The New York City Industrial Development Agency and the Empire State Development Corp. made "misleading and politically slanted arguments" about financing of the Atlantic Yards project in their May 8 letter to the Internal Revenue Service, the community group Develop - Don't Destroy has claimed.
The Brooklyn-based group of individuals and businesses, which would be displaced by the project, argued in a letter to the IRS that was dated July 14, but not released until yesterday, that the development firms deliberately misled the IRS by leaving out key information about the development project, which includes a basketball arena and housing as well as hotel, retail, and office space. The project would be partially financed by bonds backed by payments in lieu of taxes.
ESDC officials yesterday declined to comment on the letter, and NYCIDA could not be reached for comment.
The ESDC plans to sell $637.2 million of PILOT bonds to help finance the $4.2 billion project. The corporation joined the NYCIDA in penning a letter to the IRS in May asking that the effective date for its new, more stringent PILOT regulations be pushed back so as to not block the already-planned project.
After determining in two separate private-letter rulings that PILOT bonds could be used to finance the new New York Yankees and Mets stadiums, the IRS proposed new regulations last October that placed further restrictions on using PILOT bonds for projects.
However, the community group argued that the bond-issuing authorities deliberately left out the estimated property value of the development area so it can assess a value high enough to accommodate the financing plan. Under tax regulations, payments in lieu of taxes cannot be made in an amount greater than the general taxes that the project would yield which, in this case, would be the foregone property taxes on the land.
"Were ESDC to provide for you today the estimated taxes, the developer would be boxed into a corner from which it would have trouble removing itself when the arena cost increases again, as it is certain to do," the community group said in the letter. "At that time the sought-after increased tax-exempt bond financing, with the increased PILOT payment needed, will of course lead to a higher, yet fabricated, estimated tax value."
The group's letter comes as the new Yankees stadium, which is being financed with over $900 million of PILOT bonds, has come under scrutiny due to questionable property tax values. State and federal officials recently began examining whether the city deliberately overvalued the land for tax-exempt financing purposes, after a state lawmaker revealed that the city's assessment sent to the IRS vastly exceeded independent assessments done for the city and the National Park Service.
Rep. Dennis Kucinich, D-Ohio, who chairs the House Oversight and Government Reform Committee's panel on domestic policy, is planning a September hearing on the two stadium deals.
IRS officials could not be reached for comment.
