Yankees Stadium Tax Financing Under Suspicion; White House Aide Avoids Tax Foreclosure
September 18, 2008
Two excellent stories over at TaxProf Blog this morning:
- A Congressional hearing this morning on New York City’s possibly illegal issuance of $943 million in tax-exempt bonds to fund a new $1.3 billion baseball stadium for the New York Yankees in the Bronx. The new stadium will be exempt from property taxes by virtue of being city-owned and leased to the Yankees. In return, the Yankees will pay Payments In Lieu of Taxes (PILOTs), theoretically equivalent to the amount of property taxes that would be owed. If they aren’t equivalent, the IRS gets mad, since it the City would essentially be manipulating the property tax system in order to obtain tax-free financing that it shouldn’t otherwise qualify for. In the Yankees case, the PILOTs are suspiciously equivalent to the amount needed for annual service on the bonds used to build the stadium, perhaps three times what the the amount would be for a comparable property. The IRS reluctantly signed off on the deal but proposed a new rule to forbid the practice in the future; New York City’s need for even more money for the Stadium now puts them in a bind. From Assemblyman Richard Brodsky’s exhaustive report:
The Report concludes that, in spite of public claims by elected officials and the Yankees, there are almost no new permanent jobs, private investment, or local economic impact resulting from the taxpayer subsidies, the bonds were used for private benefit, and that the public is paying for the cost of construction of the new Stadium. The Report further finds that the massive ticket prices announced by the Yankees, which will make Yankee games largely unaffordable to the very taxpayers who are paying for it, could have been mitigated if City officials had made affordable ticket prices a condition of the massive subsidies. The City refused to do so, instead, the using bond proceeds to acquire a luxury suite for its own use. City officials also manipulated state laws requiring that there be a measurable public economic benefit in exchange for taxpayer subsidies of private persons, state laws guaranteeing the integrity of our park system, and state and city laws that require the fair, professional and equal assessment of taxpayer property.[…]
Let me conclude with a final observation. There is a fundamental flaw in the decision by the Congress to allow for tax-exemptions that benefit private persons. The most obvious consequence of this policy is to create an economic development model that creates little new economic activity on a national basis. You have created a system that pits one state against another, that is marked by the elegant blackmail of private interests who receive subsidies and tax breaks not because of new investment, but because they threaten to leave one state for another. From a national perspective, it does the country no good when the Governor of New York gleefully announces that as a result of tax-exempt bonds he has persuaded an employer to move from Pennsylvania. The federal system was not envisioned as a vehicle for cutthroat competition for tax preferences between and among states and large economic interests. The Congress should stop the madness and restore fairness and equity to our tax system by denying tax-exemptions whose purpose is to move economic activity from one state to another.