Payments in lieu of taxes securing $678 million of bonds to finance a proposed basketball arena in Brooklyn will not cover the debt, the New York City Independent Budget Office said in a report yesterday.
Developer Forest City Ratner has until the end of the year to go to market with the bonds, which would be issued by the Empire State Development Corp. to develop a key piece of the Atlantic Yards development.
The IBO estimated that 30-year bonds with level payments and a 7% interest rate would require about $55 million annually. A typical property tax assessment on the land the arena is to be built on would yield about $40 million in the early years after the arena opened, the IBO reported.
The city’s Department of Finance has increased its assessment of vacant land by 63% from 2009 to 2010 throughout the city, according to the report. While vacant land in Brooklyn has increased in value by 100%, the assessments for land on which arena would be built has grown by 238% and 702%, the report said.
“IBO estimates that the increases this year bring the city’s current land assessments for the arena blocks more closely in line with sales prices,” the report said. “Even at the current assessment levels, however, we project that PILOTs generated by the arena would still fall short of the payments needed to finance the arena’s debt service.”
The report focused on the arena and not the overall development, which would include housing, commercial and residential space. It also found that while public benefits and subsidies would save the developer $726 million, the city would see a net loss of $40 million of tax revenue over 30 years and New York State would see a net gain of $25 million during that time. A spokesman for Forest City Ratner said in a statement that the analysis was wrong and that the assumptions in the report were “widely off the mark.”
Internal Revenue Service regulations now prohibit this kind of PILOT financing, but the Atlantic Yards project was grandfathered in provided they sell the bonds by the end of the year. The project still faces a court challenge over the use of eminent domain.