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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 stadiums.

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.

New York Mets will pay most of the cost for a new stadium next to aging Shea in Queens.
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 for infrastructure.

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.

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