WASHINGTON - Questions over whether inflated land values were used by New York City in its pursuit of tax-exempt bonds for the new Yankee Stadium could imperil the bonds' tax-exempt status, witnesses suggested at a hearing here yesterday. But the agency that issued the bonds said the city used standard procedures in its assessments and attributed the differences to different assumptions used in relation to different purposes for the assessments.
"If the city properly assessed the value of the stadium site and the stadium itself, most likely either a smaller stadium would have been built or the Yankees would have been forced to contribute a larger share of the costs," Ohio Democratic congressman Dennis Kucinich said. "This subcommittee's still ongoing investigation has uncovered substantial evidence of improprieties and possible fraud by the financial architects of the new Yankee Stadium."
The hearing was the third of by the House Oversight and Government Reform subcommittee, which Kucinich heads, on stadium financing in New York. The Yankees and New York City officials were no-shows, but they are expected to testify next month.
The New York City Industrial Development Agency sold $942 million of bonds in 2006 to finance the stadium.
The city sought a private-letter ruling from the Internal Revenue Service before it sold the bonds, which are backed by payments in lieu of taxes, in 2006. Assemblyman Richard Brodsky, D-Westchester, said in a report Tuesday, that the city in its request for a private letter ruling had said that it would use the land's actual assessed value.
One assessment of the land given to the IRS valued the land at the Bronx site, a public park where the stadium is being built, at $204 million, or $275 per square foot. Another assessment provided to the National Parks Service used to determine the cost of replacing the parkland valued the land at $21 million, or $45 per square foot.
Speaking generally, IRS associate chief counsel for financial institutions and products Stephen Larson said that IRS private-letter rulings were based on factual recitations of information.
"The private letter ruling is only valid to the extent that it was based on factual recitations," Larson said. "If the audit team were to determine that the underlying representations were false, then the PLR would essentially no longer be effective and the audit team would pursue its normal recourse."
The IDA yesterday released a rebuttal to statements made earlier this week by Brodsky included the land assessment issue. The IDA said that the city department of finance had used standard procedures in its assessment and that the IDA was not involved in the assessments. The different assessments had different purposes and different assumptions, the IDA said. Not all of the assessments included the completion of a more than $1 billion stadium and $200 million of public infrastructure.
During a question and answer session at the hearing, Clayton Gillette, a professor of contract law at New York University, said that if the IRS negated the private letter ruling it could have "extraordinary consequences" because the IRS could then declare them taxable.
"Then bond holders who purchased them on the belief that the interest they received would be tax exempt are going to be, shall we say mildly upset," Gillette said. "The city would have to step up to avoid imposing additional tax liability on the bondholders."
