Much ado has been made about the Yankees’ desire to get another $350 million or so in tax-free bonds to finish their stadium.
Not to downplay the subsidy involved in tax-free bonds, but the press has been filled with rather misleading headlines and langauge suggesting that the team is asking for $400 million in public funds (from Metro: “Yankees ask City for $400M More”) to finish the new stadium.
But the actual effect on city and state coffers, according to the city’s Independent Budget Office, is far more marginal, at least when compared with the amount of additional financing the Yankees are seeking. The IBO estimates that a $350 million tax-free 40-year bond for the team would cost the city $3.6 million in net present value and $6.7 million for the state, according to IBO spokesman Doug Turetsky. The federal government would take a substantially bigger hit: $72.6 million, which is perhaps why the feds are pushing to amend the rules while the city and state are resisting.
The issue is rather complex—the Village Voice’s Neil deMause gets into the intricacies in what’s about as headache-free a read as possible when talking about tax-free financing and payments in lieu of taxes—but basically the Internal Revenue Service wants to change a policy to make it far more difficult for stadiums to get tax-free financing in the same manner that the Mets and Yankees have done so far.
The most at-risk project appears to be the Nets’ arena in Brooklyn, which is now seeking somewhere between $600 million and $700 million for the more than $900 million cost, though the final amount of financing has not been determined. Should the team and developer Forest City Ratner be unable to finance in the manner initially planned, it seems a new financing plan, likelier at a higher cost, would need to be devised.
Of course the rule change comes as the IRS seems to feel that the existing law was not intended to let stadiums get this much tax-free financing, given that the teams are private, for-profit entities. Indeed, as the Voice noted, the IBO gave testimony [PDF] in 2006 where it called the request for tax-free bonds an “aggressive interpretation” of the law.