Calling last week's $511 million bond deal to finance the Atlantic Yards basketball arena in Brooklyn "murky," a New York lawmaker said the deal should be halted.
Last week, the Brooklyn Arena Local Development Corp. priced the bonds that will be used to finance the construction of a controversial basketball arena in Brooklyn on behalf of Forest City Ratner Cos. The deal closes today.
The issuer had to sell the bonds by the end of 2009 due to changes in the Internal Revenue Service rules.
In a Dec. 18 letter to Gov. David Paterson, Sen. Bill Perkins, D-Harlem, wrote that the deal appeared to have been structured to avoid review by the Public Authorities Control Board, a state body made up of representatives of the governor and Legislature that has to give approval to financings by certain public authorities and their subsidiaries. The project did receive PACB approval in 2006, but Perkins, who is the chairman of the Senate Committee on Authorities, Corporations, and Commissions, said the deal needed to go before the board again.
"We're at a significantly different place," Perkins said. "We need to see exactly what is going on at this point ... The bottom line is that the PACB was created to provide some public opportunities to look at these projects and provide some transparency."
Speaking to reporters on Sunday, Paterson said he would he would look at the issues Perkins raised but did not appear poised to take any action that might interfere with the deal.
"If there is information in the letter that is asking us to take a look to see that everything was done properly, we would certainly be happy to do that," Paterson said. "We have already been meeting with the elected officials in the area and we will take a look at it and we are doing that right now."
The BALDC was created by the state's Job Development Authority, which is run jointly with Empire State Development Corp., as a nonprofit to issue the bonds. The bonds are backed by a payment in lieu of property taxes on the site, a structure similar to that used to finance ballparks in New York City in recent years that the IRS has said is no longer permissible for tax-exempt financing after the end of this year.
As a nonprofit local development corporation, the BALDC is not entitled to grant a real property tax exemption for a sports facility to Arena Co., the Forest City Ratner subsidiary that will sublease the arena from the issuer, Perkins wrote.
However, according to the preliminary official statement for the bonds, the owner of the land and the stadium will be the ESDC, which would not be subject to taxation. Under the terms of the deal, the ESDC will lease the land and arena to BALDC, which will in turn sublease it to Arena Co. Under an agreement between New York City, the issuer, and the ESDC, Arena Co. will make payments in lieu of taxes that will pay debt service on the bonds.
Perkins said that the way the issuer was created as a separate entity, rather than a subsidiary of the ESDC, appeared to be a way to avoid oversight.
"We're in a murky area because it's clearly not a subsidiary," Perkins said. "We're coming up with these new creations to avoid the scrutiny that the PACB or the comptroller might have over the financing."