The Final Word
Big Apple can take a shine to this new threesome of sports facilities
Published June 27, 2005 : Page 25
If bad news always happens in threes, then New York City is providing the exception
to the rule.
No sooner had Sheldon Silver, speaker of the New York State Assembly, vetoed the
use of $300 million of state money to finance the Jets‚ stadium on Manhattan‚s
West Side than the Yankees and the Mets announced plans for privately funded new
The Yanks and Mets now join the Ratner arena plan for Brooklyn to provide the
prospect for three new sports facilities opening in the five boroughs during 2008-09.
Over the last 15 years, the public share in total stadium development (facility
plus infrastructure) costs has averaged around 70 percent. In each of these three
New York facilities, the public share is below 25 percent.
The Mets are going to spend roughly $700 million for a new stadium next door to
Shea, in Queens. The city and state together are going to chip in about $180 million
New York Mets will pay most of the cost for a new stadium next to aging Shea in Queens.
In this case, the infrastructure is mostly directly beneficial to the Mets rather
than the general public. Nonetheless, the explicit public share of the total development
cost of the new facility is 20.45 percent.
The Yankees are planning to spend $800 million for their stadium, next door to
the present one in the Bronx. The city and state together will pay out around
$240 million, roughly 23 percent of the total.
A large chunk of this „infrastructureš spending is for public purpose:
the reconstruction and expansion of Macombs Dam Park, the parking facility, the
boat slip and Metro North platform. Game-day parking revenues will all go to the
state (unlike the Mets‚ arrangement, where the money goes to the team) and
will more than pay for the $70 million state investment.
Moreover, the new development will facilitate the extension of the gentrification
frontier naturally from Manhattan into the south Bronx.
The Nets will occupy a $500 million arena at Atlantic Yards in Brooklyn that is
part of a 21-acre, $3.5 billion residential and commercial development being undertaken
by Bruce Ratner. In this case, the city and state will contribute $200 million
in infrastructure money, or less than 6 percent of the total project costs. (Full
disclosure: I am a consultant to Ratner.)
In all three cases a substantial portion of the funding will come from tax-exempt
bonds issued by newly created local development corporations. Debt service on
these bonds will be covered by the teams via PILOTS (payments in lieu of taxes)
to the LDCs.
Some may object that if the teams cover the debt service instead of paying taxes,
then, in effect, the public treasury is paying for the bonds and the facility
through forfeited tax collections.
This objection was valid in the case of the vetoed West Side stadium for the Jets.
However, it applies only to a small degree for the Yankees, Mets and Nets.
The difference for the latter three is that the Bronx, Queens and Brooklyn are
all in tax-abatement zones. (Manhattan is not.)
Under a commercial incentive program, all commercial developers in these boroughs
do not have to pay real estate taxes on new projects for 15 years. After that,
the tax is phased in at 10 percent a year for 10 years, and only in years 26-30
are full taxes assessed.
I estimate the present value of the taxes that are being replaced by the PILOTS
for the Yankees, Mets and Nets at $44 million, $39 million and $21 million, respectively.
Thus, for instance, it could be argued that the Yankees are paying $756 million
out of the $800 million for stadium construction and the Mets are paying $661
million out of the roughly $700 million for their new ballpark.
All three teams will benefit from an exemption on the sales tax on materials used
during construction, but this is a typical allowance in large-scale construction
projects in New York.
Of course, the Yankees and the Mets will benefit from the MLB provision allowing
them to deduct stadium capital and operating costs from their local revenue before
revenue-sharing taxes are assessed.
The Nets case is a bit different. The NBA has no program to subsidize team arena
construction. Further, the Ratner project includes not only $500 million of private
funds for the arena but also an additional $3 billion in private funds for residential
and commercial development.
When sports facilities are funded with public money, the construction project
itself generally does not add to the local economy. This is because the public
spending on the stadiums is offset by the higher taxes which lead to less disposable
income and less spending by the local households.
In contrast, the three proposed New York facilities will be funded overwhelmingly
with private funds that will constitute new money to the local economy. There
will be a net increase in local employment and income.
In the cases of the Yankees and Mets, the city also benefits because it no longer
has to cover rising maintenance costs at aging facilities. These costs have been
running around $10 million annually at Yankee Stadium in recent years and nearly
that high at Shea.
In the end, as in all large-scale construction projects, there will be some detractors.
Yet back in 2001, Rudy Giuliani reached a tentative deal with the Yankees and
Mets for the public to cover 50 percent of stadium construction costs.
Compared with the typical deal in the sports industry and previous proposals in
New York, the new facility plans for the Yanks, Mets and Nets are good news indeed.
Andrew Zimbalist is Robert Woods Professor of Economics at Smith College.