Saturday, November 14, 2009

The Yankee’s Hoggish New Stadium Monopoly Taxes The Rest of Us

If you haven’t yet heard WNYC’s October 28, 2009 Ailsa Chang story about how the new Yankee Stadium is sucking up inside the cloister of its privately-owned walls the economic activity that once upon a time existed in the surrounding Bronx community, take seven minutes to listen to it now, without further delay. WNYC also provides a text transcription of the story at its site. (See: News: Main Street NYC Returns to 161st Street in The Bronx, by Ailsa Chang.)

Waking Up to Some Singular Facts

Develop Don’t Destroy Brooklyn dubbs this arresting story (broadcast on the evening of the World Series kick-off): “A Cautionary Tale for Local Businesses Around the Proposed Atlantic Yards Arena Site” (10.28.09). Irrespective of whether Yankee Stadium is in all ways precisely analogous to the proposed Atlantic Yards Nets arena (Atlantic Yards Report analyzes that it isn’t, see: Saturday, October 31, 2009, Would the AY arena, like the new Yankee Stadium, suck retail inside?), the situation at Yankee Stadium should wake up virtually anyone to the fact that projects sold to the public as providing “economic development” may deliver just the opposite. Why is that? In order to consider Yankee Stadium in terms of what it does and why it is important to consider it first for what it is: a monopoly.

Larger “Sports” Complexes Fewer Sports Seats

Listening to the WNYC story made us think about the stadium’s monopolistic characteristics when we described how sports arenas and stadiums in this country are becoming much bigger (three or four times the park sizes of 40 to 50 years ago) even when the number of seats in them is, if anything smaller, and that is because these sports parks are trying to capture inside their walls all the shopping and eating drinking that their patrons might be doing when they visit. Yankee Stadium is just one example. The WNYC story points out that while the new ball park has “4000 fewer seats” it has become a “mega-mall” that is in decimating competition with local merchants taking away the business that used to be theirs.

We are not sure about the above reported figure of “4000" fewer seats: The reduction seams to be even greater. The Yankees’ own site says the reduction was 4,561, from 56,886 to 52,325, but the latter of those two figures (52,325) is only good if you oxymoronically include 1,886 standing room “seats.” Going by the figures in Wikipedia the reduction was 7,459, a reduction from 57,545 to 50,086 and Field of Schemes estimated that the it was about a 14% reduction in real seat terms. (See: February 26, 2009, Yanks exec: Yes, we have no seats.)

Cartel Behavior

No matter. A reduction of supply to boost prices is a characteristic of cartels. The Times reported that the Mets cut back the number of seats in their ballpark by 25% in order to stoke demand (See: Fewer Seats and More Sellouts Were Mets’ Priorities, by Richard Sandomir, March 27, 2009.) The new Mets Citifield stadium has 42,000 seats, far fewer than their average fan attendance in recent years (51,165, in 2008). That same article reports the seats in the new Yankee Stadium are below the “team’s 2008 attendance average of 53,069.”

Learning Not To Share

The more important point, however, is how the new Yankee Stadium contains a much bigger mall full of national chain stores, and that it doesn’t share its patrons with the surrounding neighborhood. In fact, transit facilities in the area have been redesigned to facilitate this lack of sharing. The WNYC story includes an interview quote from Stanford University economist Roger Noll who it says “has looked at every stadium built in the last 20 years” to conclude they don’t give “a real, substantive boost to neighborhood businesses” which often actually end up “doing a lot worse.” Says Noll: “The whole point of a modern athletic facility – whether it’s an arena for hockey and basketball or a stadium for football or baseball – is to get all of the money to be spent inside the stadium.” There is juicy stuff here, so listen to the WNYC story about how the stadium has vacuumed up much of what was the community’s economic activity into their private walls where they will be paying rent to the new stadium’s owner.

Grabbing Some Commodified Culture

The beginning of this October we attended an afternoon session at a Kingsbourough College conference on Brooklyn development that focused on Atlantic Yards. One of the presentations was by Stuart Schrader of the CUNY Graduate Center. It dealt, in big picture terms, with Atlantic Yards as an effort to seize and monopolize the culture of what is Brooklyn. Mr. Schrader’s paper is not yet available but he directed us to another paper that he said had influenced him, The Art of Rent: Globalization, Monopoly and the Commodification of Culture,
by David Harvey (08.27.06). The overall point of all this is that although we tend to think in terms of monopolies as being with respect to certain industries and commodities, the interest in capturing a monopoly can extend to being an exclusive conduit for virtually anything, even culture.

One can probably detect from the term “monopoly rent” and thinking about the concept of “surplus rent” and the modern day use of the more recently-coined term “rent-seeking” that there is a bit of classical dialectic underlying these concerns that hearkens all the way back to Marx, but it is hard not to be conscious of the urge that Forest City Ratner and others have to appropriate native culture such as Brooklyn’s unto themselves. As we once previously quoted Norman Oder of Atlantic Yards Report writing about the Ratner organization’s use of the image of the Brooklyn Bridge “which happens to be closer to the Brooklyn Paper's longtime DUMBO offices, rather than the generic MetroTech office park” . . . “Forest City Ratner has not been shy about appropriating Brooklyn Bridge iconography in advertising.”

The tragedy is that, to the extent that monopolistic takeovers of culture succeed, what almost invariably ensues is its replacement with something less authentic and more generic and cookie-cutter like the aforementioned MetroTech.

Putting the “Mega” with the “Monopoly”

We wanted to mention Mr. Schrader ‘s presentation but we have probably gone too far afield in doing so because it is unnecessary to get into esoteric concepts about the monopolization of culture in order discuss the many monopolistic characteristics in which Atlantic Yards is throughly steeped. So much so that these days we find that we are nearly as apt to routinely refer to the Atlantic Yards project simply as a `mega-monopoly’ as we are to refer to it as a `megadevelopment.’

Layers Upon Layers of Monopoly

Mega-monopoly probably describes Atlantic Yards better than any other single word given that:
• The gestating seed of Atlantic Yards was a big league sports franchise. These franchises are exempt from antitrust rules and if you search the Atlantic Yards Report site you will find a lot of discussion of their monopolistic nature by economists and other experts. (You will also find a lot of our own comments about Atlantic Yards as a monopoly.)

• Atlantic Yards’ birth was midwifed by another monopolistic expedient, the award of the project to Forest City Ratner on a no-bid basis, which was essential to preclude any possible competition.

• Its succor and the basic sinew of its composition is the eminent domain abuse that chases away all other competitors and transforms what was the competitors’ into Forest City Ratner’s.

• Atlantic Yards has been further coddled by government agencies that have lavished on it additional hundreds of millions of dollars from the taxpayers on a no-bid basis, given its extraordinarily valuable naming rights and exempted it (and these many gifts) from the requirements of appraisal and bids under the Public Authorities Accountability Act.
Maturing Into a Tax Base Problem

Take away any one of the above special monopolistic favors, for instance by subjecting Atlantic Yards to the requirement of a fair bid, or by take away its privilege to abuse eminent domain, and the project fails, it withers unwholesomely on the vine quite as it deserves.

On the other hand, allowed to mature, the mega-monopoly becomes something rather monstrous that drains the resources of the community at large. Here is something important that the WNYC report on Yankee Stadium neglected to mention. The community economic activity in the Bronx that existed before the new Yankee Stadium was built was all increasing the value of local property paying property taxes. It was all contributing to the city’s tax base. But Yankee Stadium is tax-exempt (courtesy of political deals present and past). It doesn’t pay property taxes. That means that when all that local economic activity was sucked up within the sealed walls of the stadium the activity that was on the tax rolls helping everyone in the city, metamorphosed into payments that now only line the pockets of the private owners of Yankee Stadium.

No Taxes? Another Special Benefit Among Too Many to Mention

The privilege not to pay taxes! That’s one more of those special benefit that keeps projects like Yankee Stadium and Atlantic Yards alive. When it comes to Atlantic Yards the list is so long, it is hard to remember all the special benefits. For instance, shouldn’t we mention the zoning override that will selectively apportion an extraordinary amount of extra density on the Ratner property as opposed to other property tax-paying owners in the borough?

Are Taxes Intercepted and Redirected Back for the Private Benefit of Those “Tendering” Them Truly Taxes?

Now it’s time to get a little bit technical because Yankee Stadium’s monopolistic removal of pre-existing economic activity from the tax rolls provides a marvelous opportunity for us to elucidate upon an important, sometimes debated point. Sometimes people say that Yankee Stadium is not off the tax rolls. And sometimes the same people say that Yankee Stadium is not financed with the city taxpayer’s money. (The same applies to the proposed Atlantic Yards Nets arena because the same R-TIFC-PILOT" agreement scheme- pronounced "Artifice-PILOT"– or "Return Total Intercepted For Costs-Payment In Lieu Of Taxes"-- that was used to finance Yankee Stadium is proposed to be used for the arena.) We think that these people are wrong and are trying to promote ideas that are mutually self contradictory. We admit that there are areas with certain shades of grey which we will get to in a moment, but in the end they are not so important.

Basics Before Nuances

Before we get into the nuances, let us review the basics. The owners of Yankee Stadium pay “theoretical” real property taxes (sometimes called “synthetic” property taxes in the community of lawyers financing these deals just so that nobody confuses them with the real thing). The reason the taxes are only theoretical is because the government never gets them; they never go into the public coffers. Instead they are intercepted and used to pay the personal obligations of the Yankee Stadium owners, most importantly the bonds that were issued to finance the Stadium.

We have been quoted as explaining it this way:
The setup is basically like paying taxes on your home and then having the government use that money to help you pay off your mortgage," said Michael D. D. White, a former vice president and top lawyer for the state finance authorities.
(See: Your 'Net' Loss, $2b in Taxes to Ratner, By Rich Calder, April 14, 2008.)

So basically, if you want to think of the Yankee Stadium as being on the tax rolls you have to think of it as being publicly financed with taxpayers’ money because all the taxpayers’ intercepted money goes to the privately owned sports team. Conversely, if you want to think of the stadium as being privately financed then don’t think of it as being on the tax rolls. You can’t have it both ways- - Something we’ll come back to in a moment. One more thing: This neat little bit of legerdemain is the basis upon which the interest on Yankee Stadium bonds was theoretically made tax-exempt which constitutes a whole other raid on the city, state and federal taxpayers. (We’ll get back to that too.)

We described this in more detail with respect to Atlantic Yards (shortly before the official numbers increased a lot) in this Huffington Post article we authored: More Money for the Very Rich: An Unsporting Pursuit? March 17, 2008. Just recently the same subject was visited with a similar explanation by Daniel Goldstein in this Huffington Post article: Wrong Way PILOTs Would Crash into Atlantic Yards, November 3, 2009.

Bloomberg Leads the Stadium Bond Duplicity

Who are those who would try to have it both ways? Mayor Michael Bloomberg for one, someone who was no doubt just trying to confuse the voters since he surely ought to know better. We took Mr. Bloomberg to task on this in: Stadium Finance: Mayor, Professing to Know Numbers, Should Know He Can’t Have It Both Ways (Unless He’s Keeping Two Sets of Books) (Monday, December 15, 2008) For another article where we took the mayor further to task about Yankee Stadium bonds, getting into other objections about them, see: Another Lulu: Revisiting the Yankee and Mets Stadium Scams (Tuesday, January 13, 2009).

Acknowledging Some Difficult Nuances

Now for some nuances, and then we will get to why the way that Yankee Stadium is taking economic activity from neighboring properties off the tax rolls relates to these nuances.

We are about to set forth some distinctions that are difficult to discern and understand. We will do so for the purpose of acknowledging a different point of view even though we don’t exactly agree with it. We warn you that the level of sophistication involved in these distinctions might be a bit daunting but if you bear with us we think we will be able to describe then to you.

It might help to begin with an event that dramatizes a point.

City Parks Commissioner Benepe, Toes the Mayor’s Line on Yankees’ Bonds
(above: City Parks Commissioner Adrian Benepe at Brooklyn Bridge Park meeting.)

We had an elucidating exchange about the Yankee Stadium bonds with New York City Parks Commissioner Adrian Benepe when the subject came up at a January meeting where plans for the Brooklyn Bridge Park were being presented. Mr. Benepe was there to provide figures to put into perspective the perceived high cost of that park. During the question and answer session one member of the audience who had concerns about the luxury development planned for the park brought up Yankee Stadium (also mentioning the similar Mets stadium) as an example of Bloomberg’s propensity for giveaways to his wealthy and connected friends. Mr. Benepe responded, like a good commissioner, apparently taking a page from Bloomberg (see our above link about Bloomberg’s statements the month before). Benepe wound up saying exactly those things that we said we disagree with:
Just to correct the record. The city isn’t paying for either stadium. Both the teams are paying for the stadiums. The city is paying some related costs around the stadium. The billion dollars is being paid for by the Yankees, . . the $800 million being paid for by the Yankees . .
Someone in the audience, perhaps the original questioner, interrupted to say the “The bonds, the bonds.” Mr. Benepe continued:
Yeah and they’re paying back the bonds. They have to pay them all back.
At this point it was our turn to interrupt to correct Mr. Benepe and we called out that the bonds were being paid with city real estate taxes and that he was wrong. Mr. Benepe, before he decided that silence was the better part of valor, said:
They don’t pay property taxes, haven’t paid them before.
The Yankees Don’t Pay Real Property Taxes and Weren’t Paying Them Before

After the question and answer session concluded we spoke with Mr. Benepe, telling him that while we disagreed with him and consider that the Yankee Stadium bonds are being paid with intercepted taxpayer money (just as the city has certified to the IRS), we understood his point about the Yankees just not paying taxes at all. There is an argument that people like Mr. Benepe apparently subscribe to that it should be accepted as a forgone conclusion that the Yankees just don’t pay taxes, or at least that there will be a lot of taxes from which we can expect that society will automatically excuse them. We don’t agree in such a forgone conclusion and that conclusion is somewhat at odds with the theory that entitles Yankee Stadium bonds to any possible tax exemption. But, if one makes it a forgone conclusion that the Yankees are entitled not to pay taxes then the “taxes” that they don’t pay and use instead to pay off their own private bonds can be viewed by people like Mr. Benepe and Mayor Bloomberg as a kind of magic found money that wouldn’t otherwise exist.

Not That Simple: Some Complications

Additional Real Taxes At Least Someone Else Might Have Paid

Stop! It’s not that simple. Complication number one: It may be easy to conceptualize that since the Yankees were not paying taxes on their old stadium that maybe at least that same amount, the amount they were already not paying, should be regarded as an amount it would be impertinent for timid public officials to request them to pay later on. But what about any taxes beyond that? Say for instance, when that tax exemption is expiring or when a new stadium on new land increases the value of what the Yankees own and should be taxed? (We are coming back to this in a minute.)

And what if such a change in status is displacing another possible thing of taxpaying value? In the case of the proposed Atlantic Yards Nets arena, the arena which won’t pay taxes is to be built on a central Brooklyn site above subway stations, a site that would certainly otherwise be occupied by a taxpaying commercial property such as an office building or housing. Yankee Stadium arguably didn’t replace another possible taxpaying commercial property: What it did replace, rather sadly, was the community’s parks. (The city has so far been slow to construct even the inadequate replacement amenities that are supposed to compensate the public.- A responsibility that is partly Mr. Benepe’s.)

Additional Really Truly Completely Fake “Synthetic” Taxes

Finally, one more complication: Beyond the taxes that the Yankees wouldn’t pay because they `traditionally’ don’t, and beyond the taxes that the Yankees perhaps should pay and don’t as a result of the convoluted R-TIFC PILOT financing scheme, there are some additional theoretical “synthetic” taxes that would never ever be paid by the Yankees or anyone else under any circumstances because the taxes are entirely a fiction meant to sucker the IRS into considering the Yankee’s bonds tax-exempt. These additional theoretical “synthetic” taxes were created by the New York City Finance Department by artificially inflating the assessed value of the stadium to an absolutely unrealistic figure. (See: Sunday, April 12, 2009, Bloomberg Update: Fire and Ice (Part II) and also Sunday, April 19, 2009, Keeping up with Bloomberg and Friends: Stark New Scandals and Is it True WSJ Readers Don’t Commit Murder?) (We told you this was complicated.) So to the extent that these “taxes” never in fact existed or could even possibly have existed and were just created as a fiction to swindle the IRS they, are indeed, more magic found money. Though these fake taxes don’t actually divert real property taxes even though they do cost city, state and federal taxpayers money in the end.*

(* How intercepted real estate taxes should be categorized, affects a precise calculation of subsidy that big projects like these are receiving, for instance the $2-3 billion in subsidy that we calculated is going to Atlantic Yards. To the extent that one admits that a portion of the tax payments theoretically intercepted are simply fictional shams meant to fleece the IRS, then it is appropriate to somewhat reduce the total subsidy figure. Similarly, the Benepe argument with which we disagree would be that the total subsidy figure should be further reduced by disregarding the amount of subsidies the Yankees have already been routinely pocketing.)

Declaring the Yankee Stadium Bonds Taxable

What about the fact that the Yankee Stadium bonds are not actually entitled to be tax-exempt because of this last illegal ruse? (See: Saturday, November 8, 2008, Does Questionable Assertion of Attorney-client Privilege Point to Yankee Stadium Bond Taxability?) We still think that irrespective of whatever activity there has been by bond lawyers skulking about in Washington, D.C. in their efforts to persuade the IRS not to declare the Yankee Stadium bonds taxable as a result of this abuse, the IRS should finally get around to lowering the boom and declaring the Yankee Stadium bonds taxable. New York City officials went too far: The IRS should let them know that. The IRS needs to send a message and dismiss the lobbying.

In Chart Form

The forgoing seemed complicated enough so we thought it might be worthwhile to put it in chart form. So here it is (click to enlarge):

But, With WNYC’s Insight, Let’s Add One Important Thing to the Chart

We thought we had all the bases covered with above chart. That was until we heard the WNYC story and we realized that we had never thought about the way that the new Yankee Stadium/Mall would absorb the local taxpaying economic activity into the shelter of its tax exempt walls. It occurred to us that this needed to be added to our chart of the taxes not being paid. Below then is the revised chart of the taxes the Yankees are not paying (click to enlarge).

As the addition to the above chart observes, the mall-ifcation of the new stadium has created new off-the-tax-rolls shopping mall property. It means that taxpaying economic activity that once involved many local merchants outside the stadium has been simultaneously monopolized and converted into property that is off the tax rolls. Further, because the in-stadium shops are off the tax rolls they are more likely to out-compete the taxpaying mom and pop enterprises that will still try to exist in the community. Commissioner Benepe may have been correct in pointing out that the Yankees had a tradition of not paying taxes on their old stadium but now with the regime going into effect at their new stadium the Yankees are starting a new tradition of not paying taxes on a whole lot more than what they never paid taxes on before. In other words, this is an example of how Bloomberg’s “economic development” projects are anything but.

As we said at the beginning of this article, if you haven’t yet heard WNYC’s October 28, 2009 Ailsa Chang story about how the new Yankee Stadium is sucking up the economic activity that once upon a time existed in the surrounding Bronx community take seven minutes to listen to it now, without further delay. We hope these additional insights about the monopolistic characteristics of the development government officials are fostering helps to further inform your listening.

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