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December 20, 2009
State senator charges Nets bonds are illegal
Field of Schemes
Neil deMause looks at the legality of bonds created for the proposed Nets arena.
Freddy's Bar, one of the buildings slated for demolition to make way for the new Nets arena in Brooklyn, is installing chains today so that patrons can attach themselves to their barstools if the bulldozers come. But as surprise last-ditch efforts to forestall the Atlantic Yards arena project go, there might be more significance in a state legislator's surprise insistence that the arena bonds sold last week are illegal:
Suggesting that bonds for the Brooklyn arena were issued improperly, state Senator Bill Perkins yesterday asked Governor David Paterson to halt the "master closing" for the project scheduled for Wednesday and to stay condemnation proceedings until "serious questions... are addressed."
Had the bonds been issued by an Empire State Development Corporation (ESDC) subsidiary, they could be repaid via for payments in lieu of taxes (PILOTs), but the issuance would have had to have been approved by the Public Authorities Control Board (PACB), Perkins wrote in a letter. However, in an apparent effort to avoid the PACB, the ESDC created the Brooklyn Arena Local Development Corporation (BALDC), and that murky entity--which issued $511 million in bonds--should not possess a property tax exemption, the letter said.
In English, that seems to mean this: In order to take advantage of the Yankees dodge and use federally subsidized tax-exempt bonds for the arena, the Nets need to claim that their bond payments are really "payments in lieu of property tax." (For reasons that I really can't bear to explain again, tax-free bonds can only be paid off with tax revenue, not private rent payments.) But of course, to be "in lieu of" property tax, the property in question needs to not be charging tax that it otherwise could be.
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Whether this legal argument is valid, I have no idea — as the one property-tax expert I contacted today remarked, "This is way above my pay grade." That said, major development projects in this city have been scuttled by more unlikely sources, so anything is possible. It'll be very interesting to see if Gov. Paterson responds, and if not, whether Perkins (or local opponents) then throws another lawsuit on the fire.
Posted by steve at December 20, 2009 8:44 PM