Tuesday, January 13, 2009

Another Lulu: Revisiting the Yankee and Mets Stadium Scams

We are going to bury the report of our own mistake in the expression of further outrage. Not long ago we reported on the tricky way that the New York City Industrial Development Agency was “noticing” hearings this Thursday for the issuance of still more tax-exempt bonds for the Yankees and the Mets. (See: Saturday, December 20, 2008, Legal Notice! A Hearing May or May not Be held! (It Depends, Call Us!)). We expressed our evaluation that the “notice” was not legally sufficient since it did not actually inform the public the required number of days in advance whether or not a hearing would be held. In the same spirit of keeping the public on tenterhooks the IDA also was making available only at the last minute information important for the public comment. Our mistake was that apparently the currently required period of legal notice for the hearing is ten days rather than thirty.* That does not change our main objections or the fact that we still think the notice given for the hearing was inadequate since actual notice was less than the required ten days.

* (Apparently the required period of statutory notice is now ten days. Historically it was ten days. Then it was changed to thirty days. The statutory thirty day requirement recently rolled back to the original ten day requirement though there is an ongoing effort to reinstate thirty days. With the rollback, the technical specification that the public was to be provided with cost benefit information needed to make its comment worthwhile also rolled back and is part of what should be reinstated when the law is again brought up to date. The IDA’s notice played around with craftily purporting to fulfill all these requirements while actually complying with none of them.)

The IDA’s Craft to Shortchange the Public and What Will be Heard

In our previous post we criticized the IDA’s craft used to shortchange the public in the hearing process. Implicitly, such tactics show the IDA is not interested in either the public commenting effectively or in “hearing” what the public has to say. That the IDA is not interested in honestly evaluating and taking into account what the public has to say is further apparent from the following reported in a Good Jobs New York press release. First the IDA scheduled the consideration of the issuance of the $454 million in proposed additional tax-exempt financing for the new Yankee and Mets Stadiums for Inauguration Day! Now it has rescheduled that consideration even less opportunely for just one day after the hearing. Presumably, they figure that staff doesn’t need to absorb or pass along to the IDA board any input from the public because the decision about how the board should be voting is considered to have already been made. (See: December 23, 2008, Good Jobs NY Press Release: Bloomberg’s Economic Development Office Announces Rushed Vote on More Bonds for Yankees’ and Mets’ Stadiums.)

For some quick reference to quickly establish some background, we quote from the above No Land Grab post:

Moreover, the public financing scheme approved by the IDA in 2006 for the new Yankee Stadium is under investigation by the U.S. House of Representatives’ Subcommittee on Domestic Policy and by State Assemblyman Richard Brodsky. Earlier this month, for example, Brodsky revealed evidence that suggests communication between City and Yankees’ officials led the city to artificially inflate land values to support more bond debt.

“It is outrageous for the Bloomberg Administration to rush additional public financing for the wealthiest teams in baseball while city, state and federal legislators are grappling with the worst budget crisis in decades,” said Bettina Damiani, Project Director of Good Jobs New York. “How do entertainment corporations outrank the city’s infrastructure and employment needs?”

Comptroller Thompson Calls for a Postponement of the IDA’s Vote and Asks About IDA Competence and the Public Being Misled

New York City Comptroller, Bill Thompson, issued a press release today calling for the IDA’s vote to be postponed. (See: THOMPSON: CITY MISMANAGED COST ESTIMATES FOR STADIUM FINANCING.) In it he points to concerns about the IDA intentionally misleading the public. Quoting some pertinent portions from the release:

“While our financial review cannot determine intent, this incredible mismanagement begs the question: Was this plain old incompetence or a blatant attempt to mislead the public?” Thompson said. “Either way, New Yorkers now have a box-seat view of fiscal mismanagement.”

* * * *

Thompson cited the following as examples of faulty cost estimates:

* The demolition of the existing Yankee Stadium was estimated at more than 50% less than the true cost.
* Failure to conduct environmental reviews, which would have taken into account the existence of, and necessity to remediate, oil tanks on the waterfront site of a planned new park.
* Underestimation of the cost for a rooftop park and retaining wall resulting in cost escalations of 30%; the price tag now stands at $44.5 million.
* * * *

Similarly, the cost to the City for a luxury suite will total $1,250,000 annually, while other luxury suite purchasers will pay between $600,000 and $850,000. Under terms of the new agreement, the City has agreed to let the Yankees market the suite with a minimum payment of $100,000 per year.
{for some Noticing New York thoughts on this see: Wednesday, December 3, 2008 Mayor’s Focus on City Planning Matters: Some Quantified Analysis}

“Anybody can see that this is simply a bad deal for New York,” Thompson said. “Yet it is the kind of financial incompetence that the Administration has consistently demonstrated when it comes to the new Yankee stadium. And incredibly, the Yankees are asking for more money and the Administration wants to give it to them without getting anything in return.”

* * * *

“For all these reasons, I am calling for the vote to be postponed so that the City can negotiate a better deal,” Thompson concluded.

In November 2008, an audit conducted by the Comptroller’s office found that the Yankee’s underpaid the City more than $11 million in rent over a two-year period. As a result, the Yankees have since paid the City $7,352,519 plus interest of $635,132. The Yankees still owe the City another $4,035,636.
IDA Executives Subpoenaed by the Assembly

Another press release was issued today by Assemblyman Richard Brodsky’s office stating that the Assemblyman who is Chairman of the Committee on Corporations, Authorities, and Commissions, has, together with Chairman James Brennan (D-Brooklyn) of the Committee on Cities, “issued subpoenas yesterday to Seth Pinsky, Chairman of the Board of the New York City Industrial Development Agency, and Randy Levine, President of the New York Yankees, to appear at the Committees' hearing tomorrow, January 14th, 10:00 A.M., at 250 Broadway, Room 1923 (19th Floor), and deliver documents regarding the public financing of the new Yankee Stadium.” That press release also quotes Assemblyman Brennan:

"It is obvious that additional public subsidy for the Yankees is both inappropriate and unnecessary and the New York City IDA should halt further tax-exempt financings based on diverted property taxes"
Misleading the Public, a Hearing Habit (Like Bloomberg Misleading the Public)

Want another example of the way that the IDA goes out of its way to “mislead the public” ? Consider that it is being proposed that $370.9 million in additional bonds will be issued for Yankee Stadium. (This does not include an additional $60 million in refunding bonds. Of the $370.9 million there will be $259 million in bonds that are triple tax-exempt, exempt from federal, state and local taxation, and $111.9 million that will just be exempt from state and local taxes. The hearing notice focuses on not telling the public about the exemption from state and local taxes by expressing things this reverse way (emphasis supplied):

Up to $259,000,000 of tax-exempt and/or federally taxable revenue bonds, up to $111,900,000 of federal taxable revenue bonds and approximately $60,000,000 of tax-exempt refunding revenue bonds. . . .
That is exactly in line with the way Mayor Bloomberg is playing it when he keeps misinforming the public that these bonds do not involve expense to local New Yorkers. (See: Wednesday, December 17, 2008, Who Gets Clipped? Bloomberg Radio Clip on Stadium Financing and Monday, December 15, 2008, Stadium Finance: Mayor, Professing to Know Numbers, Should Know He Can’t Have It Both Ways (Unless He’s Keeping Two Sets of Books.)

Concerned Public Should Testify but Will Have Its Work Cut Out for It to Do So

Concerned members of the public should do everything they can to testify at the hearing, but you will have your work cut out for you. Keep an eye out for guidance likely to be available from Good Jobs New York.

There are cost-benefit documents now available to the public though they will be difficult to absorb: For the Yankees and for the Mets. (See: Wednesday, January 07, 2009, Documents emerge about stadium subsidies; mayoral candidates shy away from criticism and City Releases 116-Page Obfuscation of Stadium Deals, by Neil deMause, January 6, 2009)

Recently discovered (though the last-minute chance for public diligence is daunting): “Last Tuesday's paperwork on the New York Yankees and Mets tax-free bond requests includes word that the city will also be voting this week on exempting the teams' new stadium costs from mortgage recording and construction sales taxes, as their initial costs were.” See: Field of Dreams: January 12, 2009 Yanks bond request includes $11m tax break.

Jim Dwyer and a Few Things That Might Be Said Including Quoting the Mayor

For a good overview of some of the things one might say at the hearing, we refer you to the excellent recent piece of Jim Dywer’s: At the New Yankee Stadium, Sanity Rides the Bench, January 9, 2009. Some quotes:

This is more. New. In addition to. On top of the $942 million in previous financing, and $660 million that the city is pitching in to replace parkland sacrificed for the new stadium and transportation improvements.

What is the team going to spend the new $370 million on?

Here are some items on the submission filed with the city’s Industrial Development Agency: $10.5 million for “suite level upgrades,” and $5 million more for “public washroom upgrades,” and $1.1 million to “upgrade suite seats, field seats” and areas where disabled fans will sit.
Mr. Dwyer is even able to quote Mayor Bloomberg to make obvious points:

In 2002, soon after Michael R. Bloomberg became mayor, he announced that he was canceling stadium deals made in the last hours of the Giuliani administration.

“At the moment, everybody understands that given that the lack of housing, given the lack of school space, given the deficit in the operating budget, it is just not practical this year to go and build stadiums,” Mr. Bloomberg said.

“You have to set priorities, and the priorities this year do not allow for the construction of sporting stadiums.”

The city is now in much worse shape. Every agency that serves the public is being cut.
Additional Bonds as an Inducement for Stadiums That Are Already Built?

The fact of the matter is that the stadiums are already built. The cost benefit analysis offered by the IDA conflates the value of issuing these additional bonds with the value of having the stadiums which already exist. The stadiums are not going anywhere if more bonds are not issued for the purpose slathering additional benefit on the Yankees and the Mets. They are contractually obligated and to say otherwise would be to say that the city really doesn’t know what it is doing. In fact, there is nothing that even says that if the Yankees and the Mets want additional frills they won’t ultimately pay for them out of their own pocket the way all stadiums were once typically financed.

A Few More Impediments to Testifying at the Hearing (Plus an Updated Pone Number)

Here are some other impediments to testifying at the hearing. If you call the published number that the non-notice notice for the hearing gave, (212) 312-3542, as we did today, you may be told, as we were, that information is still not available as to whether the hearings will actually be going forward for these two issuances of bonds. You may be told that you needn’t RSVP in order to attend the hearing, but we recommend RSVPing and calling another number, 212-312-3598, (not in the non-notice and which we got from Good Jobs New York). Ask to speak to Fran Tufano. Query: if you don’t RSVP to give the IDA contact information, how will the IDA ever tell you that the hearings are going forward? (Ms. Tufano seems definite that the headings will be held on Thursday and that, however awkwardly precipitous it might be, the plan is to have the board vote the very next day.)

What We Were Able To Find out About the Additional $60 Million in Refunding Bonds (Representing Additional Public Cost)

Since there are $60 million in refunding bonds proposed to be issued, we wanted to know when, after the refunding bonds were issued, the bonds that they refund will be redeemed. The issuance of refunding bonds represents an additional transaction (which throws money to Wall Street professionals involved), but the point of our question goes to calculating the cost to the public of issuing these additional tax-exempt bonds. It goes to the question of what period two sets of tax-exempt bonds will be outstanding: Both the original bonds and the refunded bonds. This is what we were informed:

The proceeds of the refunding bonds will be held in escrow and invested in defeasance securities to the maturity or earlier optional redemption date of the series of bonds to be refunded. The decision of which series of bonds will be refunded is still being determined by the underwriter. Currently they are planning on defeasing the series 2009-2015 CPI bonds, which all mature prior to 2028. They are also considering defeasing a portion of the term bonds maturing in 2046. Those would be defeased to the optional call date in 2028.
That means that until that optional 2028 call date, there will be two sets of bonds outstanding. In calculating the additional costs to the public bear this in mind: $60 million in refunding bonds, which will be additional bonds simultaneously outstanding for a substantial period of time, should be added to the other $454 million for a total $515 million in additional new bonds.

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