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Monday, December 21, 2009

Financing Problem With Atlantic Yards?

Amy Lavine of Albany Law's Government Law Center has uncovered an interesting issue regarding the bond financing for the Atlantic Yards project.  The Atlantic Yards Report has a detailed post on the issue.  Here's a taste:

The issue was unearthed by Amy Lavine, a staff attorney at the Albany Law School's Government Law Center who has been studying public authorities. (She has been advising Perkins on eminent domain issues as part of her job and also offered pro bono help in off-hours for Develop Don't Destroy Brooklyn.)

"We've been trying to reform public authorities for the last few years," Lavine explained, citing the legislature's recent--and finally successful efforts. "So it's really important that we control these entities and make sure they're acting in a transparent and accountable way."

Typically, public authorities have to get their bonds approved by the Public Authorities Control Board--the governor, Senate Majority Leader, and Assembly Speaker hold the controlling votes--and the state Comptroller.

The BALDC was authorized under § 1411 of the Not-For-Profit Corporation Law. The PACB approves the financing and construction of any project proposed by the ESDC or the sibling Job Development Authority, which created the BALDC.

(The BALDC is the Issuer in the chart at right, from the Barclays Center Arena Preliminary Official Statement prepared by Goldman Sachs. Click to enlarge.)

"ESDC apparently did not want to go through this process," she said, and thus it created the BALDC, to which it will lease the arena land. The BALDC in turn will lease the land to the private company that will manage the arena.

The ESDC, she said, does have the authority to issue bonds, but "by skirting the process that's supposed to be followed, it seems that the bonds may have been issued illegally."

"Basically, the LDC is not a public entity," she said. "And it's controlled by different sections of the tax code in New York State. Either ESDC didn't think of the implications of this or they didn't think anyone would notice, because it is rather esoteric. It seems that, under the tax section that applies to the LDC, they're not eligible for exemption from property taxes." (The LDC is subject to §420-a of the property tax code.)

According to the recent Court of Appeals decision in Lackawanna LDC v. Krakowski, the LDC leased property to a for-profit manufacturing company and the property was considered taxable, because manufacturing and economic development is not a tax-exempt purpose. Had the Legislature intended a blanket property tax exemption for LDCs, it would have done so expressly, as it has in other contexts, the court said.

And if they're not exempt from property taxes, she said, there's no way to divert property taxes to pay for the arena bonds, via PILOTs (payments in lieu of taxes), and so nothing backing the bonds.

"To go forward, I believe that the process has to start over and ESDC will have to do this properly and get it reviewed by the Public Authorities Control Board and the state Comptroller," she said.

And that means they'd have to review the financial merits of the bonds, which hasn't happened, she said.

Ben Barros

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