At a time when NYC and NY state are both eliminating important public services due to budget shortfalls, as are many states across the country, it is incumbent for taxpayers to know far more comprehensively the machinations of the public financing of its stadiums.
By Diane M. Grassi
Part 3 of a Series
As previously chronicled in this series of reports subtitled, MLB Goes to Harlem Seeking Welfare, on the public financing of the new Yankee Stadium in Bronx, NY, a borough of New York City, the issues it encompasses and the various impending outcomes may have a broad impact for cities across the United States.
Moreover, public-private partnerships have become intentionally blurred when it comes to taxpayers ultimately funding of Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA) and other professional sports’ stadiums and venues.
Balance sheets, land assessments, funding arrangements via questionable ethical relationships if not borderline illegal ones between public officials and corporate entities are now being revealed as more than troublesome with respect to the new Yankee Stadium. And it may eventually take an act of the U.S. Congress to unravel that which appears to be an egregious violation of the public trust on behalf of NYC and the New York Yankees.
As last reported here in July 2008 in NYC, Yankees Redefine Crookery in Part 2, the NY Yankees a/k/a/ Yankees Global Enterprises LLC, had requested that an additional $366 million in tax-free bonds be appropriated, to the already ballooning $1.3 billion cost of the new Yankee Stadium tallied thus far, and financed primarily through such funding instruments.
But in order for any new approval for any such new appropriations, the process must be cleared again by a host of multiple New York City, New York state and federal agencies. However, unanticipated by the NY Yankees is that not only could such a request be denied but that they have opened up a proverbial Pandora’s box of quagmires now being given scrutiny with a fine tooth comb by both the State of NY and a powerful Congressional committee.
On July 4, 2008, during the NY Yankees game at Yankee Stadium versus the Boston Red Sox and broadcast on the YES cable network , the NY Yankees own broadcast outlet, play-by-play announcer, Michael Kay, was speaking about how the current stadium would be replaced starting with the 2009 season. And he stated at the top of the 2nd inning that “And across the street they’re building a new ball park which the Steinbrenner family is paying for.”
Perhaps Kay should go to Capitol Hill and testify under oath and relay such news to those investigating the suspicious circumstances under which the NY Yankees obtained all of their dough. He may get a chance in September 2008 when additional hearings will be held by the House Committee of Oversight and Government Reform’s Sub-Committee on Domestic Policy. After all, Kay would be in good company along with notable others associated with MLB who have been less than forthright before Congress.
But sadly, most New Yorkers either already believe that which Kay and others have reiterated or have no idea about anything going on in Yankee Land. Yet, such may set important precedents for future building projects and land takings both in NYC and other municipalities.
But far more importantly, and at a time when NYC and NY state are both eliminating important public services due to budget shortfalls, it is incumbent for taxpayers to know far more comprehensively, than that which the local tabloids have recently and but occasionally provide, about this complex web of wheeling and dealing.
For the new Yankee Stadium is no longer a house that Ruth built but one that New Yorkers citywide and statewide will be paying for and for generations to come. And in that regard a brief context of the back-story is in order and to understand in the interest of public policy.
Prior to the NY Yankees’ initial approvals required from public agencies, the last of which were not completed until 2006, the Yankees put into motion key lobbyist law firms and former public officials who had prior governing positions from City Hall to the Internal Revenue Service to the U.S. Department of Treasury. And it was through such seemingly conflicts of interests that have driven the realized stadium.
Initially, the NY Yankees had to clear a hurdle by the IRS, which many now consider questionable, for the $941 million gain in triple tax-exempt bonds with a favorable low interest rate. Such will save the Yankees close to $150 million in saved interest alone.
Bond buyers get a considerably less lower set interest rate of return, when exempt from federal, state and city income taxes and therefore the NY Yankees benefit from an interest rate approximately 25% lower than taxable bonds.
Bruce Serchuk, a partner at the law firm, Nixon Peabody LLP, was retained by both the NYC Industrial Development Agency, and the NY Yankees to lobby the IRS. Serchuk was a former lawyer in the Office of the Chief Counsel at the Internal Revenue Service (IRS) and in the Office of Taxation Policy at the Department of the Treasury. He was instrumental in providing NYC lawyers help with submitting the request that allowed such payments-in-lieu-of-taxes (PILOTs).
In June 2006 the IRS granted that request to NYC in a private letter ruling. In spite of regulations that changed that very year which further restricted publicly financed stadiums using tax-exempt bonds, it got the attention of the Committee on Oversight and Government Reform’s Sub-committee on Domestic Policy and precipitated a March 2007 hearing.
Yet, instead of putting a cap on spending by the NY Yankees and NYC’s Industrial Development Agency (IDA), an arm of the NYC Economic Development Corporation, which operates at the Mayor’s behest, NYC was granted another $190 million in tax-exempt financing for the new stadium’s 3 parking garages.
But in order to get this increased financing, the garages were termed by NYC officials as “Civic Facility Projects.” Additionally, the IDA created a specious not-for-profit organization, referred to as the Bronx Community Initiative Development Corporation as a “special purpose LLC” that was needed as a bridge to complete the garage financing.
Tishman Speyer Properties, now a global multi-national conglomerate, was hired by the NY Yankees for the construct of the new stadium. Anthony Mannarino, who now is in charge of Tishman’s stadium development, was previously the Executive Vice President of the NYC Economic Development Corporation from 1990-1994 and its acting President in 1994.
None other than former Mayor Rudolph Giuliani and one of his former NYC Police Commissioners, Howard Safir, are both listed in court documents as security consultants for the new stadium project as Giuliani Security & Safety Partners, a division of Giuliani Partners, LLC and Safir-Rosetti Security, respectively.
There are far too many lobbying interests and reciprocal relationships to detail in this one report, but suffice it to say that the NY Yankees and NYC officials have easily spent upwards of $500,000.00 of taxpayer dollars in lobbying costs for their back-scratching stadium behemoth.
Most of the lobbying expenses were accorded in a final deal which Mayor Giuliani had ratified prior to his departure from City Hall in 2001. It allocated $25 million over a 5 year period from 2002-2007 to be used by the NY Yankees in any way they saw fit for the planning stages of the new stadium on the taxpayer’s dime. And unfortunately far more than new stadium expenses were charged to the taxpayers, which had nothing whatsoever to do with stadium planning. But the NY Yankee organization could not help itself and applied for every last dime of that $25 million.
The puppet master of the whole deal is former NYC Deputy Mayor of Economic Development, Planning and Administration, Randy Levine, from 1997-2000, and now President of the NY Yankees. Prior to Levine’s leaving his office in 2000, he was given the primary responsibility to craft a financing structure document for Mayor Giuliani and the new Yankee Stadium.
And prior to becoming Deputy Mayor, Randy Levine was a chief labor negotiator for MLB Commissioner Bud Selig. To make matters worse, Levine was granted a waiver from the NYC Conflict of Interest Board which oversees NYC’s Conflict of Interest Law. And as a direct result of that waiver, throughout Randy Levine’s term as NYC Deputy Mayor, he maintained a consulting contract with MLB.
In September 2008 the House Committee on Oversight and Government Reform’s Sub-Committee on Domestic Policy whose Chairman is Congressman Dennis Kucinich (D-OH) will concentrate on those federal agencies formerly involved in the previous financing approvals and the newly requested $366 million in additional funding requested by NYC and the NY Yankees in June 2008.
Those agencies include the U.S. Department of the Treasury, the IRS, and the National Park Service of the U.S. Department of the Interior along with the NY Yankees, the NYC Department of Finance, and the NYC Economic Development Corporation. Those involved agencies have all been required to submit specific documentation to Congressman Kucinich’s committee by August 6, 2008 in preparation for a date to be announced for his hearing in September 2008.
The issue to be explored will be the conflicting land value assessments which were supplied and used as a basis for the original $941 million tax-free bonds. It has come to the attention not only of Rep. Kucinich but New York State Assemblyman, Richard Brodsky, that the unjustified land assessment valuations may be the smoking gun in the now $1.3 billion house of cards which may bloat to upwards of $2 billion before all is said and done.
The NY Yankees claim that the land upon which the new stadium sits is worth $275.00 per square foot, more than most lots on waterfront property on Manhattan Island, the heart of NYC. The NYC Department of Finance claims that the land is worth $204 million versus NYC’s commissioned independent assessors who value it at $21 million. And land just across the street from the new Yankee Stadium, according to the NYC Department of Finance’s latest assessments and the latest average market value of such land in that area of the Bronx, is but $36 per square foot.
According to NY State Assemblyman, Richard Brodsky, who heads the NY State Committee on Corporations, Authorities and Commissions and who is also holding hearings on this issue on the state level has said that, “This issue goes to the heart of whether it is a public project or a private project…There is substantial discrepancy on a whole host of levels that we are going to proceed to investigate thoroughly and fairly, but we are going to get to the truth.”
And as the ongoing story of this slippery slope of either trickery or merely free market big business, depending on one’s point of view, this journalist will pick up the case in September 2008 and report back in Part 4 of this series.
And just in case you were wondering, “Everything is politics.”–Thomas Mann (1950)
Copyright ©2008 Diane M. Grassi
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