The Crack of the Bat, the Roar of the Crowd, and Tax Subsidies for Yankee Stadium
October 21, 2009
The World Series is a week away, with the Phillies and the Dodgers battling to see who will face off against the Yankees or the Angels (on their home turf). If the Yankees pull of the American League series, the games will be at the new Yankee Stadium.
Lest we forget, we all helped build Yankee Stadium, even though it “paid for itself”:
The stadium’s construction costs have been publicly subsidized 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 run afoul of a federal tax code provision which requires that such bonds not be “private activity bonds.” This serves as a huge benefit because the bonds are exempt from city, state, and federal taxes, and have an interest rate about 25 percent below that of taxable bonds.
There are two parts to this financing scheme which seem “foul.” First, the new Yankee Stadium will be city-owned and thus exempt from property taxes. Meanwhile its primary tenant, the Yankees, will pay no rent. 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.
Secondly, to pay off the bonds over time, New York City will receive payments theoretically equivalent to the property taxes that Yankee Stadium would otherwise pay. The city claims that these payments in lieu of taxes (PILOTs) equal taxes that would otherwise be owed. 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, the 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.
The IRS got mad but let the deal go forward anyway, a rare instance of when the IRS shouldn’t have given in so easily. Andrew Moylan of the National Taxpayers Union notes that while city officials are dispensing subsidies through the tax code, the city is going broke.