January 04, 2008

Wrigley sale would involve fake "PILOT" subsidies

Remember way back last month when Chicago Mayor Richard Daley decried a proposed state purchase of Wrigley Field as a "bailout" of the Cubs? This week, Mayor Daley the Younger did an about face, saying of the deal, "I have an open mind. . . . I always have an open mind on an issue. And why not? You should have it."

Whatever the reason for Daley's flip-flop (flying monkeys?), more details are starting to emerge about the finances of a proposed Wrigley sale - and, surprise, surprise, they involve pushing off costs onto taxpayers. The Chicago Reader reports:

The old Tribune Company planned an ambitious expansion including a parking garage and a mall. Under the new proposal the Illinois Sports Facilities Authority - a state agency formed to subsidize the replacement for Comiskey Park, U.S. Cellular Field - would pick up the tab for those renovations. The Cubs would sell the park to the agency for the nominal sum of $1, and the new owners would sign on to rent the park from the state for at least 30 years. In exchange the Sports Facilities Authority would issue bonds to cover reconstruction costs.

Another source indicates that those bonds would be tax-exempt, making them far cheaper than private bonds. (Tax-exempt bonds can shave as much as 20% off the cost of a project.) But the federal government prohibits using private rent money to pay off public tax-exempt bonds. So how could the Cubs pull this off?

The answer: Use the same "payments in lieu of taxes" dodge that the New York Yankees and Mets are using the finance their new stadiums. Since a state-owned Wrigley Field would be exempt from property tax, the new Cubs owners (whoever they may be - the team is currently up for sale by Tribune Corp.) can claim that their bond payments are really "in lieu of" property taxes that they don't owe - and as far as the IRS is concerned, that's officially just peachy.

So who gets hurt? As the Reader notes, the city of Chicago would lose out on property-tax money it currently gets:

In 2007 the Tribune Company paid $1,151,487 in property taxes on Wrigley. This year the bill will go up to around $1.43 million. At the rate property taxes are soaring, the new owners are looking to save more than $50 million in property taxes over the course of the 30-year lease.

Even if the Cubs agree to pay enough rent to cover both bond payments and lost property taxes, though - a big if - that 20% discount still has to be covered by somebody. And that somebody is U.S. taxpayers: Tax-exempt bonds are subsidized by the federal government, which forgoes collecting tax on bondholders' income. In effect, then, a public takeover of Wrigley would be a complicated tax dodge to funnel money from the federal treasury into the Cubs' bank account.

There are plenty of remaining questions about the proposed Wrigley deal - who would cover operations and maintenance work on the stadium once it's in state hands, for one thing. But even without seeing the lease, it's looking increasingly like Daley was right the first time: The Wrigley sale is first and foremost a way for the Cubs' owners to find a way to get their hand in the public till.