City and state officials are working in concert to convince the Internal Revenue Service to make it easier to get access to hundreds of millions of dollars in tax-exempt financing for the construction of the Yankees, Mets, and Nets stadiums.All three projects have already received hundreds of millions of dollars in tax-exempt bond financing, but the city and state are seeking more, which has angered a number of watchdog groups and state legislators.
"These decisions are being made in secret in these Soviet-style meetings and it is outrageous," the chairman of the Assembly's Committee on Corporations, Authorities and Commissions, Richard Brodsky, said. On Wednesday, it was disclosed that the Yankees had approached the city about seeking an additional $350 million in tax-exempt financing.
"The city is working in Washington to seek relief on the IRS regulations," the president of the New York City Economic Development Corp., Seth Pinsky, said in an interview yesterday.
Since the 1986 Tax Reform Act was enacted during the Reagan administration, private development companies have faced tight restrictions when attempting to get access to tax-exempt bonds for sports facilities.
In 2006, with the support of the Bloomberg administration, the Yankees and the Mets were able to circumvent the federal regulation by employing a complex accounting technique that allows the bond debt to be paid by the city and state with money received from the private developer, known as payments in lieu of taxes.
Now the IRS is considering closing the loophole for future projects, a move city officials say would hinder development. They say that more private development projects should be able to get the benefits of tax-exempt bonding.
"They have taken away a tool that would be useful for a number of New York City development projects. Ideally we would like the ability to use this financing tool more broadly," Mr. Pinsky said.
The bonds, exempt from city, state, and federal taxes, are said to have an interest rate of about 25% below taxable bonds. According to the city's Independent Budget Office, the construction of the new Yankee stadium has already received $920 million in tax-exempt bond financing, resulting in savings of $190 million in tax payments for the Yankees.
Taxpayers are ultimately forced to pick up part of that tab. According to the Independent Budget Office, the city's treasury lost $10 million in taxes, the state $18 million, and the federal government $200 million.
City officials see the bonds as a relatively inexpensive way to subsidize development, specifically because the federal government picks up a greater share of the tab.
"What is advantageous is that the vast majority is paid for by federal taxes as a result the city loses a small amount of money," Mr. Pinsky said. "We are leveraging a small amount of city and state funds to get a substantial amount of federal assistance."
Bettina Damiani, a project director at a government watchdog group, Good Jobs New York, questions why the city would seek a break from Washington on sports stadium projects when there are so many other pressing infrastructure problems in the city that need additional financing.
"Doesn't the mayor have better things to do than be asking Washington for money to help the Yankees?" she said.
The writer of the book "Field of Schemes," Neil deMause, says the accounting trick used for the Yankees and Mets stadiums counters the intent of the 1986 Tax Reform Act. "At a certain point, this is a huge way for the cities to raid the federal treasury, and let everybody borrow tax exempt money," he said.
Mr. Pinsky said all the funds had been cleared by the IRS. He also said that the developer Forest City Ratner Co. had expressed interest to the city about seeking additional tax-exempt funding, but that the request was being handled by the state.
"We are not making an end-run around anyone," Mr. Pinsky said. "The IRS issued a letter saying what we are doing was perfectly legal."
A spokeswoman for the Yankees, Alice McGillion, said it was always the intent to be seeking additional tax-exempt funding, but she said the exact sum that would be sought had not been determined.
While in Washington yesterday, Mayor Bloomberg was asked about the possibility of additional subsidies for Yankee Stadium.
"With the current regulations, we couldn't give out any more interest-subsidized bonds. So it's an interesting thing. We'll talk to them certainly, as we'd talk to anyone building anything large in the city. But I think it's premature. We would like to see them do it without any more assistance, and whether they can do that or not, I don't know," he said.
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