June 17, 2008
Another potential snag for AY arena financing: foregone property tax may severely cap tax-exempt bonds
Atlantic Yards Report
Norman Oder explores another probable arena-financing hurdle facing Forest City Ratner it seems that, legally, Payments in Lieu of Taxes (PILOTs) on arena debt cannot exceed what the equivalent property tax payments on the underlying land would amount to.
Extrapolating from the amount of bonds and the PILOT payments for the Yankees, a similar 6% ratio suggests annual PILOT payments on $800 million in tax-exempt Atlantic Yards arena bonds would be about $48 million.
In 1/7/08 testimony to the City Council Finance Committee, Theresa Devine of the Independent Budget Office stated that owners of Madison Square Garden, who benefit from a full property tax exemption, were saving $11 million in the current fiscal year.
That’s a lot less than $48 million.
In its September 2005 report on Atlantic Yards, the IBO estimated the value of the Atlantic Yards arena at $100 a square foot, compared to Madison Square Garden at $125/sf. Based on the $100 figure, the IBO had calculated the foregone property tax at the Atlantic Yards arena at only $3.85 million.
The value of Madison Square Garden, IBO’s George Sweeting told me in a recent email, is now calculated for tax purposes at $250/sf. So even if doubled to $200/sf, the foregone property tax for the AY arena would be less than $8 million a year--a reasonable ratio if the figure for Madison Square Garden is $11 million.
Sweeting noted that the agency’s 2005 analysis “was based loosely on the Department of Finance’s official market value for MSG at the time, discounting for differences in land value. It is probably true that neither the MSG value assigned by the city, nor the AY arena value estimated by IBO, reflect the actual cost somebody would pay to buy the land and build a new arena. We based our value on an assumption that whatever the Finance Department is doing when valuing MSG, they would do for AY.”
If so, there would have to be a lot more taxable bonds than currently contemplated.
NoLandGrab: The whole PILOT and bond situation presents Ratner and his government enablers with an interesting quandary. On the one hand, Ratner, the ESDC and the City need the assessment of the land to be as padded as possible, in order to maximize the bond cap. On the other hand, such a valuation would theoretically raise significantly the "just compensation" paid to property owners whose land would be taken via eminent domain.
Stay tuned to see how the interested parties try to play this one to their benefit it ought to be entertaining.
Posted by eric at June 17, 2008 8:39 PM