« In plain sight: are dramatic re-assessments on arena block a prelude to "gaming" PILOTs to pay off construction? | Main | Gehry leaves Brooklyn megaproject »
June 8, 2009
DDDB PRESS RELEASE: Assemblyman Brodsky Warns That New MTA Sweetheart Deal for Ratner Would Violate Fiduciary Duty
City Has Been Raising Land Assessments Under Proposed Ratner Arena, Raising Serious Questions
New York — Assemblyman Richard Brodksy, Chair of the Committee on Corporations, Authorities and Commissions, as reported by the Atlantic Yards Report, made the following comment on the MTA’s plans to approve a sweeter deal with developer Forest City Ratner’s Nets team during a conference titled "The Proposed Legislation to Amend the Public Authorities Law: Maintaining the Balance Between Authority Autonomy and Accountability,” held June 3rd at the Government Law Center at Albany Law School:
On the MTA…this [fiduciary duty] is going to come up very quickly, because the Nets are going to ask the MTA to take less money for the Nets arena. I believe that the decision to accept that offer would be a violation of the fiduciary duty of the board members.
The MTA has announced that it plans to propose a newly negotiated deal with Ratner for the developer’s purchase of the MTA’s 8-acre Vanderbilt Rail Yard. The original agreement was $100 million in cash at closing (the yard was appraised at $214.5 million) and a new state-state-of-the art rail yard. Reports are that Ratner wants to pay only $20 million up front, and build a rail yard on the cheap.
“The MTA has no business sweetening its sweetheart deal with Ratner, not when the authority is so needy of money for operations and capital expenses. Gifting Ratner further would be a punch in the face of transit riders and taxpayers,” said Develop Don’t Destroy Brooklyn spokesman Daniel Goldstein.
Talking about the misuse of PILOTS (Payments in Lieu of Taxes) the Assemblyman also made these comments:
So you go ahead and create a PILOT--a payment in lieu of taxes. And that you securitize. And that’s what the [Yankee] stadium deal and the Mets deal and the Nets deal is probably going to be. That is diversion of tax money into debt without any elected officials looking at it. That is an extraordinary kind of thing.
“We have been concerned for years that Forest City and New York City would inflate land values in the Atlantic Yards footprint in order to game IRS regulations governing tax-exempt bond financing,” Goldstein said. “Our concerns are becoming even stronger now that we see the City’s land assessments in the Barclays Center arena footprint skyrocketing in broad daylight.”
Norman Oder, also reporting on his Atlantic Yards Report, has done the numbers, after Independent Budget Office official George Sweeting stated at a Senate hearing that the land values under the arena have increased threefold in the past year alone.
In a report published this morning Oder has found some parcels that “have leaped 17 or 20 or 34 times in one year” in their re-assessments by the New York City Department of Finance. These re-assessments are eye-popping, even more so because they are all within an area designated as “blighted” by New York State’s Empire State Development Corporation.
“These re-assessments are extremely fishy and the IRS, Senator Perkins and Assemblyman Brodsky, who oversee the authorities that will deal with the arena bonding, need to take a very close look at what the heck is going on here,” Goldstein said.
Why do these skyrocketing assessments matter? Forest City plans to pay for most of its arena construction with a triple-tax exempt bond. The bond is estimated to be at least $800 million. Forest City will make PILOT (Payments in Lieu of Taxes) payments to pay off the bond and debt service. In other words they will use money otherwise meant to go to the City treasury like all other property taxes, to pay their construction costs.
The problem is that the IRS requires the PILOT to be the equivalent of the foregone taxes for the assessed land. A legitimate assessment of the land under the proposed arena would not come close to meeting the $800 million bond the developer wants to float for the arena. So, the developer and city officials appear to be working backwards—start with the $800 million PILOT it wants to pay and then fix the land assessments to meet that payment. If that is what is going on that would be a violation of IRS regulations.
“An investigation into these land assessments and the PILOTS is necessary. Now.” Goldstein concluded.
Posted by eric at June 8, 2009 11:06 AM