The Jets vs. Nets: Brooklyn Arena Deal Template for Stadium

The Mayor’s after-hours announcement on March 3 of a deal on the Brooklyn arena for the Nets basketball team was first seen as a pleasant distraction from his troubled negotiations over the West Side football stadium.

Except the two projects sound remarkably the same.

It’s not just that a sport facility would go over Metropolitan Transportation Authority train yards-one in Brooklyn, the other in Manhattan. It is also that, in each case, the developer gets a nice check from the government, state override of local zoning laws and years of tax-free living.

The announcement came as something of a surprise. Fourteen months ago, Forest City Ratner Companies announced its plan to move the Nets to a Frank Gehry–designed arena at the intersection of Flatbush and Atlantic avenues in Brooklyn. Plus, in the part of the deal that would make real money, chief executive Bruce Ratner would erect 17 office and residential towers in the rapidly gentrifying Prospect Heights, for a grand total of $2.5 billion.

Since that time, Mr. Ratner has been engaged in a little friendly “Mau-Mauing of the Flak Catchers,” as Tom Wolfe would call it: offering jobs, affordable housing and a community center to gain support from community activists. Then, once the brouhaha over the West Side erupted this winter, little was heard about the 21-acre complex. Opponents thought the deal might even have fallen through.

Ka-boom! Out comes the press release from the Mayor’s office proclaiming “an historic project that will continue to energize the borough of Brooklyn” and bring 12,000 construction jobs and 8,500 permanent jobs. The city and state will chip in $200 million “in site preparation and public infrastructure improvements,” the press release added.

That didn’t sound too bad compared to the $600 million that the public is supposed to ante up for the West Side stadium. But wait-there’s more!

The actual memorandum of understanding, which has so far escaped the notice of the press, shows that Mr. Ratner will be able to finance the arena through tax-free bonds. While he pays those bonds back, he will not have to pay property taxes or even payments in lieu of taxes. These PILOTS, as they are fashionably known, are what commercial developers of tax-exempt property often have to pay.

The city will even throw in a couple of lots that it owns, along with portions of streets and sidewalks, for $1-the mere price of a watery cup of coffee at a corner deli.

But wait-there’s more!

The state’s Empire State Development Corporation, which will take control of the project, will “consider” exempting Forest City from mortgage-recording taxes and from sales taxes on construction materials that it will use to build the towers and the arena.

“They are getting every tax break known to man,” said City Council member Letitia James, whose district includes the proposed project and who has fought it from its inception. Bettina Damiani, project director of the nonprofit watchdog group Good Jobs New York, remarked, “I think the concern here is that sales taxes and other taxes are some of the reasons why we want development, because they are supposed to go back to the city.”

Wasn’t it just a few months ago that Mayor Bloomberg called on Madison Square Garden, his enemy in the West Side negotiations, to give up its tax breaks? It was four months ago, in fact. But, City Hall says, the two situations are not the same. “After the bonds are satisfied, the PILOT will return to the city,” said Janel Patterson, spokeswoman for the Economic Development Commission. “The Madison Square Garden legislation granted a tax break in perpetuity.”

As for how long it will take before Forest City pays off its construction bonds and becomes a responsible, tax-paying citizen, well, no one quite knows.

Nevertheless, it will all be worth it, said Ms. Patterson. “This project will create about a billion in benefits for the city and the state, and it will create 8,500 jobs. It is a reasonable investment on our part.”

Just how much of a payback the Brooklyn development will create is up to debate. A study paid for by Forest City put the total at $3.6 billion, while another study commissioned by neighborhood opponents found that the project would end up losing $500 million for the city. The city estimates a $1 billion return-which is good, because a new study by the Pratt Institute (the most objective source to conduct a study to date) finds that all these tax breaks could end up costing the city about $1 billion.

Local opponents, though, have even bigger problems with the notion of the state seizing their property through eminent domain and then turning it over to a private developer-albeit in exchange for fair market value.

The new deal makes clear that the state intends to do just that-and that the city may in fact even use some of its $100 million contribution to buy up properties that reluctant property owners refuse to sell.

The M.T.A., however, hasn’t gotten with the program. Just as on the West Side, it’s the M.T.A. which could end up making the whole project extremely expensive for the developer. The Feb. 18 agreement stipulates that Forest City Ratner Companies will have to pay market price-whatever that means-for the 10 acres of M.T.A.-owned property on which the towers will be built. The M.T.A., in a separate letter dated Feb. 24, said that it reserves the right to put the railyard out to bid-but that if it agrees to sell to Mr. Ratner, it will charge him for every sixpenny nail it has to use to renovate or relocate because there is something historic going on overhead.

Go, Nets!

The Jets vs. Nets: Brooklyn Arena Deal Template for Stadium