14 January 2009

STADIUM FINANCING SIMPLIFIED

The stadium financing issue is in the news again, mostly because New York Yankees president Randy Levine has been subpoenaed by a state assembly committee investigating the funding used to build the team's new stadium.

The Yankees are asking for another $259 million in tax-exempt bonds and $111 million in taxable bonds, on top of the $940 million in tax-exempt bonds and $25 million in taxable bonds already allocated for the new stadium.

Yesterday, Levine and NY assemblyman Richard Brodsky (D), gave separate interviews on WFAN's "Mike without the Mad Dog" (AKA "Mike'd Up") program.

After listening to both sides and doing some investigating of my own Levine's argument makes more sense than Brodsky's.

Regular readers of this blog know that I am no fan of Randy Levine, so for me to take his side is quite rare.

Here is the deal:

1. NYC sold tax-free municipal bonds to fund the stadium. Normally, when a city sells bonds (to fund government operations), the city pays off the bonds (with tax dollars) when they are due. In this case, the Yankees are paying the bonds when due. That's how the Yankees are financing the stadium using Yankee money, not taxpayer money. NYC municipal bonds will be paid off by the Yankees, not the taxpayers. So when you hear the stadium is being paid by "public financing", that is simply not true. They are public bonds being serviced with private money. Using tax free bonds is more attractive to investors and reduces the cost to the Yankees due to the lower interest rates. Levine says that traditional financing would have brought the total cost of the stadium to over $2 billion.

2. Even though the Yankees are picking up the tab, the CITY OF NEW YORK is the owner of the stadium and the Yankees hold a 43 year lease to the building. That's right, the Yankees are basically giving NYC a stadium for FREE.

3. As most landlord/tenant agreements go, the landlord responsible for maintenance. In this agreement the Yankees will pay all maintenance costs for the stadium. In the old stadium the city paid for maintenance of the stadium by deducting maintenance costs off of the rent.

4. All of the parking garages are owned and operated by NYC, even though the Yankees are building them. The Yankees get no revenue from the parking fees. The Yankees get only 600 parking spaces from the city for their use.

Lastly, Citi-Field is being built with the same deal.

Now, Mr. Brodsky contends that:

1. The city would have been better served if the Yankees used private financing and paid property taxes to the city.

Levine said that if the Yankees would have had to go that route, the stadium would not have been built. I disagree. The stadium would have been built.....in NJ! I'm sure Governor Corzine would love all of the jobs and tax dollars the Yankees bring in.

2. The stadium is only creating 22 jobs and the city is not making any money on the deal.

Yes and no. The stadium is creating 22 "Yankee" jobs, people employed by the Yankees, mostly because the Yankees are contracting out the operations of the stadium. The facts are that the stadium will be home to 3000-5000 employees from various employers.

As for income to the City, there are more vendors, more restaurants, more concessions more maintenance people, more media support people (Levine mentioned more YES network cameramen) and a museum. The Yankees hired a private security firm, where NYPD (taxpayer expense) was the security at the old stadium. These are real jobs. Real jobs that the vast majority of which will go to minorities due to the ethnic diversity of NYC. I'm sure the Yankees are not paying the Hard Rock Cafe or the Yankees Steakhouse employees. These workers pay PAYROLL TAXES, everything sold inside the stadium is subject to SALES TAXES. Also, the amenities of the stadium will be open ALL YEAR, not just during the season.

NYC Comptroller William Thompson Jr. accused Mayor Michael Bloomberg of financial incompetence in the Yankee Stadium funding deal.

"Financial incompetence"? Bloomie is a self-made Billionaire!

Thompson, who intends to run for Mayor, said the deal ultimately will leave city taxpayers with the bills.

This would be true only if the Yankees default on the bonds. If the Yankees default, the City would be on the hook for the debt.

That is highly unlikely.

http://nyyu.blogspot.com

6 comments:

Ben K. said...

The stadium would have been built.....in NJ! I'm sure Governor Corzine would love all of the jobs and tax dollars the Yankees bring in.

In fact, New Jersey explicitly said that there would be no stadium deal. The Yankees never were and never had the option to move. That's simply a false line of reasoning.

Mike said...

Ben,

First I'd like to mention that I am a frequent reader of RAB. It's good stuff.

My comment about Gov. Corzine was my opinion. The stadium deal is a sweetheart deal for both sides...In my opinion.

Back in 1987 the NJ State Senate passed a bill that would put a $185 million ($185m...hahahaha) bond referendum for construction of a baseball stadium on the ballot for the taxpayers to approve.

Those bonds would have been paid for by the taxpayers, not the Yankees as is the case today.

The referendum was soundly defeated.

Back in October, as reported in the NY Times, Randy Levine, the president of the Yankees, told a Congressional hearing Friday that if the city had not issued tax-exempt financing for the team's new stadium, it would have left town.

He wasn't talking about moving to Iowa!

"It's been no secret for many years" that the team would move if it could not save tens of millions of dollars on financing with tax-free bonds, Levine told the House subcommittee on domestic policy. He added: "There was no shortage of suitors. We see ourselves as a paradigm in professional sports." Levine refused to be specific about the other suitors, but when asked after the hearing if New Jersey has wooed the Yankees in recent years he said, "Absolutely!"

Now again, my opinion is that the Yankees back up plan was to present the same deal to NJ that they offered to NYC if NYC rejected the offer.

If you were the Governor of NJ and this offer was proposed to you, would you have taken it?

Thanks for reading New York Yankees Update!

Anonymous said...

Ben,

Gotta agree with our respected blogger on this one. Do you think that if the NY Yankees, one of the most successful professional sports franchises in the world, and all their potential tax revenue they would bring in, came to "His Royal Highness Cazr Corzine" saying we'd like to take up residence in NJ he wouldn't jump at the chance? Any govenor who would turn them down would be an idiot.

As a lifelong NY Giants fan I can remember in my youth all the talk about the Giants would never, ever leave NY and come to NJ. They did and they were welcomed with opened arms.

The "I"Man from South Jersey

Anonymous said...

Ben,
Just so you know, the reason the the city of New York owns the stadium and the parking garages isn't because of the generosity of the Yankees' front office, but so that the team could avoid millions in property taxes they would owe should they hold the purchase deed outright. This is a fairly common property tax dodge if you look at other teams' stadia deals in other cities. Don't be so quick to give Levine credit ...

-- Erik

Anonymous said...

Erik,

While I agree Levine shouldn't be given credit for his generosity (as he likely didn't have much say in the matter), your point about "avoiding" millions in property taxes absurd. It's true that if you don't own the land you don't pay the taxes, but you're completely ignoring the millions of dollars of parking revenue that will be generated evey year. The yearly property taxes, if I had to make an educated guess, are far less than revenue that will be generated. This makes the garages a net positive cash flow for whoever owns them, in this case the city of New York.

-Dan

Sux2Lose said...

Have you seen this?
http://www.fieldofschemes.com/news/archives/2009/01/nyc_baseball_st.html

It's pretty convincing.

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