Going to the well once too often

Hand it to Ariella Cohen: this is some damn fine national/local reporting. Interestingly, a quick scan of blogs that focus on the Ratner project doesn't show anyone dealing with it yet (though I easily could have missed one), so I'm going to excerpt liberally.

Just in time for the final approval of Ratner’s Atlantic Yards project, the Internal Revenue Service has proposed the reform of a development-friendly tax program — a bond-financing scheme that happens to provide a funding foundation for Atlantic Yards.

The program under scrutiny is called “payments in lieu of taxes,” or PILOTs. Using PILOTs, a city can take land off the tax rolls in exchange for fixed rent-like payments — but the payments are typically less than property taxes and, in Ratner’s case, would not even end up in the city’s coffers.

If the new rule goes into effect as expected next year, developers would no longer be allowed to use federally subsidized, low-interest bonds for projects that involve PILOTs, unless the payments reflect taxes based on a property’s actual value.

The change would “better assure a reasonably close relationship between eligible PILOT payment and generally applicable taxes,” the IRS said in the regulation.

This next part I thought was particularly interesting: the stadium giveaways Solomon and I complained about so bitterly were what caught the attention of the IRS.

New York City’s use of the payments came under federal scrutiny after the IRS grudgingly signed off on controversial PILOT deals for new stadiums for the Yankees and Mets.

Sources told The Bond Buyer last month that the IRS felt that those stadium deals — which cost the city an estimated $216 million in tax revenue over 40 years — looked “too much like private loans.”

“Now they are trying to close the barn door that those deals went though,” said Doug Turetsky, spokesman for the city’s Independent Budget Office.

Ratner’s 16-tower, arena, residential, hotel and office space development is slated to pay PILOTS to the Empire State Development Corporation for the next 99 years in exchange for 25 years of full and partial property tax exemptions.

The deal will save Ratner up to $91 million in tax costs over 30 years, according to the IBO.

Yay! Yay! Ratner's screwed, right?

Right?

Ratner would not comment for this story, but his spokespeople have always said that the tax break will underwrite the project’s 2,250 affordable housing units.

If the IRS rule change goes though, it may inflate Ratner’s costs, but it could also lessen the chances that he will scale back the size of the 8-million-square-foot project — Brooklyn’s biggest ever — because Ratner will need to make up for the shortfall.

Fuck. So it's conceivable that the IRS change could go through after Ratner gets approval to buy MTA land at pennies on the dollar, but just in time to yank out the affordable housing component that has bought the development what support it does have? So we'd get a full-sized Ratner development with zero affordable housing?

Even when you win you lose.

One way or another, I think the IRS is doing the right thing here in principle. I work for a bunch of community-development-oriented finance people fairly regularly; I'll be interested to see their reaction.

UDPATE: My bad, NoLandGrab had it.