Yesterday, the IRS issued critical new rules that ban the use of tax-free financing for arenas among other facilities. Among those impacted are Bruce Ratner’s planned Atlantic Yards facility. Norman Oder of Atlantic Yards report read the ruling and determined that it allows a “loophole” that allows such financing for the Atlantic Yards project as well as additional bonding for the new Yankee and Mets Stadiums. In today’s Times, Charles Bagli pretty much comes to the same conclusion. Develop Don’t Destroy Brooklyn, however, has a very different interpretation, and we expect that the ambiguity of the language and ruling could lead to even more litigation and government hearings. The key phrase is that it grandfathers in projects “substantially in progress.” We can see lawyers and bureaucrats arguing this point about Atlantic Yards until we live in Green-Wood Cemetery. (Which is beyond the real issue of whether the deeply sick credit market will dole out $950 million in financing for a one-sport arena whose cost overrruns could spike the price way past $1 billiion, making the most expensive arena in the history of mankind.) Here is the DDDB statement:

Bruce Ratner’s Barclays Center Arena Not Qualified for Tax-exempt Bonds Under Today’s IRS Ruling

The IRS today issued a long awaited decision on the regulation of triple tax-exempt bonds. Forest City Ratner’s Atlantic Yards Barclays Center Arena is reliant on $800 million in triple tax-exempt bonds. Today’s ruling, including the rule titled “transitional rule for certain projects substantially in progress,” disqualifies the developer, Bruce Ratner, from getting these bonds for his $950 million arena.

“Ratner does not qualify for the tax-exempt bond he wants under the IRS ruling’s requirements. There was no official government action on the Atlantic Yards arena prior to October 19, 2006 as required by the ruling. The project’s approval was in December, 2006. There were also no ‘significant expenditures’ on the arena prior to the October date as required by the ruling,” said Develop Don’t Destroy Brooklyn spokesman Daniel Goldstein.

Look for the fun to continue and continue and continue as the credit market continues to collapse.

GL Analysis
We have been long-time opponents of taxpayer subsidies of stadiums and arenas, opposing both direct public spending and indirect bonuses in the form of tax-free spending. In a previous life we went head-to-head with Sen. Arlen Specter on the subject in the Philadelphia Inquirer. We will simply say that the Senator was in favor of such spending and we were were not. In the case of Atlantic Yards, we tend to believe that calling it “substantially in progress” is a stretch, but the ultimate judgment depends on what is included in that definition, in other words, whether state approval is in and of itself enough to call the project “substantially in progress” or actual steel rising out of the grounds constitutes it. In addition, the key date in the ruling, according to DDDB is October 19, 2006. Was AY “substantially in progress” back then? In any case, we go back to our long-held belief that such facilities operate for the benefit of wealthy sports franchises and their owners and should be financed completely by them. This is an issue that stands apart from the planning and quality of life issues related to Atlantic Yards. It is about how scarce public resources should be invested.