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October 22, 2008

IRS to give Bruce Ratner a huge federal tax break to build arena

BruceRatnerHappy.jpg There's a lot of coverage of the IRS's ruling to grandfather in federal tax breaks for Bruce Ratner's Nets arena and a new round of bond financing for the Yankees and Mets ballparks.

Atlantic Yards Report, In IRS regulations allowing tax-exempt bonds, no need for messy democracy like an elective body
In short, the IRS decided that Payments in Lieu of Taxes would no longer be allowed for sports stadiums after October 2006. For the old rules to apply to the planned Nets arena, the project had to be underway before that. How is that possible when the project wasn't approved until the following January? Norman Oder explains the IRS's twisted logic:

Anyone watching 12/8/06 meeting of the unelected Empire State Development Corporation (ESDC), with all of four board members (of seven, with one vacancy) in attendance could conclude that the project was rubber-stamped. Moreover, some board members had but a vague notion of project details.

But that wasn't the key decision made by the ESDC board. The key decision was made July 18, 2006, when the ESDC announced that it had "adopted" the General Project Plan (GPP) and "accepted" the Draft Environmental Impact Statement (EIS).
In between, in October, the Internal Revenue Service (IRS) proposed new regulations to tighten tax-exempt bonds for sports facilities.
Apparently, the regulations don't require action by an elective body.

A "governmental person (as defined in §1.141-1)" of the Treasury Regulations is "a state or local governmental unit as defined in §1.103–1 or any instrumentality thereof."

And what's §1.103–1? "[A]ny division of any State or local governmental unit which is a municipal corporation or which has been delegated the right to exercise part of the sovereign power of the unit."

In other words, a handful of appointees of Gov. George Pataki showed up at a meeting on July 18, 2006 and gave their OK to stacks of documents they hardly read--or didn't read at all. And that meant the project was on its way, even if the chronology sent by the city and state to the IRS was bogus.

The Associated Press, via International Herald Tribune, New tax rules would allow NYC teams to float bonds

Updated tax rules issued Tuesday limit the way tax-exempt bonds can be used to pay for sports facilities but don't block the New Jersey Nets, New York Yankees and New York Mets from using billions of dollars in bonds to help pay for their new homes, state and city officials said.

The NY Times, Developer of Nets’ Arena Can Use Tax-Exempt Bonds
Lead real estate reporter Charles V. Bagli filed a story today:

Under the new ruling, federal officials essentially gave a green light for the three sports arenas, among the world’s most expensive, to use tax-exempt bonds. But tax experts said that the ruling would not allow other governments to issue such bonds on behalf of professional sports teams. The rule was adopted on Monday by the Treasury Department and the Internal Revenue Service.

Still, the New York teams may have difficulty finding investors who will buy the bonds, given the current turmoil on Wall Street and in the credit markets.
[Develop Don't Destroy Brooklyn spokesperson Daniel] Goldstein said it appeared to him that federal tax officials went out of their way to help the developer, which he said “makes no sense” when the federal government is in the midst of a costly bailout of the banking industry.

The Real Estate Observer, IRS Gives Thumbs Up to Tax-Free Bonds for Yankees, Mets, Nets [Updated]

The new IRS regulations are here [Word doc]. They grandfather in any projects that had "preliminary approval" before October 19, 2006. The baseball stadiums were approved prior to then, though Atlantic Yards did not get a final approval until the end of 2006. Still, officials seemed to be under the impression that ruling cleared all three teams to qualify for tax-free bonds.

Also, here's Forest City Ratner pr guru Joe DePlasco's statement:

“We are of course very pleased with the Treasury Department regulation. The tax exempt financing was always part of the plan for the development of the arena and the regulation released today acknowledges that. The regulation will help us move forward with a project that is critical to the on-going economic vitality of Brooklyn and the City.”

NY Daily News, IRS clears way for tax dollars to help new stadiums, arenas

Critics blasted the taxpayer subsidy as a waste of money at a time when the city and state are cutting costs in schools, mass transit and more.

"We can't fund the MTA and we're cutting back on city hospitals," said Assemblyman Richard Brodsky (D-Westchester), whose committee is investigating the Yankees deal.

"This is more socialism for the wealthy, where taxpayers are asked to fund a stadium they can't afford to go to."

NY Daily News, Just call the new Yankee Stadium the House That Tax Subsidies Built
Columnist Juan Gonzalez examines the chicanery behind the Yankee Stadium financing, which just got a boost from the same IRS ruling that made Bruce Ratner happy.

The Star-Ledger, Nets get favorable ruling from IRS

The Empire State Development Corp. expects to issue an unspecified amount of tax-free bonds to fund the arena early next year, Warner Johnston, a spokesman for the agency, said.
Nets owner Bruce Ratner is seeking up to $800 million in tax-free financing. The IRS ruling means New York state can issue the bonds, Johnston said.

The Brooklyn plans are being closely watched in New Jersey, where some elected officials have hoped the Nets will scrap their Brooklyn arena plans and move to the year-old Prudential Center in Newark or stay at the Izod Center in the Meadowlands.

Curbed, IRS Decides Tax-Free Financing for Atlantic Yards Okay

[The IRS ruling] may or may not help the Atlantic Yards project get financed if the credit market isn't interested, but the project has won a big victory today.

Nets Daily, IRS Approves Tax-Free Bonds for Barclays Center
The blog that tracks all things Nets calls it a "big win for Bruce Ratner."

Two blogs posted Develop Don't Destroy Brooklyn's press release, denouncing the IRS ruling on the basis that the project wasn't approved until after the October 2006 rules change:
Yonkers Tribune, IRS Today Rules Bruce Ratner's Barclays Center Arena Not Qualified for Tax-exempt Bonds
Daily Gotham, IRS to Bruce Ratner: No Way!

Posted by lumi at October 22, 2008 6:34 AM