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Tax-exempt aid for new Yankee Stadium raises questions

July 2, 2008

More than two years ago, New York City and its Major League Baseball teams seized upon an innovative way to use tax-exempt bonds to help fund construction of the New York Yankees‘ new stadium in the Bronx and the Mets‘ Citi Field in Queens.

For the Yankees and the New York Mets, the public financing, with its lower interest rates for borrowing money, meant at least $147 million in savings for the Yankees over 30 years and $104 million for the Mets over 40 years, according to the Independent Budget Office, an independently funded, nonpartisan watchdog agency in the city.

But now, the playing field for such financing is shifting, even as the Yankees plan to seek another $350 million in what essentially is a government-subsidized loan for construction of their $1.3-billion arena.

Questions are being raised at both the federal and state levels.

In Washington, the Internal Revenue Service is contemplating a change that could block the Yankees from getting proceeds from the extra tax-exempt bonds the team says it wants to complete the new stadium.

In addition, a congressional subcommittee is asking the U.S. Treasury Department to explain why the financing for the Yankees and Mets was allowed in the first place and whether the IRS can change its regulations to more strictly limit publicly backed financing of sports stadiums. Rep. Dennis Kucinich (D-Ohio), who chairs a subcommittee of the House Oversight and Government Reform Committee, is leading the inquiry.

Here in New York, the prospect of additional public financing for the Yankees prompted Assemb. Richard Brodsky (D-Westchester), chairman of the Assembly’s Committee on Corporations, Authorities and Commissions, to set a hearing today in Manhattan.

Is there a public benefit?

Brodsky, who last week called stadium financing “socialism for the rich,” will aim questions at Seth Pinsky, president of the city’s Economic Development Corp., the agency that put together the financing deal for the Yankees.

“What’s the public benefit?” Brodsky said when asked what the committee, which has oversight of public bond financing, hopes to focus on at the hearing.

Pinsky said the project will boost the city’s economy with the construction jobs and other revenue they bring.

“This is an amazing investment by the city,” Pinsky said, referring to the new stadium in the Bronx. “The two major league stadiums being built today represent private investments of more than $2 billion in two underserved and deserving neighborhoods,” Pinsky said.

Use of the public financing route stems from the fact that the Yankees don’t own the land upon which the stadium is being built. The city does. Because the team doesn’t pay any real estate taxes, the stadium deal hinged on compensation using payment-in-lieu-of-taxes, commonly called PILOT.

PILOT payments, however, usually are linked to real estate taxes, hotel taxes or sales taxes. In the Yankees’ case, the PILOT is earmarked as a repayment of money for stadium construction borrowed by the city’s Industrial Development Agency.

Without the tax-free government bonds to raise cash, the Yankees would have to shop for money via private financing and thus face higher borrowing costs.

City officials and the Yankees confirmed that they have been lobbying Treasury Department officials in Washington to persuade regulators not to make the change, and thereby continue allowing the PILOT funding mechanism.

Yankees president Randy Levine said the financing structure should remain unchanged.

“Our original transaction always contemplated completion bonds,” Levine said last week. “We believe it’s not fair to change course midstream of a transaction.”

Controversial funding mechanism

The bond document signed in 2006 by the Yankees and the city provides that additional borrowing can be sought for the stadium’s completion.

Source: Newsday Read the complete article here

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Written by NY Politics · Filed Under Real-estate 

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