"Another Yankee Sweep" Village Voice 8/29/6

Another Yankee Sweep
How city officials snoozed while the Yanks burned public money for their new stadium

by Neil deMause
August 29th, 2006 10:26 AM

The bulldozers are only now getting in gear for construction on new stadiums for the Yankees and Mets—as of Monday, dozens of trees had been felled in and around Macombs Dam Park to make way for the Yankees' new playpen, while the Mets have started excavations in the Shea Stadium parking lot in advance of an official groundbreaking. But city taxpayers have already been paying for them for years, thanks to lease clauses that have allowed the two teams to deduct $46 million from their city rent payments for "stadium planning" expenses.

The true cost of the Yankee lease clause —and how far the team has been allowed to stretch the definition of "planning"—is only now becoming apparent. (A Freedom of Information request for Mets documents was still pending at press time.) But last month ("Yankee Lobbyists on Taxpayers' Tab," July 26–August 1), the Voice revealed that among the "planning expenses" the Yankees charged to city taxpayers were portions of the salaries of top team execs Randy Levine and Lonn Trost, as well as the cost of the lobbyists who pressured both Albany and the City Council to approve the stadium deal.

Now, further investigation by the Voice has revealed that:

Those having a portion of their salaries charged to taxpayers included George Steinbrenner's sons Hal and Hank, plus his son-in-law (and now designated successor) Steve Swindal.

In addition to lobbyists, the Yankees charged the city $56,967.46 for the services of Sive, Paget & Riesel, the outside law firm that drew up the new lease in the first place.

Not only did Mayor Michael Bloomberg fail to act to repeal the giveaway leases, handed out by predecessor Rudy Giuliani, but his own stadium negotiations with the two teams actually cost the city a chance to recoup millions of dollars of the lost rental revenue.

"I fault the city as much as, if not more so than, the Yankees," says Dick Dadey, director of the good-government group Citizens Union, who calls it "alarming" that the Yankees were allowed to bill taxpayers for their stadium lobbyists. "The Yankees tried to cut the very best deal for themselves, as is understandable. But the city should have pushed back and been more explicit about what would have been an allowable expense."

The cast of characters that convened to write the new leases in the waning days of the Giuliani administration was not exactly motivated to push back. In the Yankees' case, the new lease—technically the eighth amendment to the team's existing lease on Yankee Stadium—was drawn up in late 2001 by a team headed by Yankees president (and former Giuliani deputy mayor) Levine and COO Trost. Sitting across the table on the mayor's side, meanwhile, was longtime Giuliani aide Robert Harding, who had worked alongside Levine as city budget director, then stepped into his old job as deputy mayor for economic development when Levine left to be Steinbrenner's stadium point man.

The resulting agreements—announced on December 28, 2001, just days before Giuliani left office—promised new stadiums for both the Mets and Yanks, with the city bearing half the estimated $1.6 billion construction cost, and gave the teams five one-year lease extensions, during which they could deduct up to $5 million a year apiece from their city rent payments for "stadium planning costs."

Bloomberg immediately put the stadium plans on ice—but let the planning deductions stand. Giuliani, he insisted, had tied his hands by signing the new lease language—though the Yankees publicly offered to scrap the new lease language if the new mayor asked.

But if it was the Giuliani administration that opened the treasury door, it was to a large extent Bloomberg who shoveled out the cash. That's because under the Giuliani lease, the city was supposed to recoup the stadium planning money eventually, as a credit against the city's share of construction costs—which in the Giuliani plan would have amounted to about $800 million.

Once the stadium deal was reborn under Bloomberg, however, it had changed: Now, in exchange for not paying rent (the Yankees would have been on the hook for more than $100 million worth of rent payments under the Giuliani plan), having land and infrastructure costs provided for free by the city, and receiving numerous city and state tax breaks, the two teams agreed to take on 100 percent of the construction costs. In part, this was done to maximize the amount that the teams could deduct from MLB revenue sharing— construction costs can be deducted, but rent and tax payments can't. But it also effectively made the recoup clause worthless, since the city no longer had construction costs to apply the credit to—making for an additional $46 million that Bloomberg left on the table, in addition to the roughly $600 million in city and state subsidies he agreed to provide for the two teams.

"The more we learn about this project, the more it looks like a backdoor version of the much maligned Giuliani proposal," says Good Jobs New York research analyst Dan Steinberg, who has been studying Bloomberg's stadium finance package since last year. "The city went so far out of its way to make this project appear to be privately financed that it was willing to shoulder additional costs."

Comptroller William Thompson harshly criticized Bloomberg's acceptance of the Giuliani leases at the time, and called on the mayor to renegotiate the leases. "Although the teams have to submit to the City 'invoices and other evidence of the Planning Costs in reasonable and customary detail,' " wrote Thompson in a January 14, 2002, letter to Bloomberg, "the City is left with very little input in how and when these funds are expended." The only oversight left to the city, noted the comptroller, was auditing the money trail once the cash had already been spent.

Yet once the mayor refused to revisit the lease, the comptroller apparently threw up his hands when it came to playing watchdog. Contrary to claims by Thompson's office last month that it hadn't audited the teams' "stadium planning" rent deductions, the comptroller's office now says its auditors did look at planning costs as part of its regular review of the Yanks and Mets rent payments—but only to disallow invoices for costs before 2001, when the planning deductions kicked in. (Among the handful of receipts that got the ax: an April 2000 hotel bill for George Steinbrenner himself.) As for the rest of the teams' questionable claims, Thompson— the only government official to have examined how the Yanks and Mets were spending city money—apparently never mentioned them to anyone.

The logic, presumably, was that under the incredibly broad lease language drawn up by Giuliani—acceptable deductions are defined as "the preparation of studies, surveys, tests, analyses, estimates and designs, [and] architectural, engineering, design, financing, accounting, consulting, planning, surveying, environmental, land use, and legal services, and any other similar or related costs customarily incurred in planning new sports stadium facilities"—pretty much anything was fair game for the teams to claim as a legit expense. But lobbyists and the hired-gun lawyers who drew up the 2001 lease for the existing stadium? Even John Tepper Marlin, a business ethics professor at NYU who until earlier this year served as Thompson's chief economist, wonders about that: "One could stretch the word, but there must be a boundary. At some point, the definition of 'planning' must mean something."

Henry Stern, who as Giuliani's parks commissioner was the one to actually sign the Yanks and Mets lease extensions, says he "never heard any conversation relating to legal and lobbying costs," though he quickly adds, "I didn't handle negotiations." But he's not exactly surprised that things turned out as they did.

"I have found that very often, just in the course of business, when the city signs an agreement with another party, and city officials change and the private party remains the same, things don't come out the way they were intended by the city," says Stern, who has served on and off in city government since 1973 and now runs his own think tank. "Particularly in economic development matters, the reality on the ground often ends up different from what the parties intended when they signed the lease." This was particularly true, he says, at the end of 2001, as Giuliani's staffers cleared out their desks to make way for Bloomberg's team: "The city was not rich in institutional memory."

"I'm not sure if the city ever did imagine that the Yankees would include lobbying expenses as part of their project planning expenses," muses the Citizens Union's Dadey. "But now that the city knows full well what charges are being deducted from the rent, the city owes it to the taxpayers to go back and clarify what are legitimately accepted expenses. This is like padding the expense account, but the people who pay are the taxpayers."