IRS Gives Thumbs Up to Tax-Free Bonds for Yankees, Mets, Nets [Updated]

In a move that will save the owners of the Yankees, Mets and Nets tens of millions of dollars, the IRS has given its O.K. to the use of tax-free bonds to finance the construction of the teams’ new facilities, according to a state spokesman. The tax-free financing comes mostly at expense to federal taxpayers—though city and state revenues are affected as well—in taxes that are not paid on bond earnings.

The city and state have long been awaiting an IRS ruling on the matter, as the agency has said the governments had found a "loophole" in existing rules, which generally bar tax-free financing for privately-financed sports facilities. The two governments have pushed their approach as a way to generate economic development through a technique that generally costs the city and state marginal amounts.

The ruling is undoubtedly good news for the troubled Atlantic Yards project, which would have seen its costs of financing a planned Nets arena rise by perhaps more than $100 million, based on the amount tax-free bonds traditionally save over normal bonds. The Nets had planned to seek around $800 million in tax-free bonds, while the Yankees wanted an additional $300 million or so apiece.

The decision by the IRS allows the three teams to seek tax-free financing under the old rules—which allowed the use of tax-free financing—until Dec. 31, 2009, according to the state spokesman.

Update: 5:20 p.m.

The new IRS regulations are here [Word doc]. They grandfather in any projects that had "preliminary approval" before October 19, 2006. The baseball stadiums were approved prior to then, though Atlantic Yards did not get a final approval until the end of 2006. Still, officials seemed to be under the impression that ruling cleared all three teams to qualify for tax-free bonds. 

Update: 5:35 p.m.

Two statements just came in on the ruling: one from Develop Don’t Destroy Brooklyn; the other from Atlantic Yards developer Forest City Ratner. 

From DDDB, which claims the rules do not apply to Atlantic Yards: 

The IRS today issued a long awaited decision on the regulation of triple tax-exempt bonds. Forest City Ratner’s Atlantic Yards Barclays Center Arena is reliant on $800 million in triple tax-exempt bonds.

Today’s ruling, including the rule titled ‘transitional rule for certain projects substantially in progress,” disqualifies the developer, Bruce Ratner, from getting these bonds for his $950 million arena.
"Ratner does not qualify for the tax-exempt bond he wants under the IRS ruling’s requirements. There was no official government action on the Atlantic Yards arena prior to October 19, 2006 as required by the ruling. The project’s approval was in December, 2006. There were also no ‘significant expenditures’ on the arena prior to the October date as required by the ruling," said Develop Don’t Destroy Brooklyn spokesman Daniel Goldstein.
And from Forest City spokesman Joe DePlasco, who says they do:

“We are of course very pleased with the Treasury Department regulation.  The tax exempt financing was always part of the plan for the development of the arena and the regulation released today acknowledges that. The regulation will help us move forward with a project that is critical to the on-going economic vitality of Brooklyn and the City.”