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- New York City, Yankees Abuse Tax-Exempt Financing to Build New Stad...
New York City, Yankees Abuse Tax-Exempt Financing to Build New Stadium
On MLB's Opening Week, New Study Analyzes Inappropriate Use of "Payments In Lieu of Taxes"
Washington, DC, April 7, 2009 - New York City has tapped into taxpayer funds by shifting the financing for the construction of a new ball park for the New York Yankees through different layers of local government, while wrongfully claiming that the stadium will pay for itself, according to a new Tax Foundation study released on Major League Baseball's opening week.
In Tax Foundation Fiscal Fact No. 167, Tax Foundation law clerk Travis Greaves and tax counsel Joseph Henchman analyze the subsidization of the new stadium's construction costs in the form of $942 million in tax-exempt bonds issued by New York City. Seeking tax-free status for the bonds to ensure a lower interest rate, New York structured the deal to ensure it didn't break a federal tax code provision which requires that such bonds not be "private activity bonds." This serves as a huge benefit to both New York City and the Yankees organization because the bonds are exempt from city, state, and federal taxes, and have an interest rate about 25 percent below that of taxable bonds. Greaves and Henchman explain why the financing scheme seems "foul."
"The new Yankee Stadium will be city-owned and thus exempt from property taxes. Meanwhile its primary tenant, the Yankees, will pay no rent," Greaves and Henchman say. "This clearly brings up the issue of whether such tax-exempt bonds should have been issued at all, and especially when the city is so far in the red."
To pay off the bonds over time, New York City will receive "payments in lieu of taxes" (PILOTs) that are theoretically equivalent to the property taxes that Yankee Stadium would otherwise pay. In reality, these payments are inflated by overvaluing the stadium property by three times that of comparable property.
"By inflating the payments in lieu of taxes, New York City can say to taxpayers that the Yankees are paying a significant part of the stadium's cost, while telling the IRS that the City is paying for almost all of it," Greaves and Henchman argue.
While the IRS signed off on the deal, it subsequently approved a regulation prohibiting such shell games in the future. The regulation applies only to bonds sold on or after October 24, 2008, grandfathering in the previously issued bonds for the new stadium and newly issued bonds to pay for cost overruns.
"If there are justifiable uses for PILOTs, the Yankee Stadium project does not appear to be one of them," Greaves and Henchman explain. "When taxpayers elsewhere hear that any project is being funded by PILOTs, they should remember the cautionary tale of the Yankee PILOTs and insist on strict transparency and accountability so that their taxpayers do not end up subsidizing private uses with public funds."
Fiscal Fact No. 167 can be found at http://www.taxfoundation.org/legacy/show/24561.html.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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