The Subsidy Ball: The Rudin/St. Vincent’s Proposal

The trick to keeping tack of what is going on with the Rudin/St. Vincent’s Hospital development proposals now being evaluated by the city Landmarks Preservation Commission is to keep your eye on the ball. The ball is the special subsidy that would result if St. Vincent’s gets the new package of real estate rights it is asking for.

City Economic Development Corporation Testifies: Hundreds of Multi-millions in Subsidy

The LPC is having a series of hearing on this. At yesterday’s hearing, Michael Meola, an executive vice president of the city’s Economic Development Corporation, testified that if St. Vincent’s is allowed to tear down and replace with requested greater density the landmark O’Toole Building, St. Vincent’s would collect a $160 million subsidy. As we will explain, that subsidy would be at the expense of the Greenwich Village community. In addition, St. Vincent’s would garner even more subsidy at community expense on the site across the street if, as proposed, St. Vincent’s is able to sell it to the Rudin Organization for development with the additional increases in density it proposes. A precise value for the subsidy that might be collected on that second Rudin development site is hard to assess. It would depend upon how much extra density and building Rudin and St. Vincent’s are ultimately allowed in connection with the Ruden development. Rudin and St. Vincent’s seem intent on getting everything they can: They even have their eye on tearing down one of the buildings in the current St. Vincent’s complex Rudin would acquire so that they can max out the number of underground Greenwich Village parking spaces that can be built to bring them profit.

Plan Cannibalizes Greenwich Village Historic District to Create Density

The current revised coordinated plans Rudin/St. Vincent’s propose for the two sites involve shrinking the boundaries of the Greenwich Village Historic District by punching down from the north with two stabs of significantly increased density and modern construction. Five existing smaller buildings now owned by St. Vincent’s would be replaced with a 299-foot-tall medical building and (including those parking spaces) a 233-foot tall luxury condominium. Noticing New York testified at earlier hearings on the subject. (See: Friday, July 18, 2008, Rudin/St Vincent’s Proposed Greenwich Village Development, also Friday, July 18, 2008, Rudin/St Vincent’s Proposed Greenwich Village Development- First Proposals and the collected links related to Rudin/St. Vincent’s also available by clicking on “Rudin/St. Vincent’s” at the bottom of this post.)

Calculation of First $160 Million in Subsidy

Mr. Meola probably didn’t intend to state that St. Vincent’s would be getting a $160 million subsidy if it is allowed to extract the landmark O’Toole building from the historic district and replace it with a new building of much greater density. That might not have sounded as supportive of the project as he was trying to be. At the hearing, Mr. Meola presented a chart with information about other possible sites on which to build a new St. Vincent’s hospital. In response to questioning by the commissioners, he equated another possible site on his chart, “Site #5," with the O’Toole site.

The comparison that was made is where identification of the subsidy comes in. Site #5 was another privately-owned site that was fully compliant with the hospital’s needs in terms of location, real estate square footage and zoning. Mr. Meola’s analysis was that the entire package of real estate rights in connection with Site #5 package had a value and estimated purchase price of $225 million. By contrast, the O’Toole site, though it has a footprint similar to Site #5, is not zoned to permit sufficient density for what St. Vincent’s wants to build and is encumbered by the landmark building and historic district restrictions which affected the building when St. Vincent’s bought it and which St. Vincent’s now wants to remove. Therefore, not surprisingly, Mr. Meola said that based on an appraisal, the O’Toole site should be viewed as currently worth a much lower amount; only $65 million. Voila, in this comparison, you have the before-and-after picture you need to compare two sets of real estate rights. It makes perfectly clear that permission to extricate and exempt the O’Toole site from the historic district and rezone it for much greater density carries a value equal to the difference between $225 million and $65 million. $225 million is the value of the full set of real estate rights St. Vincent’s wants and $65 million is the value of what St. Vincent’s bought when it acquired, more cheaply, a landmark building in a historic district.

Support for St. Vincent’s from Officials Accountable to Mayor

As noted, Mr. Meola works for the Economic Development Corporation. That means Mr. Meola essentially works for and is accountable to (term-limited?) Mayor Michael R. Bloomberg. In Mr. Meola’s testimony we saw an effort to support the project, which support we attribute to the Mayor. We saw that support also in the testimony of Rima Cohen, Director of Health and Social Services in the Mayor’s Department of Health and Human Services. She testified why St. Vincent’s choice to build on the O’Toole site might be considered optimal. Seth Cummins, Chief of Staff of the City’s Office of Emergency Management, another mayoral agency, testified, among other things, about why St. Vincent’s choice of the O’Toole site might be desirable if we remind ourselves the city could be threatened with storm surges in the event of hurricanes. (The testimony, which stressed the perils of global warming, seemed interestingly out of sync with the lack of concern about storm surges that has been shown in connection with the new laboratory facilities being proposed for Columbia University as it expands into West Harlem: Columbia Ignores Peril, When Klaus Jacob talks, important people take action. Except the important people paying him, by Elizabeth Dwoskin, in the Village Voice, Wednesday, October 1st 2008.)

Alternatives: Scrutiny from the LPC Commissioners

Mr. Meola received scrutiny at the hearing in form of questioning from the commissioners. He was asked about why, as represented in his chart of comparable sites, EDC was only thinking in terms of other privately-owned sites since there are possible city-owned sites where St. Vincent’s might relocate and the city is very involved in a number of large-scale developments around the city. Atlantic Yards was mentioned but the nearer Hudson Yards, also talked about, is more apropos to this discussion. There was talk about the unfolding changes in the economy. We will probably be figuring out better over time what such changes mean. I doubt that people testifying at the hearing were really dealing with recent changes in view of the time lines that probably affected everyone’s preparations for the hearing. Think about it though: If we segue from an expanding NYC real estate economy into something else, folding different projects into each other to conserve effort and resources and concentrate development where it is most needed is likely to become an attractive option.

Supportive Testimony from State Department of Health

In addition to the city employees accountable to Mayor Bloomberg who testified in support of the Rudin/ St. Vincent’s plan, there was testimony by employees of the New York State Department of Health that also sounded supportive of the plan. The New York State Department of Health regulates hospitals and seeks to ensure that good health care is delivered throughout the state. At the same time, DOH also does everything it can to hold down the cost of health care. Noticing New York has observed that this is relevant when the Landmarks Preservation Commissioners considers the “hardship” part of St. Vincent’s application, which was the purpose of this particular hearing:

Hospital accounting in New York State is far from easy, counterintuitive and, at best, can only be understood by experienced insiders. Regulations involving highly complex reimbursement formulae force hospitals to operate constantly on the brink of artificially narrow and rather manipulable profit margins.

(See: Rudin/St Vincent’s Proposed Greenwich Village Development)


Temptation of a Seemingly Free Health Care System Subsidy

Also relevant to DOH testimony in connection with hardship is that when DOH considers the Rudin/ St. Vincent’s proposal, it has a rare and temptingly unconventional opportunity to infuse at least $160 million in subsidy into a hospital in its health care system at no cost to the state. Again, as previously noted, the amount could be substantially more than that $160 million, depending on what kind of comparable special subsidy is approved for the portion of the transaction involving the Rudin-developed parcel. The hundreds of millions are almost like free money except that it comes at the cost of the community giving up its strong interest in having historic district regulation to preferentially benefit St. Vincent’s. Also, while DOH may thereby see St. Vincent’s assisted in this way in this particular special instance, no such similar help will be available to other health institutions that are not similarly in historic districts that can be dismantled, chopped up and burned for the firewood of health care system subsidy.

Possible Awkward Precedent for Dismantling Historic Districts

Concern has been very legitimately raised that the Landmarks Preservation Commission will set a very awkward precedent that would apply to all non-for-profits if it approves St. Vincent’s hardship case. If permitted, it would be in the financial interest of almost any not-for-profit to shop for properties subject to historic district restrictions so that their not-for-profit status can then transform the value of such property by eviscerating the restrictions to which they are subject.

When asked about this at the last hearing, expert outside land use counsel for St. Vincent’s acknowledged the problem by suggesting that perhaps it ought to be addressed by creating a rule that if not-for-profit institutions bought historic buildings and held them long enough, aged their holding sufficiently, then buildings could be torn down. The exact structuring of this rule was suggested because it would serve to bless St. Vincent’s demolition of O’Toole. (I believe I remember that St. Vincent’s bought O’Toole 27 years ago, after the Greenwich Historic District was created.) Such a rule would be highly ironic. Our city buildings become eligible for landmarking and historic designation when and because they age; thirty years is the minimum. Should we have rules that say when buildings age sufficiently they will be protected, but then when they age for another good stretch of years they will thereby exit those same protections?

As for the question of not-for-profit ownership of historic district buildings eviscerating restrictions, at least most other not-for-profit institutions are not regulated by an institution like DOH or whose concerns about cost parallel those of DOH. DOH has a unique and vested interest when they testify concerning hopes to keep hospital construction costs down.

Consideration of Alterative Plans Under Hospital Owner’s Control; Not DOH’s

Testimony on behalf of the Department of Health was given by Director of the Division of Health Facility Planning Neil Benjamin and DOH architect Tom Yung. Mr. Yung’s testimony was the most pertinent and the most interesting.

Mr. Yung testified (remember, keep your eye on the ball that St. Vincent’s particularly chosen plan, if allowed, will garner it over $160 million in special subsidy) that the process of generating alternative proposals when a hospital construction proposal is being considered is a process that is left in the control of the hospital facility operators. He said that this is because health facility operators can run through the evaluation of alternatives quicker and more easily than DOH. If consideration of alternatives is a process left in the hands of the facility operator, then wouldn’t one expect an operator like St. Vincent’s to be biased toward a proposal that puts hundreds of extra millions in their pocket? In fairness to DOH, it is probably not used to dealing with the particular and unusual real estate temptations confronting St. Vincent’s in connection with the O’Toole site. If generating and comparatively evaluating alternatives is so complicated that facility owners have such an edge on DOH, then how does DOH ever expect to catch up if the facility owners slant evaluations they develop and present?

DOH’s Handling of Required Historic Review

Mr. Yung was asked whether DOH had done any evaluation of the proposal from a historic standpoint. That was a fair question because the job of the Landmarks Preservation Commission is preservation and the hearing was about the evaluation of historical assets. Mr. Yung said that it was a little known secret that he was the department’s Historic Preservation Officer. We must comment that Mr. Yung’s presentation revealed him to be excited and informed about the hospital’s architectural plans. He had obviously spent a lot of time visiting the hospital and assessing those plans and the hospital’s architectural needs. As for his attention to issues of historic preservation, when the commissioners asked, he told them that his first meeting about the project with the State Historic Preservation Office (SHIPO) had just taken place only the week before. (Review of the historical impact by DOH and SHIPO is required as part of state Environmental Quality Review Act, SEQRA, procedures.)

Well-attended Hearing

The Landmarks Preservation Commission has had multiple hearings about the Rudin/ St. Vincent’s proposal. All of them have been very well attended. As with prior hearings, the hearing venue was moved to a location that would allow greater public attendance. The Greenwich Village community has a fervent interest in blocking what St. Vincent’s is attempting to do. Yesterday’s hearing was at the New School’s Swayduck Auditorium (Fifth Avenue at 14th Street) which seats 215. When I arrived at the hearing, it was not easy to find a good seat. This was for a hearing where the community could only listen and not speak.

Credit Crisis and the Subsidy Ball

The hearing concluded with a tossed-out aside that, with the credit markets the way they are, maybe nobody will be building anything. Perhaps this was an off-topic effort to be topical. On the other hand, keeping one’s eye on the subsidy ball, difficulty in the credit markets could diminish Rudin’s nearer-term interest in developing its portion of the project. And if the city offered to move St. Vincent’s to other land it has available, St.Vincent’s might find the comparative attraction of the $160 million O’Toole site subsidy diminished.

The Sun Sets Again: NYT Metro Section R.I.P.

Did the September 30, 2008 demise of the New York Sun cause or accelerate the October 6, 2008 demise of the New York Times Metro section? It did follow hard upon. If you read the New York Times today, you will notice that there is no longer a separate news section called the “The Metro Section.” You won’t see the Metro section in the future; no more front page stories in a section devoted to city news. It has been replaced by coverage with a “New York” heading tucked away in the paper’s A Section. It is predicted that this will result in diminished metropolitan news coverage.

In mourning the loss of the New York Sun, Noticing New York commented that the New York Times has been ceding local city coverage to others as it reconstitutes itself as a national newspaper. We commented further that in the course of doing so the Times has also not been adequately covering important local issues like New York’s abuses of eminent domain and more extensive abuses such as Atlantic Yards. (Thursday, September 11, 2008, If the Sun Sets and see also Tuesday, September 30, 2008, No Longer If; The Sun Sets)

Where else will we go to inform ourselves if the Times does not provide a home to good reporters and good coverage? Just today, as the stage-managed term limits debate races along faster than most of the public can keep up, we had no choice but to rely on Times coverage (See: Term Limits: Voting Against the Voters.) The news coverage has been good but the Times editorial page was already commandeered, an inappropriate part of the way the debate is being stage-managed. The Times was not the only New York paper whose editorial page was inappropriately and collusively commandeered. The Daily News and the Post were already on board.

Should the Times still be calling itself the New York Times?

Term Limits: Voting Against the Voters

Noticing New York is thinking about how people should vote if the City Council accommodates Mayor Michael R. Bloomberg by repealing term limits. By people we mean the general electorate and not the City Council Members who will be debating a special repeal of term limits today.

Noticing New York thinks that repealing term limits in the middle of the election cycle already underway is a supremely bad idea: Coming to Terms With Mistakes, Wednesday, October 1, 2008.

Noticing New York is pleased to see City Council members Bill de Blasio and Letitia James and David I. Weprin pushing back with bills that would require returning to the electorate to effect a change in term limits: Countering Mayor’s Bid With a Bill to Put Term Limits in the Voters’ Hand, by Ray Rivera, October 4, 2008. Ideally, and without compromise, any change should take place after this election cycle.

We have criticized the effort being led by the Mayor as last-minute and self-serving. This effort confers unfair tactical advantage upon Bloomberg. It also raises all sorts of campaign finance questions, like what spending limits should apply to candidates who have already collected and spent money to attain city offices that have different spending limits from the offices for which they will now be running. It is, we said, a game of 52 Card Pick-up unfairly at Bloomberg’s initiative. Bloomberg consulted privately with his real estate developer constituency on the subject before he consulted with the rest of us voters.

One new thing to consider: Lawyer Frederick A. O. Schwarz Jr., says billionaire Bloomberg should not be allowed to seek a third term unless he agrees to a limit on his campaign spending. Mr. Schwarz was the city’s corporation counsel and chairman of a charter revision commission that effected term limits and is a former chairman of the city’s Campaign Finance Board. (See: A Call to Limit Spending if Bloomberg Runs Again, by Sam Roberts, October 5, 2008) Making unfairness worse, key participants in the public debate, such as Ron Lauder, are suggesting that the desired extension of term limits be a one-time, specifically-for-Bloomberg change in the game. (See: Lauder’s Second Thoughts on Changing Term Limits, by Michael Barbaro, October 6, 2008) Is a bill for the specific benefit on only one person even constitutional? Need we ask? And isn’t this the way rule-by-emperor ascended in Rome?

So, how should people vote if term limits are repealed? There are people like City Councilman David Yassky, who is term-limited and running for Comptroller. We would like to see him in the position of Comptroller. But, on the other hand, if he were to run for a third City Council term, we would also want to vote for him. But we would be very troubled if he gained the ability to run for City Council again because he himself were one of the City Council members voting, undesirably, to repeal term limits during this election cycle.

We suggest as a standard that the voters should vote against City Council members who vote in favor of repealing term limits during the current election cycle. We know that City Council members like Tony Avella (who is running for Mayor) will be voting against the repeal of term limits during this 2009 election cycle, but it sounds as if too many will be voting in favor of changing the game in the middle of this cycle. It is not surprising, since two-thirds of the current City Council are term-limited. (By the way, lifetime health insurance is one big extra many City Council members will get by eliminating their term limits: Hidden Cost Seen for City if Term Limits Are Shelved, by Michael Barbaro, September 12, 2008. As we support universal health care, we don’t want to begrudge anyone health care but we would sooner see the Council members simply vote themselves health care instead of changing the rules in election midstream.)

In addition to City Council members who vote in favor of repealing term limits this way, we suggest that voters categorically vote against anyone such as the Mayor or Brooklyn Borough President Marty Markowitz, who support term-limit elimination during this election cycle in the hopes of being able to extend their personal tenure.

If extending term limits is a good idea, it is an idea worth waiting for. : We can wait for the next election cycle. Even if we go back to the voters to repeal term limits, we should wait until the fresh start of a new election cycle. What if someone supports letting the electorate change the term limit rules in this election cycle?- - Should we vote for them?- - That’s a harder question.

Modifying the Grand Army Plaza of Olmsted and Vaux

Today, Sunday, October 5, (Sunday?) is the deadline for the public to cast its votes respecting proposals for how Grand Army Plaza might be redesigned.

The proposals have been solicited in a contest by Design Trust for Public Space. See also: How Would You Reinvent Grand Army Plaza? by Brad Aaron


The proposals are on view at their site and also in the very center of Grand Army Plaza itself.

The proposals are numerous and not easy to take in and evaluate at either site. Evaluating them to vote is not a quick proposition. Deciding which are the best will take anybody a fair amount of time. Noticing New York is not going to deliver a verdict in favor of particular proposal but will note that not all of the proposals selected as winners by the separately conducted vote of an official panel of judges should have won.

Olmsted and Vaux

Rather than try to select the best plan, it is better to deal in general principles. It should also be noted that NOT among the competing entries was one that should have been: the original design by Olmsted and Vaux. We may not be able to do better than that and, if we can’t, we shouldn’t be cavalier about modifying it.

However excellent that original plan may be, the suggestion that we give some attention to modifying the design of Grand Army Plaza is a superb idea. The plaza could work better than it currently does. What doesn’t work well now probably has less to do with the original Olmsted and Vaux design than with the advent of the automobile.

What Works Now



Here are the ways the current design of the plaza works well:

1. Noticing New York has previously cited how excellently the raised berms (the tree-planted hills) on the sides of the plaza serve to attenuate noise on the residential streets that surround the plaza. (See: Wednesday, July 23, 2008, Sound Abatement / Highway Noise Attenuation Measures.)

2. The berms are bordered on the outer edges of the plaza by encircling streets (Plaza Street, East and West). These streets intercept and provide access (with a cul-dul-sac style handling) five spoking quieter streets: St. John’s Place (East), Lincoln Place, Berkeley Place, Butler Place and St. John’s Place (West). (Just one of these spokes, St. John’s Place coming from the west, also allows a driver access into the busy center of the plaza.) The berms and Plaza Streets serve to separate the traffic of those intercepted quieter streets from the busier thoroughfares intersecting at the plaza. At the same time this keeps the quieter streets quiet and prevents what would otherwise be an unmanageable tangle of roads.

3. The Plaza Streets’ interception of the quieter streets also creates a lot of contiguous flowing plaza parkland-berm that would not otherwise be possible.

4. The Plaza Streets also gather and allow for the collective feeding of the intercepted quiet streets into what functions as the center traffic circle of the inner plaza.



5. The plaza manages to accommodate with reasonably effective interplay the intersection of spokes for the following ten routes, six of them 2-way and only one of them not major:
a. Flatbush Avenue (2-way from and to the north)
b. Flatbush Avenue (2-way from and to the south)
c. Union Street (2-way from and to the north)
d. Vanderbilt Avenue (2-way from and to the north)
e. Eastern Parkway (2-way from and to the east)
f. West Drive going into Prospect Park (2-way from and to the south)
g. Prospect Park West (1-way to the south)
h. Plaza Street East (1-way from the north)
i. Plaza Street West (1-way from the west)
j. St. John’s Place (1-way from the west). This is the only street which is not a major route and the effect of this intersecting non-major road is slightly less because some traffic turning onto Plaza Street (West) is siphoned away without going into the plaza center.



6. The plaza has the gracious central landmark arch.

7. The plaza has the superb central interior space and sculptural fountain.

8. The plaza serves as a cue and an extension for Prospect Park, which it abuts.

What Doesn’t Work Now

Here are the ways the current design of the plaza is not working well:

1. The central portions of the plaza, shackled in a fast-moving ring of traffic, are almost impossible to reach.

2. The traffic that encircles the plaza center subjects the plaza to an inordinate amount of noise. The level of noise is more extreme because the traffic moves fast and there are no features comparable to the berms to help abate the sound.

3. There is a huge amount of wasted space inside and alongside the main interior traffic circle. This can easily be seen if you study the Google Earth picture. Much space is wasted because the streets of the interior traffic circle have been designed like highway cloverleafs with the gentlest curves possible that encourage acceleration to high speeds.

4. The landmark arch is not connected with any thematic formality to the nearby central fountain area even though there are no roads separating them.

5. Neither the interior plaza nor the encircling park berm areas connect to Prospect Park as well as they could. This also has to do with how the area abutting the Prospect Park entrance (used for the local farmers market) integrates with the plaza space.

6. Even if area visitors do not succeed in physically accessing the plaza’s interior, that interior has ornamental value when seen from afar. Unfortunately, the extreme visual clutter of the roadways detracts from the appreciation that is possible in this regard.

7. The plaza could also interrelate better with the adjacent plaza space belonging to the public library.

Possibilities for Improvement

What are some of the things that could be done? Some of the competing plans may or may not comport in some ways with the list of suggestion below.

1. The interior plaza design should be less accommodating to a high speed flow of the major routes moving through it. Slowing down the traffic that moves through the inner plaza will reduce noise. Most traffic noise is tire noise and tire noise is always substantially greater as speed picks up. All the major routes that flow through the plaza are inner-city routes that are typically slowed to a normal city pace by traveling through intersections. There is no reason why traffic in the plaza should not be kept at or below these normal speeds. Instead the roads, with fewer intersections and gentle curves, are designed so that traffic can accelerate while moving through what should a green idyll. Slowing and quieting the traffic for this short stretch should not significantly diminish overall car trip times.

2. Curtailing and eliminating the gentle curves that now accommodate the car traffic will offer opportunities for reconnecting, greening, making sense out of and minimizing the currently wasted spaces within the plaza.



3. The improvements that would be most dramatic but also most expensive involve allowing the central plaza to connect with the park space in the surrounding berms by putting a lot of the inner roadway below the park with grade changes. This could be done by submerging the roads. Or, because the berms are elevated landscape, it could perhaps be more easily engineered by elevating the park and walkways over the roads. A substantial amount of road would have to be covered over to make the sight and sound of the roads disappear. Sidewalks, or some of the sidewalks, disappearing underneath the elevated park could be sacrificed, replaced by elevated park pathways. The effect would be to put the fountain and triumphal arch in something like a bowl or amphitheater. There would also be a vantage of Prospect Park from this new hill and vice versa.

4. There is a possibility of shrinking the number and perhaps width of some of the interior traffic lanes.

5. It may not be in the offing, but some roadway and turn-off eliminations might be possible if some of the routes traveling through the plaza were converted to one-way.

6. Thought should be given to having the central traffic circle serve fewer roads. The roadways in and out of Prospect Park could possibly be eliminated. This would be consistent with the effort to have cars use the park less or not at all. A particularly great amount of roadway through the plaza is devoted to traffic using West Drive to exit Prospect Park. Similarly, should the turnoff from the traffic circle that allows cars to travel south on Unison Street be eliminated?

7. To the extent that cars will still travel through the plaza, thought could be given to baffling the noise from their wheels and some sort of ornamental screening that diminishes their visual impact.

Grand Army Plaza and the Unity Plan

It is worth noting that the community UNITY plan, proposed as a preferential plan for the development of the Vanderbilt Railyards (instead of the foundering Atlantic Yards plan), envisions creating a new related public square to the north on Flatbush Avenue. The UNITY plan designers had the forethought to consider the nearby Grand Army Plaza on a conceptually integrated basis. (See page 25 of the full downloadable version of the plan.)

The Yards forms the northern edge of a triangle that includes the Vanderbilt and Flatbush Avenue Corridors. One corner is defined by Grand Army Plaza. Another corner is formed by the Atlantic Terminal. Rather than increase the congestion around the Atlantic Terminal by adding even more density, we propose an alternative strategy that concentrates density at the Vanderbilt/Atlantic intersection. This will improve that currently underdeveloped intersection and create the opportunity for a large new public square at the Atlantic Terminal, providing an experience similar to Union Square. This results in a reasonable density that makes the project economically viable without overwhelming the neighborhood.

“Sitt”ing Not So Pretty

We didn’t have to read Charles V. Bagli’s article Failed Deals Replace Boom in New York Real Estate, September 30, 2008 to know a number of things to be true in our new economic environment.

Ambitious and Large-scale to Take Longer

The article starts out: “After seven years of nonstop construction, skyrocketing rents and sales prices . . . the credit crisis and the turmoil on Wall Street are bringing New York’s real estate boom to an end.” About midway through, the article advises:

“ . . . some of Mayor Michael R. Bloomberg’s most ambitious large-scale projects — the West Side railyards, Pennsylvania Station, ground zero, Coney Island and Willets Point — are going to take longer than expected to start and to complete, real estate experts say.”

That means that we are going to be waiting a lot longer for the benefits envisioned by these projects. In the case of the West Side railyards, Pennsylvania Station, and the redevelopment of ground zero it is simply a case of waiting longer for the materialization of benefits we do not now have. The benefits we are waiting for with respect to those particular projects are pretty unarguable and we are not forgoing anything we could have had in the meantime.

Waiting for the “Next Act”

Coney Island stands out as a different case. The land-rezoning speculator Joe Sitt, of Thor Equities, has already evicted Astroland from its Coney Island amusement-park-zoned land. Astroland closed for good two weeks ago. Even if the city soon grants Sitt the zoning changes he is trying to manipulate into existence, our city will certainly be waiting a substantial while before what has been touted as “Coney’s Next Act*” materializes. In the meantime we will have given up what we had. It is not just the eviction of Astroland; other amusement area acreage was similarly vacated and was already being held unnecessarily vacant.

(*“Coney’s Next Act” is terminology being used by the Coney Island Development Corporation, which is promoting misleading developer-generated visions of Coney Island with a pernicious peppiness that would give Sarah Palin a run for her money. For instance, it promulgates images of improbable high-rising squozed-in loop-de-loop roller coasters which are not funded or otherwise committed to.)

Wherefore Art Thou, Astroland?

The loss of these amusement areas hit home with me on a beautiful evening a very short while ago. A group of about fifteen foreign tourists was avidly studying the Brooklyn map that is tucked under the Brooklyn side of the Brooklyn Bridge. It seemed as if they were going to need help so I waited a moment. They approached me. “Can you tell us how to get to Coney Island?” they asked. I began to explain. One woman, her finger planted firmly in a Fodor’s or some equivalent guide said with great definiteness and a gleam in her eye, “This is where we want to go, Astroland. How long do they stay open? Till twelve?” I hardly had the heart to tell them that Astroland had been evicted by its landlord and is not expected to reopen. It fell to me to tell them that they had probably just missed their last chance to visit the historic Coney Island. . . . “Unless something is done,” I tried to add hopefully.


Why Gone?

If we are going to have to wait a long while before the land vacated by Astroland and the other amusements are replaced with anything else, it calls starkly into question the strategy of the city in transforming this area of amusement fare into something else. It also directly undermines the arguments that are being made that the rezoning that ends the era of amusement must be effected posthaste, specifically and urgently before Mayor Michael Bloomberg’s second term expires. But wait! Will he still be limited to two terms AND what is the proper response when someone tries to force you to make a big decisions posthaste?

With the rezoning into which Sitt is trying to manipulate the city, we are slouching toward a very questionable redevelopment plan. (See Noticing New York’s testimony on the subject.) Speaking truthfully, it probably means the unjustified end to the fabled amusement area which could have been effectively redeveloped with amusement uses. In the meantime, there is no reason why a working amusement area can’t be kept until refurbished. With other sectors of our economy fading, don’t we want to be able to tell our visiting tourists that they can go to famous Coney Island to find an open Astroland?

One Trick Coney

The amusements at Coney Island are being closed as part of a tactical ploy by Joe Sitt in pursuit of the rezoning he wants. Feeding Sitt’s appetite for such a ploy is that the city is not enforcing (and Sitt does not expect the city to enforce) the zoning that requires those areas to be utilized, as they historically were, for amusement. The city’s feckless enforcement is attributable to the city’s having bought into the developer’s notion that the future value of this land is in uses other than amusement. Everyone needs to understand, however, that even if the land has arguably more value for Sitt if it is rezoned, the land has less value to all the rest of the city populace if that happens. It would be as if a developer owned and wanted to build over a conventional park. That this is supposed to be an amusement park rather than a conventional park makes slight difference in its value to the rest of the city.

By not using the land in accordance with its zoning and holding land vacant, the land-rezoning speculator consciously visits blight upon the community. He temporarily foregoes revenue but it is a game of chicken he plays with the city. So long as the city finally rezones, he wins. When the city lets him shut down the amusements while awaiting the rezoning, the city tolerates the blight. It needn’t be that way. If Sitt, in his game of chicken, wants to tactically blight the community via underutilization and vacancy of his land, the city has a blunter tool than zoning at its command. It can fight back by using eminent domain to take Sitt’s land.

Eminent Sense: Sharp vs. Dull Tools

The city has been willing to pursue eminent domain in some highly inappropriate and abusing ways. By contrast, its use in this situation to create a public park and to counter the effects of intentional blight and the unwillingness to comply with the zoning would be quite defensible. Attending a Municipal Art Society panel discussion about Coney Island, “Coney Island at the Crossroads,” I got into a conversation with city development officials and was told that the city did not want to threaten eminent domain. I was told the city prefers “friendly negotiations” with the developer. (See: Friday, September 19, 2008, the “Wednesday Evening” section of Contrivance in the service of creating blight, real blight- Listen again- REAL blight)


Rather than avail itself of the blunt tool of eminent domain to assure that there will be the desired amusement park use, the city is proposing to do something that sounds rather preposterous to me: The city is proposing to take the same tool of zoning that it can’t (or doesn’t choose to) make work and sharpen it. Since the city can’t get Sitt to comply with the zoning to provide the amusement fare for which the area is currently zoned, the city is working on “rewriting” the zoning requirements to provide with greater specificity exactly what the city wants in the way of amusement fare. Truly though, the more significant change is actually that the `sharpened’ zoning would apply to a significantly reduced area, only 9 acres. (We have suggested that the Coney Island plan not be used in Coney Island at all: Sunday, September 28, 2008 Shorely We Jest: Needed Amusement Musing)

Right and Wrong Track Situations

When the city gets off on the wrong track we get blight. When the city itself takes us off on the wrong track with ambitious and large-scale plans, like the Coney Island redevelopment, we get blight that we should not have to live with. Where we are dependent on the consummation of these ambitious and large-scale plans for restorations to abate the blight, we are going to be living with those situations much longer. That is what the Times article, noted at the beginning of this piece, must lead all of us, perhaps begrudgingly, to conclude.

In the case of the West Side railyards, referred to now as “Hudson Yards,” we are not correcting a mistake made on the part of government. The ambitious and large-scale plan will bring about a benefit and create a new section of the city that has never before existed as an integrated part of the city fabric. In the case of the Moynihan Station, the new Pennsylvania Station, we are belatedly correcting, as best we can, the terrible mistake that was made when the original Pennsylvania Station was torn down. In the case of the redevelopment of the former World Trade Center ground zero site, the essential need to rebuild on such a large scale was forced upon us by the Bin Laden terrorist acts.

We are having to acknowledging a scarcity of resources to fulfill grand-scale plans. Ideally, this then should be a time to direct resources only to real needs, and if we must endure less than optimal situations for prolonged periods, we should not find ourselves living with blight of our own making.

Other Blighters

Willets Point, the last large-scale ambitious project mentioned in the Times list that is going to take longer to start and to complete than expected, is an example of blight of our own making. The city has long been accused of withholding services from the area. That is because it doesn’t regard the area as a success while it is occupied by the kind of businesses that are succeeding there. It should be self-evident that withholding services doesn’t create a successful neighborhood; it confronts the area with greater problems to overcome. Withholding services is desirable from the standpoint of a city that wants to pave the way for its exercise of eminent domain as the city seeks to take the Willets Point triangle through eminent domain. I suggested above that eminent domain could be appropriate to deal with the blight created by Joe Sitt at Coney Island. It is a valid suggestion, but people need to recognize that most of the time the threat of eminent domain for the purpose of forcing private-to-private property owner transfers creates, rather than eliminates, blight.

Not mentioned in the Times list of large-scale ambitious projects that are surely going to take longer to start and to complete than expected is the Atlantic Yards megadevelopment. This unnecessarily huge project already assails the community with an inordinately protracted development schedule. The schedule will be more protracted still. Unless the megadevelopment is replaced by something more appropriately designed and scaled, decades of blight will befall the adjoining communities. Again, as with nearly all eminent domain-abusing projects, it is an example of blight of our own making.

If the Atlantic Yards project had never been undertaken, the newly renovated and expensive co-ops and condominiums within its speculative footprint would be fully and productively occupied just like the adjacent Newswalk development. In contrast to the lumbering Atlantic Yards besetting the community during these many recent boom years, without Atlantic Yards the example of these successful cooperatives and condominiums developments would have been followed by other developments. Propelled by the boom of these past years the elegant white terra cotta Ward Bakery building, also within the speculative footprint, would no doubt have been landmarked: The building would be well on it way to exciting the community with creative adaptative reuse.

Directing Resources: Sitting Pretty

We cannot, and should not, put our resources into perpetuating blight. As we sit waiting for new development, we will by no means be “sitting pretty” if we are living for decades with the blighting efforts of Joe Sitt and Forest City Ratner. The answer is to redirect resources from the ill-advised notion of doing the Sitt and Ratner projects and put them into what are, by contrast, important, worthy and defensible projects like Moynihan Station and redevelopment of the World Trade Center site.

Governor David Paterson is looking for another $2 billion in new cuts to the state’s current budget due to the deepening financial crisis. (New York Times, Paterson Seeks $2 Billion in Budget Cuts, by Danny Hakim and Jeremy W. Peters, October 3, 2008) The great sense it would make to cut Atlantic Yards out of the budget may not result in a one-for-one dollar reduction to the state budget (because the benefit will also acrue in the form of city and state budget reductions), but Atlantic Yards, in and of itself, represents over $2 billion in misdirected public resources (See: Your 'Net' Loss $2B in Taxes to Ratner, by Rich Calder, April 14, 2008).

Coming to Terms With Mistakes

We think that Michael R. Bloomberg’s announcement that he will pursue a third term mayoral term is bad news.

Noticing New York has some fairly nuanced views on the subject of term limits for city officials, more nuanced than the rationales ginned up in today’s New York Times editorial advocating that the way be cleared for a third consecutive Bloomberg term: Editorial: The Limits of Term Limits.

Last-minute and Self-serving

We are neither entirely for nor against term limits. Mostly we are against them, but we are absolutely opposed to their elimination in the last-minute and self-serving manner being proposed by Bloomberg. The game of 52 Card Pick-up Bloomberg is creating gives him an unfair advantage. (Phoning in, we expressed this sentiment on the Brian Lehrer show September 9, 2008: the “Extending Term Limits” segment 12:30 minutes in.) For a good primer on the subject of term limits I recommend, for its lucidity, a piece (among other valuable ones he has written) by former City Councilman (and Parks Commissioner) Henry Stern of New York Civic: Pols Chide Mayor for Toying With Them On Term Limits By Discussing the Possibility Of Reversing Two Referenda.

Leadership and Crisis

We are not swept up in the rally-around-and-keep-our-current-leader-in-a-time-of-unfolding-crisis campaign. The premise was rejected when it was suggested that Giuliani be specially held over in office after 9/11. We similarly reject that the Bloomberg, who took office when Giuliani cleared the way, should be kept because of the Wall Street crisis. Giuliani, who did not foresee the likelihood of another attack on the World Trade Center, built his emergency commend center in the Trade Center where it was destroyed in the second attack. Bloomberg did not foresee the current foreseeable Wall Street crisis. As a Wall Street insider he is likely less fit, rather than more, to have perspective on the unfolding events.

We believe that there should be reasoned discussion and evaluation about how New York nurtures, tends and balances the economics of its business mix. It may well be, for instance, that the city should convert much of its old industrial space to new uses. Nevertheless, this administration has had an unhealthy disregard for those who previously expressed wariness about putting too many eggs in the Wall Street basket. Today the New York Times reports that New York is going to seek $60 million in federal aid to retrain the workers now losing jobs because of the financial crisis (Seeking Federal Grants to Save Jobs in Danger, by Patrick McGeehan).

Coming to Terms with Mistakes

The most pronounced downside of a Bloomberg third term involves a need to acknowledge and correct mistakes. Noticing New York believes that Bloomberg successes, mostly improvements in administrative efficiency, have materialized short term, while failures which have yet to show up and come to roost will be longer term. The new computer-assisted 311 system is a success, but the countless capitulations to real estate developers that represent bad urban planning will present lasting problems; their effects will not be seen until projects finish construction.

Here is a press conference question for Mayor Bloomberg: Does he acknowledge any mistakes and, if so, is he willing to correct them?

Theories of Decision-making and Mistakes

There are different theories about decision-making and mistakes in government. I once was given what I consider some very good advice. The advice came from the departing counsel when I was taking over responsibility for the legal department at the state finance authorities. “Don’t let anyone tell you that you have to make an immediate decision about anything,” he advised. Most things can wait and most decisions that people try to rush through on an accelerated basis are going to be problematic. We were working in a real estate development environment. You may groan to think that I am the consummate bureaucrat when I say that this advice proved extremely valuable and that I was never loath to pass it on. True, there are also times when deciding quickly is important. Knowing the difference is an art.

There is another philosophy of decision-making to which I suspect Bloomberg subscribes. It is more prevalent in the less bureaucratic business world: “Better a bad decision than no decision at all.”

The question is, when you have made a bad decision, what do you do about it?

John McCain is now famous for writing about his “decisions” in his 2002 book "Worth the Fighting For."

"I make them quickly as I can, quicker than the other fellow, if I can . . . . Often my haste is a mistake, but I live with the consequences without complaint.”

(See: Palin and McCain’s Shotgun Marriage, by Frank Rich, September 6, 2008 and Conservative Ire Pushed McCain From Lieberman, By Elisabeth Bumiller and Michael Cooper, August 30, 2008.)

Should we have to live with the mistakes produced by badly made decisions? No matter what?

The Uncorrected Mistake of Atlantic Yards

Atlantic Yards is probably Bloomberg’s supreme mistake. I was not the only one to criticize Atlantic Yards when I phoned in to the Brian Lehrer show during the term limits discussion on September 9th. Atlantic Yards is a spectacular example of a decision that was rushed through with improperly forced haste and it is a spectacular example of just how bad the consequences of such thoughtless haste can be.

The Bloomberg administration has implicitly acknowledged the ignominy of its failure with respect to Atlantic Yards. It did so in the way it handled the departure of Deputy Mayor for Development Daniel Doctoroff (see: Atlantic Yards As Political Hot Potato.)

However disgraceful all its lapses, the Bloomberg administration has done nothing to correct the misreckoned Atlantic Yards course it is on. Correction could be made with less difficulty than continuing through the bog in which the city is now steeped. It would be relatively easy to do what is needed which is to take the project back to the drawing board and bid it out to multiple developers. (Yes, this time the megaproject, currently 17 separate building sites, should actually be bid out.) The project is adrift, amorphously ill-defined and the developer repeatedly transgresses with unacceptable behavior that should long ago have disqualified the developer from Bloomberg’s ongoing accommodation and indulgence.

Limits: Those Deserved and Not

If term limits should ever be repealed, they should not be repealed in the last-minute and self-serving manner Bloomberg proposes. That said, term limits should certainly not be repealed to retain in office a mayor who has not come to terms with and does not offer limit to the obvious mistakes he has already made.

Safety in the Numbers You Pull out of a Hat

Who among us would consider it safe to come up with fictional numbers to present to the IRS?

I am thinking about this because I was reading another attorney’s anonymously offered justifications for the transcendently artificial stratagems currently being used to divert public moneys to the financing of sports venues like Yankee Stadium. In connection with this it seems that some rather fictional numbers were submitted to the IRS. It is doubtful that the numbers are any more substantiated than if they were simply pulled out of hat.

Federal Stadium Financing Hearings

The anonymously offered justifications appeared in Foul Ball: Congressional Committee Criticizes New Yankee Stadium Deal, by Brian Baxter which appeared in The Am Law Daily, September 21, 2008. The article was about hearings Congressman Dennis Kucinich, chairman of the House Oversight and Government Reform Committee, is holding concerning the tax-exempt financing of Yankee Stadium, about which there is much to criticize and much to investigate.

The Yankee Stadium financing presents an excellent example of what is wrong with sports stadium and arena financing in the country in general and in New York in particular. The proposed Atlantic Yards Nets arena is on obvious analog and cousin to the Yankee Stadium financing. I was led to The Am Law Daily by a post in Atlantic Yards Report, (Monday, September 22, 2008, An architect of the Yankee Stadium deal was an IRS insider), which picked up the information in the AM Law article that a primary architect of the Yankees's financing strategy, Bruce Serchuk, a Nixon Peabody law firm partner, worked in the office of tax policy at the Treasury Department and in the IRS's chief counsel office.


Artificially Inflated Statement of Land Value to Issue Tax-Exempt Bonds

Congressman Kucinich and New York State Assemblyman Richard Brodsky are alleging what is pretty clearly true, that the Yankees and the city deliberately inflated the ostensible value of the city parkland where the new stadium is being constructed. The reason for doing this was to issue far more tax-exempt bonds than would otherwise have been permitted. Among other things, the New York City Department of Finance provided a $275 per square foot assessment for the parkland so they could tell the IRS that the land under the new stadium was worth $200 million, while the state was told it was worth just $21 million. (A Daily News analysis showed nearby property was valued at $25 per square foot: Yanks land deal ain't fair ball, September 12th 2008.) Think about the number of multiples (almost 10 times or possibly even more) by which the correct valuation of the land was overstated and you can conceive the proportionate quantity of bonds issued that should never have been sold as tax-exempt. There is a greater challenge in figuring out how overstated the land valuation is since the New York City government, ducking the issue, didn’t send officials to testify at the hearing. (See: Wednesday, September 17, 2008 In Brodsky’s report slamming Yankee Stadium deal, major questions implied about Atlantic Yards arena plan and Saturday, July 26, 2008 Was Yankee Stadium value "gamed" to issue PILOTs? Congressional probe could affect AY.)

Anonymous Justification Litany

Though no New York City officials showed up in Washington to defend the financing at the Kucinich hearings, perhaps there was solace for the die-hard stadium acolytes when The Am Law Daily quoted justifications for the financing from that anonymous lawyer.

Public finance is a very small industry so I probably know the lawyer who was being quoted. I can understand the impulse to speak out on behalf of industry colleagues though I don’t agree with him. (I have often counseled that public finance is such a small community that what goes around comes around far faster than in other industries.)

The anonymous lawyer dutifully recited the standard litany of industry rationales for these devices that plunder taxpayer funds to further enrich the superwealthy. (Were the Yankees really going to move to Connecticut?) Those justifications have been so comprehensively refuted I will not take space to restate the refutations here. If you want a quick reference to my point of view, see my More Money for the Very Rich: An Unsporting Pursuit? March 17, 2008.(This Huffington Post piece appeared just days before a massive increase in the cost of the Nets arena was announced, so though the principles are correct, the already huge numbers are understated.)

“Many, Many Lawyers”

What interested me was the anonymous lawyer’s description of the multiple lawyers working on the transaction:

"We're talking about many, many teams of lawyers working with the IRS, which issued a private letter approving the structure because it was grounded in established law," the lawyer says. "The federal government was fully involved in approving this transaction, which couldn't have been more public."

The comment was likely meant to reassure the reporter or his Am Law Daily readers. Indeed, a lot of lawyers do work on municipal bond financings.

If you are not familiar with public finance it may be hard to imagine how many lawyers are involved in these transactions. (If you saw the film Michael Clayton, an interesting corporate morality tale, the roomful of people in the scene showing the law firm closing a deal looked much like a tax-exempt bond issuance closing. Sometimes it can take not one room but two or three.) A crowd of professionals milling around dotting i’s and crossing t’s can give everyone a collective feeling of safety and assurance that all is within the realm of the condoned. There may be a feeling of safety in numbers, but it is not that simple.

Individual Responsibilities vs. the Herd

Current Wall Street events underscore the herd mentality and group-think to which the Street is susceptible. That includes not only runs on banks but also unjustified complacency about what is right in the first place. Notwithstanding, I have been in situations when the emperor is declared to have no clothes. I have seen that a single individual expressing himself can still bring to a halt a deal that is flawed by lurking vice. Further, when you come down to it, though there were probably “many, many teams of lawyers” working on Yankee Stadium, only a very few individuals would have been responsible for misrepresentations about the land valuation numbers. The individuals most responsible for any misrepresentations were probably not even lawyers.

However large the crowd, the responsibility when municipal bonds are issued is sliced and diced in almost as many separate pieces as the mortgage-backed securities which are carved into the multiple tranches and derivatives that are now perplexing Wall Street. Slews of different opinions and certificates are signed by different parties. That doesn’t mean that you can blithely ignore the unreliability of other transaction participants. Almost everyone is held to a standard of being responsible for what they “knew or should have known” to be inaccurate or unfounded. General “due diligence” responsibilities are distributed throughout the parties to the transaction. (BTW, “due diligence” it is cracked, is the “diligence that is due.”)

Assurance from Bond Counsel

When tax-exempt bonds are issued, bond counsel plays the key role of blessing that the transactions are being executed properly. The role of bond counsel was created when the railroad-building boom collapsed in the late 1800s. During that boom period government officials were cavalier in the issuance of huge amounts of debt. (Sound familiar?) With the ensuing bust, (the Panic of 1873) bond holders were jilted when the cavalier transactions were disavowed as the acts of irresponsible government functionaries acting without due authority and proper formality. (It happens.) Ergo, Wall Street law firms stepped in and afterward debt was no longer issued without an established and reliable law firm soberly opining that sufficiently binding legal procedures had been properly observed. To this day, this is one of the legal opinions that bond counsel still issues.

More recently, the role of bond counsel for tax-exempt transactions has grown and bond counsel now issues another separate opinion specifically directed to the validity of the thinking pursuant to which interest paid on the bonds will be considered exempt from federal income tax. The tax specialist lawyers who offer the thinking as to why the bonds should be tax-exempt do not provide the facts necessary to support the conclusion; they rely on certifications from the government officials and private parties involved in the transactions, though they are supposed to be alert for falsifications.

Infallible Lawyers?

Bond counsel lawyers assure against fallibility, but they are fallible human beings themselves. The most famous example perhaps is that John Mitchell, once one of the best known bond counsel to the New York State finance authorities, entangled himself in Nixonian politics and became the first United States Attorney General ever to be convicted and imprisoned for illegal activities. (Recent events with respect to the appointment of a special prosecutor indicate that Alberto Gonzales may become the second United States Attorney General to achieve this dishonor.) If there is ever a time to discover human fallibility, you will probably find it most easily at the end of boom cycles; it is so hard to let principle restrain you when those around you seem to be cashing in on risk without negative repercussion.

Tax-exemption of bonds is predicated upon abstract premises plus facts and numbers which are supposed to be real. In the case of the Yankee Stadium financing, the theory of the tax exemption was a pretty ploy in itself for which a limited number of tax lawyers working on the transaction must vouch. Fewer individuals had the responsibility to see that the numbers that plugged into that theory were accurate.

Club for Safety Speaks Louder

Is there ever safety in numbers? Yes, sometimes that is exactly how it works with respect to getting legal theories accepted. I remember as a young lawyer near the beginning of my public finance career being quite bewildered as I studied a section of the tax regulations: The better I thought I understood them the clearer it seemed to me they didn’t say anything actually comporting with the way those regulations were interpreted in the industry. It was then that one of my favorite tax lawyers asked me whether I hadn’t heard of the “103 Club.” (When I put up this post it will be the first time that “103 Club” Googles.)

My friend and colleague explained that the “103 Club’ was the term by which municipal bond tax lawyers from the city’s different firms referred to themselves when they periodically met for lunch to discuss the tax code and regulations. “103" refers to the section of the IRS Code pursuant to which most tax-exempt bonds attain their tax-exempt status.

The purpose of the 103 Club was to discuss what the tax code and regulations said and what they should be declared to say. The tax code and regulations don’t always say what they perhaps meant to say. The IRS is understaffed, the provisions are complex and certainly hard to write. When they don’t say what they mean or are sufficiently vague as to require interpretation, the industry lawyers can steer the IRS by agreeing upon what the IRS should be told the provisions mean. Enough industry lawyers communicating that they interpret something a particular way will generally persuade the IRS to agree unless the tax code provisions are explicitly contrary in both word and spirit to what the IRS meant to write. This approach naturally also applies when it appears that discovery of a loophole might be exploited. By definition, a loophole is when the spirit of a law can be evaded. So, you see, getting your way with the IRS is not only about hiring away from the IRS someone who one worked for them as was noted above.

I should observe that this kind of industry input is probably little different in other heavily regulated industries.

The last time I checked, not all that long ago, the 103 Club was still at it. Though I can’t think that its business would ever become unimportant, I can’t swear to you that they still refer to themselves using the “103 Club” term. After all, it is not a formally chartered group.

Poor IRS

This then is background when you consider the anonymous lawyer’s statement that "the federal government was fully involved in approving this transaction.” He is no doubt referring to how an IRS letter ruling was obtained providing comfort for the use of a loophole to evade the spirit of the law that Congress passed prohibiting sports stadium and arena financing. The poor IRS. The letter ruling was a stretch in itself, but when it was not satisfactory, based upon available facts, fictitious numbers were supplied to bootstrap it into workability.

Declaring Bonds Taxable: A City Expense

Noticing New York previously addressed itself (Friday, September 19, 2008, Contrivance in the service of creating blight, real blight- Listen again- REAL blight) to speculation that the tax-exempt bonds that have been issued for Yankee Stadium (and certainly any similar bonds) may be declared taxable based on the misrepresentations made to the IRS in obtaining private letter rulings from the IRS. (See also Atlantic Yards Report: Friday, September 19, 2008, At Congressional hearing, criticism of Yankees deal and stadium funding; IRS says final regulation coming soon.)

The bonds would almost certainly be declared taxable retroactively to the date of issuance, which would mean that taxes would be owed by bond holders not only going forward but for past years as well. Because the IRS ruling would be invalidated due to the contrived fictions of city government officials, it is envisioned that the city would be called upon to step in with payments to financially compensate the aggrieved bond holders. As I noted earlier, some individuals are more responsible than others for certain things even if a roomful of lawyers was involved.

Bond counsel on the transactions are probably predicting that the IRS would seek to negotiate a compromise. There is a persuasive argument that the IRS might just want to collect money straight from the city rather than having to chase down and reopen the tax returns of multiple bond holders. Maximum liability to the city might be somewhat circumscribed to the extent that the bonds can be made subject to an early call, with or without paying an early call premium. As we noted before, though the payments required from the city could be very substantial; this is not to say that they wouldn’t be proportionate to the arrogant carefreeness with which officials were willing to contrive fictive data at the expense of the public.

Away with Fictions, Scot-free?

Let me return again to the theme with which I began this essay: When there is money to be grabbed, do public finance and development professionals feel it safe to act with corporate collectivity to present fictions to the IRS? Forest City Ratner, thoroughly in the habit of making misrepresentations about Atlantic Yards and Nets Arena to the press and public, seems to have considered it safe to extend the habit to misrepresentations it is willing to make to the IRS. Much like the Yankee Stadium situation, other professionals (including officials with the city and state) seem willingly complicit or unwilling to due diligence information coming from FCR. The New York City Industrial Development Agency and the Empire State Development Corporation wrote a May 8, 2008 letter to the IRS urging that federal government allow R-TIFC PILOT (“Return Total Intercepted For Costs-Payment In Lieu Of Taxes” ) financing be used for the planned Atlantic Yards arena. In a July 14, 2008 letter to the IRS, Develop Don’t Destroy discredited that May 8th letter for its inaccuracies and fictive slant. (See: Monday, July 21, 2008, Asking feds not to approve tax-exempt bonds for AY arena, DDDB criticizes city/state letter.)

If the standard is not truth, but what can be gotten away with, do all these professionals feel safe presupposing that the IRS will tolerate their misrepresentations?