"Doubts cast on Yanks’ financing" in Metro NY, 4/11/6

Doubts cast on Yanks’ financing

by patrick arden / metro new york

APR 11, 2006

CITY HALL — The Independent Budget Office yesterday cast doubts on a “very, very aggressive” financing scheme the city is pursuing for the proposed new Yankee Stadium.

In testimony before the City Council finance committee, IBO director Ronnie Lowenstein said IRS approval was not certain for the $866 million in tax-exempt bonds required to build the ballpark.

“They’re trying to use a loophole,” she said. “We don’t know if it will fly.”

In 1986 Congress restricted the use of tax-exempt bonds to build sports facilities, unless 90 percent of the bonds were paid off using funds that would normally go to the city in the form of taxes. The Yankees are trying to pay off their tax-exempt bonds with payments in lieu of property taxes, or PILOTs, though the team currently does not pay property taxes. The city has asked the Internal Revenue Service to rule on the plan.

Under the Yanks’ scheme, “they’re trying to make it look like they’re financing this with general public revenues, although in this case [the funds to pay off the debt are] coming from the stadium,” said IBO deputy director George Sweeting.

To make the Yankees’ plan fly, it’s “necessary to structure the agreement so that the money pledged for debt service on the bonds bears enough resemblance to a regular city tax,” Lowenstein said.

But that’s problematic as well, because of the large payments required to service $866 million worth of tax-exempt bonds.
“It is not clear that a property tax-based PILOT would be sufficient,” Lowenstein said.

The Yankees claim they’ll need between $50 and $60 million a year to service the bonds, while the IBO estimates they’ll need “about $66 million” annually. “Based on the $736 million estimated construction cost for the new stadium plus the existing land value, IBO estimates that a regular property tax bill would be about $37 million before exemptions — considerably below the annual debt service payments,” Lowenstein said.

As for the economic benefits of the stadium, “it’s hard to envision that there’s going to be tremendous or really significant impact on long-term employment,” Lowenstein said. “There is little reason to expect much gain in local economic activity beyond the three-year construction period.”

Keeping score

• The city’s direct costs for the proposed new Yankee Stadium project recently climbed 20 percent to $164.7 million, noted Council member David Weprin yesterday. The NYC Economic Development Corporation is still trying to find a developer to pick up the $250 million balance needed to build the project’s four parking garages.