Giving Away the Store

A costly, developing problem for New York City that's three decades old

Cablevision's planned bid for the Hudson River rail yards site hasn't just fouled up Deputy Mayor Daniel Doctoroff's best-laid plans to build a stadium there—it has also exposed how the city has been giving away the store to real estate developers for some three decades.

So far, much debate over the stadium has focused on whether the MTA and its riders will get the real value for the land on which the Jets hope to build this field of beams. As the Regional Plan Association said, the city-backed plan would "rob" the MTA of hundreds of millions of dollars and thus shortchange transit riders.

But Cablevision's plan to put in a competing bid for the site also exposes how the city would "rob" itself of hundreds of millions of dollars more.

For sale: Eleventh Avenue, between 30th and 34th streets
photo: Cary Conover
For sale: Eleventh Avenue, between 30th and 34th streets

The reason? The riverfront rail yard is valuable—worth at least $100 per square foot, the Regional Plan Association said. When developed, it ought to produce plenty of property taxes for the city. (Since the land would be leased from a public agency, such money would be called a "payment in lieu of property taxes," or PILOT.)

The Jets deal would produce zero—zero—in such payments for the city, according to analyses by the city's Indepen-dent Budget Office and the Regional Plan Association.

But the Jets won't make PILOT payments to the city treasury. Its PILOT payments would be used to pay back $400 million of the money the Jets will borrow to build the stadium. That means the team will pay its debt with money that should be going to the taxpayers. Beyond that, the Jets can charge off "operating and maintenance costs, and capital renewal and replacement costs" of the stadium.

In other words, the city won't see a nickel of those PILOT payments because it is carving out a special break for the Jets.

According to the Regional Plan Association, a development with luxury housing on that site would yield the city $423 million in PILOT money over 30 years.

The question when the planning group released that finding in December was whether any developer would actually be willing to build housing on that land. Supporters of the stadium said no one else wanted the site. And as long as no paying customer coveted the property, it meant that the city lost nothing by letting the Jets occupy the land free of charge.

But Cablevision's forthcoming bid will destroy that argument—if it really is based on the luxury housing development the Regional Plan Association envisioned.

"If the market is strong enough to warrant development on a site without giving property tax abatements, then [a break on property taxes] is a subsidy to the development," said Chris Jones, vice president for research at the Regional Plan Association.

What it means is that the real cost to the public for building the stadium is not the often cited $600 million (split evenly between the city and state), but a not-so-cool billion, since the city is coughing up more than $400 million more that it should be getting in PILOT payments on that site.

And once that cost is included, you can scrap the studies (including an often cited one by the respected Independent Budget Office) that say the city will get its investment back on a stadium and expanded convention center by collecting more money in sales taxes on the goods that the extra conventiongoers buy.

If the stadium deal does go through, it will mean that once again the city will have overlooked the real costs of the big property tax breaks it gives out for builders to develop land that often would have been developed anyway.

Cablevision is an unlikely instrument to expose the fallacy of such giveaways. It benefits from a full property tax break that the state legislature approved for Madison Square Garden in 1982. At the time, a previous owner, Gulf+Western, claimed to be on the verge of moving the Rangers and Knicks to the Meadowlands.

Over the years, that break has cost the city $237 million (when adjusted for inflation), according to the Independent Budget Office. If the break were rescinded for next year, Mayor Michael Bloomberg could cancel his plans to eliminate a fifth firefighter from 34 fire companies.

Bloomberg would be right to call for an end to that tax break if it were not part of a conspiracy to deprive Cablevision of its First Amendment right to criticize him. State senator John Marchi of Staten Island, who chaired a committee that handled the legislation in 1982, has even urged that the tax break be withdrawn on the grounds that the locked-out Rangers are not playing their home games in the Garden (a stretch, since the team isn't playing anyplace else).

But it suffices to say that Cablevision is far from a stranger to the business of milking the city treasury.

You'll find its Madison Square Garden deal in the city finance department's Annual Report on Tax Expenditures, a compendium of who is feeding at the public trough. The name of the report says it all: It costs the city just as much to give Cablevision a tax break as it would to expend the same millions on making sure each fire company has enough firefighters to do the job safely.

The next time you hear about how the city budget shortchanges schools or scrimps on library hours or requires exorbitant fines for parking tickets or charges too high a sales tax, remember that term tax expenditure. According to the most recent report, the city collected nearly $11.6 billion in property taxes in the year that ended June 30. At the same time, it gave away tax expenditures—special tax breaks not routinely available to everyone—to the tune of $2.3 billion. That's in just one year.

Much of that is justified spending to stimulate low-income housing that would not have been built otherwise. But the figure also is swollen with unnecessary giveaways.

From the 1980s, we have the 34-year J-51 tax breaks that helped drive residents of the old Upper West Side rooming houses onto the streets. During the super-hot real estate boom of the late 1990s, the city granted hundreds of millions in tax breaks to subsidize land deals in Times Square that would have occurred anyway, once Disney broke the ice by developing there. And more recently, subsidies encouraged construction on Staten Island to the point that the borough's citizens are up in arms against "overdevelopment."

It's not a lie, as Bloomberg contends, to say that the stadium project will affect how much money is available to pay teachers, cops, and firefighters. The city would gradually pay back its loans for the stadium construction from the same expense budget it uses to pay employees. And furthermore, it would pass up hundreds of millions of dollars more in PILOT money that could be used for the same purpose.

That's why the West Side stadium deal would be the next big mistake.


Finer Print
By the numbers: get out your calculators, or go to these sites

So you like numbers? If so, you can add up the pluses and minuses of the West Side stadium by going through the fine print at these websites. For the Regional Plan Association report "Urban Development Alternatives for the Hudson Rail Yards," go to rpa.org/pdf/hudsonyardsalternatives.pdf.

You'll find the Independent Budget Office's report, "The Long-Term Costs and Benefits of the New York Sports and Convention Center," at ibo.nyc.ny.us. The same site will give you a link to "Budget Options for New York City," including a page on the cost of the Madison Square Garden tax break.

And if you are not bleary-eyed at that point, you can head for the Annual Report on Tax Expenditures at nyc.gov/html/dof/pdf/ 03pdf/taxpol_expenditures_04.pdf.

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