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Michael D. D. White Headshot

More Money for the Very Rich: An Unsporting Pursuit?

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Before the nation focused on the resignation of our New York governor for his misjudgment, I was focused on something I thought was of great importance to the way the state was being governed. It likewise involves the undiscerned misspending of almost unimaginable amounts of money and also involves conduct as if the very rich are on a different plane subject to different rules. Maybe it bespeaks a related lack of judgment on the part of our departing governor, but I think this misdirection of public funds is far more significant than the sex scandal disappointment. Unfortunately, it is not unique to New York State; it looks as if we caught some bad habits from George Bush's exploits in Texas.

Is it that the very rich just "have more money" as Hemingway rejoined, or did Fitzgerald hit upon a deep truth when he wrote that the "very rich . . .are different from you and me"? The super-rich are playing games that you and I might never play even if given the opportunity. . . though only the very rich and super-connected have the opportunity to play.

The most unsportsmanlike of all involves the reverse-Robin-Hood game of sports stadium and arena finance. The public provides the money and the super rich get to own them. The wealth is transferred stealthily by legal legerdemain the public is unlikely to decipher.

When the Ancient Greeks built the Parthenon in Athens, the costs were publicly posted on a stone tablet for all to see. And today? Today what you don't know about edifices the public is paying for could be very bad for your civic health. Help is on the way. Recently, NPR's top e-mailed story was Terri Gross's Fresh Air interview with David Cay Johnston about his new book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill).

Johnston's book catalogues multiple ways we are being fleeced to make the super-rich richer. He tells of phantom taxes that wealthy individuals and corporations don't really pay and the tale of the Texas Rangers stadium whereby public taxes transformed George W. Bush's 2% $600,000 sporting investment into a $17 million capital gain.

And for those of us who don't live in Texas? Well, in Brooklyn, New York, where I live, Bruce Ratner of Forest City Ratner Enterprises has taken his cue from George W. Bush and surpassed him; he's planning a sports arena for his recently purchased basketball team as a key part of his proposed mega-development known as Atlantic Yards. New York government officials are committing New York's public to pay subsidies of more than a billion dollars covering all of the escalating costs of a basketball arena that the politically connected Ratner and company will own. The subsidies were awarded on a no-bid basis and the developer is even being promised that after an initial 30-40 year lease term accompanied by tax exemption, Ratner can extend his lease up to a total of 99 years with continued tax exemption.

The centerpiece of Ratner's arena finance dance is a complicated device best referred to as an "R-TIFC-PILOT" agreement (pronounced "Artifice-PILOT"- or "Return Total Intercepted For Costs-Payment In Lieu Of Taxes") which simultaneously spares Ratner's companies from all real estate taxes on the arena while providing him with $692.70 million in municipal bond proceeds toward its cost. The bonds are paid entirely with intercepted tax payments that would otherwise have been going to the public treasury. Other intercepted taxes can defray Ratner's cost of operating the arena, increasing his bottom line. Because the bonds are exempt from federal, state and local income tax an additional estimated subsidy of $129 million goes to the project. Including a $11.7 million exemption from sales tax, donations of public land (and excluding a number of other subsidies that could also be included) it adds up to an arena replacement cost paid for by the public of $905.72 million. From publicly available figures it can be discerned only that Ratner is paying for another $71 million with private money. But beyond this, the public is donating to Ratner the right to name the arena and the neighboring portion of Brooklyn, rights being sold for $20 million a year for 20 years, ($400 million). Just on the arena alone Ratner will clear at least $116.29 million in present value on day one.

Don't think that Bruce Ratner bought a basketball team because he likes sports. Nor is Bruce Ratner's expertise that of a builder. It is as a collector of politically garnered subsidies. Arena and sports venue finance is ideal for collecting subsidies. Johnston explains how it inverts the power structure when subsidies are given so that the benefit of subsidies to go entirely to sport franchise owners and not to the public.

Ratner is not just collecting subsides on the arena. The arena has been used a peg for the collection of probably at least another billion dollars in no-bid subsidies for development of adjoining properties. That raises the issue of eminent domain.

Bush needed 17 acres to build his Texas stadium. 200 acres were condemned. Ratner has similarly gone after gratuitous condemnations with a peculiar project footprint that would be inexplicable were it not for eminent domain's attractive windfall. The tilted playing field of eminent domain abuse attracts Ratner; the collection of special benefit through below-market acquisition of condemned land is essentially another form of subsidy collection.

Congress is considering eminent domain reform, including possibly restricting federal economic development funds for states abusing eminent domain. Lobbying against reform, Forest City Ratner recently paid $400,000 to former Senator Al D'Amato's lobbying firm. It is unfortunate to think that states and localities like New York that do business with Ratner are supporting him with subsides he is using to disrupt the national agenda of eminent domain abuse reform. As a New Yorker, I worry that the unholy alliance New York politicians make with Ratner means that New York will not be an effective incubator of politicians fit to freely address these civil liberty issues.

How entrenched are these practices? In New York, Atlantic Yards is supported by a mayor (Bloomberg, also wealthy) whose persona is that of the "business mayor" even though he says he wouldn't want to live near Atlantic Yards, and the city acknowledges problems with its public process. We have our departing governor (Spitzer) who ran for office on a platform of public finance agency transparency and reform, but who has engaged in anything but when it comes to Atlantic Yards. How entrenched? Bloomberg is apparently polling to find out whether he can replace the governor in three years.