how much of the "new" economic activity associated with the larger development would be cannibalized from elsewhere: Would the companies moving into the "Miss Brooklyn" office tower just be relocating from other parts of the city? Would the families moving into the new housing bring their own new jobs with them? The memo is silent on such matters, so it's impossible to say. It's just another indication of how economic impact documents are more art than science - or perhaps a careful blending of the two.