[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
GAMING THE TAX CODE: PUBLIC SUBSIDIES, PRIVATE PROFITS, AND BIG LEAGUE
SPORTS IN NEW YORK
=======================================================================
HEARING
before the
SUBCOMMITTEE ON DOMESTIC POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 18, 2008
__________
Serial No. 110-156
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.oversight.house.gov
U.S. GOVERNMENT PRINTING OFFICE
49-621 PDF WASHINGTON : 2009
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
JACKIE SPEIER, California
Phil Barnett, Staff Director
Earley Green, Chief Clerk
Lawrence Halloran, Minority Staff Director
Subcommittee on Domestic Policy
DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DIANE E. WATSON, California DAN BURTON, Indiana
CHRISTOPHER S. MURPHY, Connecticut CHRISTOPHER SHAYS, Connecticut
DANNY K. DAVIS, Illinois JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts MARK E. SOUDER, Indiana
BRIAN HIGGINS, New York CHRIS CANNON, Utah
BRUCE L. BRALEY, Iowa BRIAN P. BILBRAY, California
JACKIE SPEIER, California
Jaron R. Bourke, Staff Director
C O N T E N T S
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Page
Hearing held on September 18, 2008............................... 1
Statement of:
Brodsky, Assemblyman Richard L., 92nd Assembly District New
York State; Professor Clayton Gillette, New York University
School of Law; and Professor Brad R. Humphreys, Department
of Economics, University of Alberta........................ 26
Brodsky, Richard L....................................... 26
Gillette, Clayton........................................ 70
Humphreys, Brad.......................................... 85
Larson, Stephen, Associate Chief Counsel, Financial
Institutions and Products, Internal Revenue Service........ 12
Letters, statements, etc., submitted for the record by:
Brodsky, Assemblyman Richard L., 92nd Assembly District New
York State, prepared statement of.......................... 29
Gillette, Professor Clayton, New York University School of
Law, prepared statement of................................. 73
Humphreys, Professor Brad R., Department of Economics,
University of Alberta, prepared statement of............... 87
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio, prepared statement of................... 5
Larson, Stephen, Associate Chief Counsel, Financial
Institutions and Products, Internal Revenue Service,
prepared statement of...................................... 15
GAMING THE TAX CODE: PUBLIC SUBSIDIES, PRIVATE PROFITS, AND BIG LEAGUE
SPORTS IN NEW YORK
----------
THURSDAY, SEPTEMBER 18, 2008
House of Representatives,
Subcommittee on Domestic Policy,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m. in
room 2154, Rayburn House Office Building, Hon. Dennis J.
Kucinich (chairman of the subcommittee) presiding.
Present: Representatives Kucinich, Cummings, Tierney, and
Watson.
Also present: Representative Weiner.
Staff present: Jaron R. Bourke, staff director; Charles
Honig and Noura Erakat, counsels; Jean Gosa, clerk; Charisma
Williams, staff assistant; Leneal Scott, information systems
manager; Larry Brady, minority senior investigator and policy
advisor; Adam Fromm, minority professional staff member; and
William O'Neill, minority senior professional staff member.
Mr. Kucinich. The committee will come to order.
We have a number of things going on on the Hill today.
Members will be coming in and out, but we are going to start
the hearing, in deference to our witnesses.
The Domestic Policy Subcommittee of the Committee on
Oversight and Government Reform will now come to order.
We have been joined by the Honorable Congresswoman Diane
Watson from California. Thank you, Ms. Watson.
Now, without objection, the Chair and the ranking minority
member will have 5 minutes to make opening statements, followed
by opening statements not to exceed 3 minutes by any other
Member who seeks recognition.
Without objection, Members and witnesses may have 5
legislative days to submit a written statement or extraneous
materials for the record.
Without objection, at some point we will be joined on the
dias by Representative Anthony Weiner, who has asked to
participate in today's subcommittee hearing.
The subject of our hearing today is: ``Gaming the Tax Code:
Public Subsidies, Private Profits, and Big League Sports in New
York.''
I am Congressman Dennis Kucinich, the chairman of the
Domestic Policy Subcommittee. This is our third hearing in the
last year and a half on the Federal Government's subsidization
of the construction of professional sports stadiums through the
Federal Tax Code.
In our previous hearings we showed that building sports
stadiums does not make sense as a tool of taxpayer subsidized
economic development. From a State and local perspective,
sports stadiums do not create jobs and, in fact, they use
resources that would be better expended elsewhere, such as on
building schools and shoring up crumbling infrastructure.
Rather, State and local governments compete with each other
to lure or retain professional sports teams in a senseless race
to the bottom for larger public subsidies subsidized by the
Federal taxpayer.
As a result, not only are other more important public
safety projects ignored, such as repairing structurally
deficient bridges and aging water distribution and treatment
systems, but granting a Federal tax exemption to bonds issued
to build these stadiums means more stadiums and more expensive
stadiums are being built than if there were no Federal subsidy.
Furthermore, stadiums are essentially private. Sports teams
are privately owned by extremely wealthy individuals. The
practice of providing taxpayer subsidies to the building of
sports stadiums is a transfer of wealth from the many to the
wealthy. This committee is charged with exposing waste, fraud,
and abuse. In the case of the new Yankee Stadium, not only have
we found waste and abuse of public dollars subsidizing a
project that is for the exclusive benefit of a private entity,
the Yankees, but also we have discovered serious questions
about the accuracy of certain representations made by the city
of New York to the Federal Government.
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 stadium project has already benefited from the issuance of
over $900 million of tax-exempt bonds. The tax exemption on
these bonds will save the Yankees well over $100 million in
interest cost, a subsidy that will cost Federal taxpayers
almost $200 million in lost tax revenues.
The city is now requesting that the IRS approve over $360
million in additional bonds to allow the Yankees to complete
this stadium. These additional bonds would make it the most
costly publicly funded stadium in the United States and would
make it even more exorbitant, all on the taxpayers' dime.
At a minimum our investigation has shown that these bonds
should not be approved without further investigation. Two
wildly divergent valuations for the land under the stadium were
submitted by the city and State government officials to the
Federal Government.
In July 2006 the New York City Department of Parks and
Recreation submitted to the National Park Service an appraisal
for $21 million. That is for a 10.7-acre portion of the
McComb's Dam Park. That is D-A-M. This parcel constitutes the
majority of the New Yankee Stadium site. State and Federal law
require that the city replace the park, which was destroyed to
build the stadium, with one of at least equivalent value. The
park appraisal arrived at the $21 million figure based on a
rate of $45 per square foot.
While land appraisals are complex, the subcommittee has
consulted with experts and has reached a provisional judgment
that the park appraisal is, if not completely accurate,
reasonably based on the comparable properties used to calculate
value. At the same time, New York City Industrial Development
Agency submitted to the Internal Revenue Service a $204 million
assessment of the stadium site that was conducted by the city's
Department of Finance for largely the same land. This figure
appears to be wildly inflated. The assessment is based on a
valuation of the land at $275 per square foot, a rate roughly
six times the one used for the park appraisal, the one that
appears to be without justification, according to principles of
proper land valuation.
It appears that the $275 rate was derived from comparison
to assessments on much smaller lots. Smaller lots, as we
understand, are generally worth more per square foot. Lots
located in much more expensive neighborhoods in other boroughs
such as Manhattanville and Alphabet City, both located in
Manhattan. New Yankee Stadium is located, in contract, in the
south Bronx.
There is also substantial doubts to the $1 billion
valuation of the stadium, itself, but here, too, it appears the
city padded the assessment with questionable costs, including
soft costs of $250 million, or 25 percent of stadium cost,
which is high.
These findings and conclusions are consistent with the
preliminary finding of the investigation conducted by New York
State Assemblyman Richard Brodsky, a witness at today's
hearing.
Finally, there is reason to question whether the projection
of the tax assessments within the city's Development Agency
provided to the IRS is based on an insupportable estimate of
the future value of the stadium. Typically, sports stadiums
lose some of their value over time as they become obsolete, a
process that usually lasts less than 40 years, but the city
makes the highly suspect claim that the stadium never
depreciates. Rather, they assert that it gains 3 percent in the
value a year through 2046. There is no decline in value
projected.
Taken together, the consequence of these three assertions
is an inflated assessment figure that allows the city to claim
that the payments will be made by the Yankees for debt service
and known as payments in lieu of taxes. That would satisfy the
Treasury regulation that the IRS applies in its consideration
of whether this project is eligible for tax-exempt bonds.
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 cost of the project. The
publicly financed share would have been smaller.
So the question this subcommittee is investigating is
whether the New York Yankees and New York city officials
collaborated in a scheme to mislead the Internal Revenue
Service in order to pass more of the cost of a fancy new
stadium onto the Federal taxpayers.
We had hoped that the representatives from the New York
Yankees and New York City Industrial Development Agency, the
key players arranging this deal, would have participated in
this hearing and given us their perspective on the policy and
factual issues. But they weren't available, and to accommodate
their schedules we will hear from those witnesses at a later
date.
The assessment issues are complex and our inquiry is
incomplete, in large part because the Yankees and the city have
repeatedly failed to comply with our requests to produce
documents about the assessments. But I anticipate that will
change. We are going to continue our investigation.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
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Mr. Kucinich. The Chair recognizes Congresswoman Watson.
Ms. Watson. I want to thank the Chair for today's hearing.
At a time when the economy has been turned upside down, our
banks are failing, foreclosures are abounding, the whole globe
is upset because in this country we have allowed the upper
class to destroy the middle class, and so this hearing is very
necessary to examine whether the use of Federal tax codes to
help build professional sports stadiums and arenas is in the
best interest of the public.
The public wants to hear from us what are we going to do,
and when we allow the rich to get richer--and certainly it is
those who run sports organizations that are really reaping in
the money.
Now, we are today specifically focusing on the use of
federally tax exempt bonds to finance the New York Yankees and
the New York Mets Stadiums, and the new stadium being built for
the New York Mets.
The New York Yankees is valued at around $730 million. The
New York Mets is valued somewhere around $482 million, and the
New York Mets [sic] is valued at around $244 million. Looking
at these numbers, I do not understand why these sports teams
cannot fund the construction of their own stadiums and arenas.
These are money-making facilities every time they are open. Why
should the city have to do that?
I hope this hearing today will shed light on this issue.
An article that Forbes titled, ``How About Them Cowboys''
reported that the National Football League's average value of a
franchise football team is nearly $1 billion. The owners of the
Dallas Cowboys, and specifically Jerry Jones, owns the
wealthiest franchise in the NFL and is currently building a $1
billion stadium in Texas that is a mix of public and private
financing. Jones is already a billionaire and is having his
stadium built with $325 million in taxpayers' subsidies.
How can we do that when people's savings are disappearing?
How can we do that when we are paying for a war that is only
taking our lives and our moneys and not giving anything back?
How can we use $325 million of taxpayers' dollars?
The reason why my city, the city of Los Angeles, does not
have an NFL football team is because our local government,
thanks to them, does not want to use public funds to finance a
stadium, and for good reason. The sports industry makes enough
capital to finance their own construction of their own
facilities.
Now, the Coliseum that they are looking at has next to it a
school of science and industry, L.A. Unified School of Science
and Industry. The parking is worth millions of dollars to keep
that school open. They want the proceeds from the parking. They
are not going to get them. I used to be on the board. I just
want to make it real clear that at least our city council is
smart enough not to give public money away to a franchise that
makes more money than the whole board and the school district
makes in a year.
Mr. Chairman, I don't believe that the use of taxpayers'
dollars and the Federal Tax Code should be used to subsidize
the construction of stadiums and arenas. It is not in the best
interest of the American people, and at this time we are
looking at a stimulus package to go out to the public, because
that middle class who pays taxes is being squeezed to the point
of collapse, and I will not sit by and allow that to happen.
Thank you for having this hearing today.
Mr. Kucinich. I thank the gentlelady.
We are joined by the gentleman from Massachusetts, Mr.
Tierney. Mr. Tierney is recognized.
Mr. Tierney. I don't have an opening statement, Mr.
Chairman. I am interested in the questions and answers and
thank our witnesses for being present and you for having the
hearing.
Mr. Kucinich. I thank the gentleman.
We will continue by introducing our first panelist. Mr.
Stephen Larson is the Associate Chief Counsel of Financial
Institutions and Products of the Internal Revenue Service.
Prior to this assignment, Mr. Larson served in the Office of
Tax Policy at the Treasury Department, where he was Senior
Advisor to the Assistant Secretary.
Mr. Larson began his service with Treasury in early 2004 in
the Office of General Counsel as Acting General Counsel from
July through December 2006. Before joining the Treasury
Department, Mr. Larson was vice president and general counsel
of Special Projects for CSX Corp., where he worked for over 12
years, and a partner at the Richmond, VA, firm of Christian and
Barton specializing in corporate and financial matters.
I want to thank Mr. Larson for appearing before the
subcommittee today.
I am going to note for the members of the subcommittee and
for the public that while Mr. Larson is allowed to discuss IRS
regulations, policies, and procedures, he is prohibited by 26
U.S.C. 6301 from discussing, directly or indirectly,
information submitted by any particular taxpayer to the IRS. I
just want to go over that one more time so we can all
understand the ground rules of his participation. He is allowed
to discuss IRS regulations, policies, and procedures, but he is
prohibited by 26 U.S.C. 6103 from discussing, directly or
indirectly, information submitted by any particular taxpayer to
the IRS.
With that in mind, welcome. Mr. Larson, it is the policy of
the Committee on Oversight and Government Reform to swear in
all the witnesses before they testify.
[Witness sworn.]
Mr. Kucinich. Let the record reflect that the witness has
answered in the affirmative.
I would like Mr. Larson to give a brief summary of his
testimony.
Try to keep it to 5 minutes, but bear in mind your complete
written statement will be included in the hearing record.
Mr. Larson, you may proceed.
STATEMENT OF STEPHEN LARSON, ASSOCIATE CHIEF COUNSEL, FINANCIAL
INSTITUTIONS AND PRODUCTS, INTERNAL REVENUE SERVICE
Mr. Larson. Good morning, Chairman Kucinich, members of the
subcommittee. I appreciate the opportunity to be here this
morning.
My name is Steve Larson, and I am the Associate Chief
Counsel, Financial Institutions and Products, with the Office
of Chief Counsel of the IRS. The Office of Chief Counsel acts
as the legal advisor to the IRS Commissioner on matters related
to the Internal Revenue laws and other legal matters. My
division, Financial Institutions and Products, includes those
lawyers with primary responsibility for tax-exempt bonds.
As a preliminary matter, I want to thank the chairman for
his reference to Section 6103 of the Code. As you know,
confidentiality of taxpayer information is critically important
to the IRS.
With that caveat, I will be happy to provide whatever
information I can.
Mr. Chairman, tax-exempt bonds have always been an
important source of financing for State and local governments.
Over time, Congress has limited the ability of State and local
governments to use that tax exemption to subsidize private
business activities. Currently, a so-called qualified private
activity bond is entitled a tax exemption only if the proceeds
from the bonds are used for limited purposes specified by
statute.
In contrast, Congress has not placed similar restrictions
on the use of proceeds of bonds payable from general
governmental funds. In this context, general governmental funds
include the proceeds of generally applicable taxes. It is this
definition of generally applicable taxes and the payments made
in lieu of those taxes that is the subject of both the existing
and proposed regulations and is a key area of interest to this
subcommittee.
The Office of Chief Counsel tries to interpret and
administer the laws with respect to tax-exempt bonds fairly and
equitably and tries to ensure that the exemption is used in
ways that are consistent with prevailing law, the statutes, and
congressional intent.
In that context, we were asked in July 2006 to review plans
for two new sports stadiums to be funded in part by tax-exempt
bonds, secured by fixed payments in lieu of taxes. Based upon
the regulations in effect at that time, we issued two private
letter rulings that allowed the plans outlined by those
taxpayers to go forward.
However, those private letter rulings served to focus our
attention on how broadly the existing regulations could be
interpreted with respect to PILOTs. To address these concerns
in October 2006 the Treasury Department and IRS published
proposed regulations to tighten the standard for determining
when PILOTs would be treated as commensurate with generally
applicable taxes. The basic purposes of these proposed
regulations is to require a closer structural relationship
between eligible PILOT payments and generally applicable taxes.
Under the proposed regulations, a payment would be
commensurate only if it is based on the amount of generally
applicable real estate taxes that would otherwise apply to the
property. This would also require that the PILOT payments be
based on normal assessments using the same process as similar
property subject to real property taxes. Downward adjustments
would be permitted, but the net amounts would continue to
fluctuate with changes in that hypothetical real estate tax.
Accordingly, the proposed regulations would eliminate the
ability of a State or local government to set PILOTs at a fixed
amount that did not fluctuate with changes in the underlying
tax.
The proposed regulations are on the recently released 2008-
2009 Priority Guidance Plan, and we hope to issue a final
regulation soon.
I thank you for this opportunity to appear this morning and
will answer any questions that you may have.
[The prepared statement of Mr. Larson follows:]
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Mr. Kucinich. I thank Mr. Larson.
Sir, broadly speaking, do you generally verify factual
recitations made in applications to the IRS for private letter
rulings?
Mr. Larson. As we recite as a regular basis in the actual
responses to private letter rulings, the Chief Counsel's Office
is effectively just a large law firm. We have no audit
function, and so we specifically advise taxpayers that we have
relied upon their statements, that we have not verified their
statements, although the facts are subject to later
verification. But we do not, ourselves, verify it.
I will say that in my experience it is extremely common, if
facts in a PLR are just confusing, don't seem to make sense,
would seem out of whack based on just the general knowledge of
the examiner, we will frequently ask for clarifications. But at
the end of the day----
Mr. Kucinich. So there is a followup? If it doesn't make
sense, you followup?
Mr. Larson. Yes. During the PLR process if it does not make
sense we will ask for clarification and ask for further
information.
Mr. Kucinich. Do you ever ask people to basically affirm or
swear that the information they are presenting is true?
Mr. Larson. They actually, all of it is submitted to us
under penalties of perjury, and so we don't ask them anything
beyond that, but they do submit everything under penalties of
perjury. Most of the questions, frankly, tend to be in the
nature of clarification. The examiner will look at it and say I
just don't understand what you are really doing here. Can you
tell me some more?
Mr. Kucinich. Again, broadly speaking, after a private
letter ruling has been issued, how would or could the IRS come
to suspect that factual recitations that were made to support a
private letter ruling might be false? And what procedures would
be followed to investigate suspicions of factual inaccuracies?
Mr. Larson. The process for verifying factual assertions
would come up in the course of an audit of the underlying tax-
exempt bonds, and the Chief Counsel's office, as I say,
functions as a law firm. We do not perform the audit function.
We have no investigatory staff, but the IRS audit side does and
is actively involved in that process, and there are a
substantial number of auditors who are assigned specifically to
tax-exempt bonds.
Mr. Kucinich. Well, let's say that someone gave you factual
recitations to obtain a private letter ruling from an applicant
seeking tax-exempt treatment for bonds. What would be the
consequences if the IRS ultimately concluded that these factual
recitations that were the basis of you making a private letter
ruling in order to get tax-exempt bonds were false? What would
happen?
Mr. Larson. Again--and, of course, we are speaking broadly
about the process--if the IRS examiners were to find that facts
that had been given to obtain the PLR were false, that would
become part of their audit findings. It would depend, of
course, whether the falsity of those facts was material. Would
it have changed the result had we known what the correct facts
were? But assuming that they were material, the PLR, the
private letter ruling, is only valid to the extent that it is
based on accurate factual recitation. So if the audit team were
to determine that the underlying representations were false,
then the PLR would no longer be effective and the audit team
would pursue its normal recourse.
Mr. Kucinich. What happens if someone makes false
representations to the IRS on matters of material import with
respect to the information that you need in order to make a
ruling?
Mr. Larson. As I said, the factual information we receive
is submitted under penalties of perjury. What happens with
respect to the person making that is really a matter of
criminal law and is outside of my area.
Mr. Kucinich. I thank the gentleman.
Ms. Watson.
Ms. Watson. Thank you, Mr. Chairman.
Mr. Larson, can you explain for us how the requirement that
a PILOT be designated for a public purpose is interpreted under
Federal law?
Mr. Larson. Yes. The way that the tax-exempt bonds are
structured, there is a bifurcation between private activity
bonds, to take us back a step, there was a time when a State or
locality could issue bonds and allow the proceeds to be used by
private industry, anybody they wanted to.
Ms. Watson. There was a time.
Mr. Larson. There was.
Ms. Watson. Do they still have that provision?
Mr. Larson. That has been pared back very substantially, so
that is now true only for a limited class of things that are
limited by statute.
I think the answer to your question is that, in the context
of true governmental bonds--that is, bonds that a municipality
or a State is paying from its own resources--the language about
for a public purpose is designed really to just differentiate
between the types of bonds that are for a private purpose and
those that are public. So really that language is taken to mean
that a governmental entity has decided that it is willing to
spend its own money on the project, if it does. If a State or
locality says this is something I am willing to spend the money
on, it really is a matter of federally. We are not in a
position to second-guess them as to whether that was a wise use
of the funds.
Ms. Watson. Well, is it fair to say that the PILOT need not
be designated for a Federal public purpose?
Mr. Larson. That is a fair statement. We have no Federal
public purpose standard in this area. It is simply a matter of
looking through to the State and locality for what it views to
be a public purpose right now.
Ms. Watson. In your testimony you state that the public
purpose of the proposed regulations was to modify the standards
for the treatment of PILOT as generally applicable taxes to
better assure a reasonable close relationship between eligible
PILOT payments and generally applicable taxes. How do the
proposed regulations and their changes in the commensurate
standards specifically advance this goal?
Mr. Larson. Madam Congresswoman, they advance it directly
in this way: that the generally applicable tax that we really
are talking about mostly in connection with bonds is real
property tax. It is the normal real estate tax that
municipalities and States apply to property in their
jurisdictions. What the new proposed regulations would do when
they went into effect would be to require that a PILOT be
structured in almost identically the same way that true actual
real estate taxes are structured.
It could not be just a fixed flat fee; it would have to be
an amount that starts with the tax rate applied to other
property that is based on assessments that are made in the same
way as other property in the area of a similar type, and, in
particular, coming at it from the other side, would make it
clear that it cannot be calculated using debt service as the
base.
Ms. Watson. In proposing changes to the PILOT rule, did IRS
consider whether a PILOT structured in a way that meets the
proposed regulations be viable in today's bond market?
Mr. Larson. By today's bond market I am not sure anyone
knows what could be viable. To speak more broadly to what we
thought at that time and what we hope are more normal sorts of
markets, we are certainly not experts in the marketing of
bonds. That is why there is public comment.
Ms. Watson. You don't have to be an expert on marketing
bonds, but look at Wall Street today. We are talking about some
projects near Wall Street in New York that makes me very, very
nervous to have taxpayers' money put into the construction of
those PILOT projects.
I think that you have responded in such a way that adds to
more questions, so I will just give back my time, Mr. Chairman.
Mr. Kucinich. I thank the gentlelady.
We are going to just have one more round of questioning of
Mr. Larson. For those who just tuned in, we speak of PILOTs,
and we are not talking about people who fly planes. We are
talking about tax schemes that may not fly, and it is payment
in lieu of taxes.
I always like to remind the staff that here in acronym
city, D.C., it is good to explain terms.
Mr. Larson, the proposed PILOT regulations add new
requirements that the payment must be based on the current
assessed value of the property for each year in which the
PILOTs are paid, and that the assessed value must be determined
in the same manner and the same frequency as property subject
to generally applicable taxes.
To what extent were those requirements implicit in the
current payment in lieu of taxes rule?
Mr. Larson. They would have been implicit only in a very
indirect sense in that the existing regulations do require that
a PILOT not exceed the amount that would have been paid under
the normal real estate taxes in effect. So presumably it would
only really be at the time of a challenge. Only if someone were
challenging the validity of a payment would there be a need to
actually go in and do the appraisal and calculate that
hypothetical tax. It may be that municipalities would have done
that, but there was nothing in either the regulations or
implicit in those regulations that would have required it more
frequently.
Mr. Kucinich. In your testimony you state that the basic
purpose of the proposed regulations was to modify the standards
for the treatment of payment in lieu of taxes as generally
applicable taxes to better assure a reasonably close
relationship between eligible payment in lieu of tax payments
and generally applicable taxes. How do the proposed
regulations, changes in the commensurate standard, specifically
advance this goal?
Mr. Larson. They advance this goal by requiring that a
PILOT, to qualify under the proposed regulations, really must
be calculated in essentially the same way that true real estate
taxes would be calculated; that is, that you must look at the
appraised value, you must apply a rate, and, as with a true
real estate tax, the municipality is entitled to permit a form
of tax abatement, but that abatement has to be either a
percentage or a fixed amount off the top. It will still have to
leave the amount fluctuating with changes in the underlying
taxes and the appraisal.
Mr. Kucinich. Is there anything in the payment in lieu of
taxes rule or the proposed regulations that is designed to
ensure that the process by which a payment in lieu of taxes is
approved at the State and local level is democratically
accountable and transparent? Broadly speaking, do you generally
verify factual recitations made in applications to the IRS for
private letter rulings?
Mr. Larson. I think there are two elements, as I understood
your question. I think, as I had testified earlier, we are not
in a position to really verify factual recitations, although we
do question ones that seem to be facially questionable. We do
not have any rules and would not view ourselves as having the
authority to question the procedure by which a State or local
government made the decision to spend generally applicable tax
revenues on a particular project.
So, unlike the private bonds where there are hearing
requirements and we do have procedures, if you are talking
about a governmental bond, which are the bonds that we are
talking about here in this hearing, we do not. We leave that to
the State and local government and the elected officials in
those areas.
Mr. Kucinich. You know, if, for example, a factual
recitation was made with respect to, let's say, the value of
land, turned out to be wildly disparate, is that something that
the IRS takes notice of if that valuation of the land was
substantive enough in the issuing of a private letter ruling?
Mr. Larson. I think, here again, we are getting to a point
that, given what is in the papers recently, we have a fact
pattern that is awfully closely tailored.
Mr. Kucinich. I will withdraw it.
Mr. Larson. I believe I can answer it more broadly. I mean,
the IRS does read the papers, it does look at things that are
publicly known. The auditors get their information from
whatever credible sources are available.
Mr. Kucinich. Thank you. What factors do the IRS and the
Treasury Department typically take into consideration when
choosing an effective date for tax regulations?
Mr. Larson. I suspect, Mr. Chairman, this is very much like
the same source of concerns that Congress takes into effect
when it chooses effective dates. We issue thousands of
regulations covering large numbers of situations, and so we
make a real effort to try to be fair and equitable. We look at
expectations of the people being affected. We look at what is
fair. So when you get down to questions of effective dates that
are prospective, retroactive, these are all factors that we
take into account, but there is no set answer.
Mr. Kucinich. I thank the gentleman.
We have been joined by the gentleman from Maryland, Mr.
Cummings. Welcome.
Does Ms. Watson have any other questions on this round
before we go to Mr. Cummings?
Ms. Watson. Just a comment, because I come from Los Angeles
and the State of California, we have Prop 13, and we have been
arguing for decades now to split the role because commercial
facilities and sites maintain, whereas the assessed valuation
was based on 1976, and so that fluctuates. And so we have some
complications, so I guess this would be an issue that we would
really have to raise locally in State issue about the tax
because of our own propositions and the way they control the
assessed valuation of property.
Mr. Larson. I believe you are right, Congresswoman.
Ms. Watson. I am trying to weed through all this, and it
really gets complicated with the laws that we pass.
Mr. Larson. Right. And the proposed regulation would simply
say that for a PILOT to be effective and usable, it would have
to fit within that same regime.
Ms. Watson. Conform. Yes.
Mr. Larson. Right.
Ms. Watson. Thank you.
Mr. Kucinich. I thank the gentlelady.
The Chair recognizes the gentleman from Maryland, Mr.
Cummings.
Mr. Cummings. Mr. Chairman, I will just wait until the next
panel.
Mr. Kucinich. I thank you, Mr. Cummings.
Thank you, Mr. Larson, for your presence here. I am
grateful for it.
We are now going to move on to our next panel.
We are fortunate to have an outstanding group of witnesses
on our second panel.
Mr. Richard Brodsky represents the 92nd Assembly District
of the State of New York. Assemblyman Brodsky serves as
chairman of the Committee on Corporations, Authorities, and
Commissions of the New York State Assembly, which oversees the
State's public and private corporations. This includes
jurisdiction over business corporation law and
telecommunications, as well as all public authorities, such as
the MTA, the Throughway Authority, the Public Service
Commission, the Port Authority, and the Lower Manhattan
Development Corp.
From 1993 until 2002 Assemblyman Brodsky served as chairman
of the Committee on Environmental Conservation, and prior to
this as chairman of the Committee on Oversight, Analysis, and
Investigation.
Assemblyman Brodsky is the recipient of numerous awards
from local groups for his dedication to public interest and
legislative achievements.
Welcome, Assemblyman Brodsky.
We will also hear from Professor Clayton Gillette.
Professor Gillette joined the New York University School of Law
faculty in 2000. For the prior 8 years he was the Perre Bowen
professor of law at the University of Virginia School of Law.
Professor Gillette began teaching at Boston University School
of Law, where he served as the school's associate dean and the
Warren scholar of municipal law.
Professor Gillette's scholarship focuses on commercial law
and local government law. He is the co-author of several case
books, including Local Government Law, Payment Systems and
Credit Instruments, and a textbook on Municipal Debt Finance
Law.
Professor Gillette has also written numerous articles on
topics including long-term commercial contracts, relations
between localities and their neighbors, and the privatization
of municipal services.
Finally, Mr. Brad Humphreys. Professor Humphreys is an
associate professor in the Department of Economics at the
University of Alberta, where he also serves as their chair in
the Economics of Gaming. Professor Humphreys conducts research
for the Alberta Gaming Research Institute. Before joining the
faculty at the University of Alberta, he was an associate
professor at the University of Illinois Urbana-Champaign and
had spent 10 years on the faculty of the University of Maryland
Baltimore County in the Department of Economics.
Professor Humphreys' research areas include the economics
of sports and sport finance. He has written about the economic
impact of professional sports teams and has co-authored the
paper ``Caught Stealing: Debunking the Economic Case for D.C.
Baseball,'' which was published by the Cato Institute. The
professor also co-edited ``The Business of Sports'' published
earlier this year.
Professor Humphreys is co-editor of Contemporary Economic
Policy and associate editor of the International Journal of
Sport Finance.
Gentlemen, it is the policy of the Committee on Oversight
and Government Reform to swear in all witnesses before they
testify. I would ask that you rise and raise your right hands.
[Witnesses sworn.]
Mr. Kucinich. Let the record show that the witnesses have
answered in the affirmative.
As with the first panel, I ask that each witness do their
best to give an oral summary of your testimony, and try to keep
it under 5 minutes in duration. I am not here with a hammer to
enforce that, but give it a try. I just want you to know that
your entire statement will be placed in the record of this
hearing.
The reason why we try to keep these statements short is
that the statements that we get we read beforehand, and the
Members have questions that will help elucidate some of the
issues that you bring to the committee.
Assemblyman Brodsky, thank you for being here. We would
like to start with you. You may proceed with your statement.
Thank you, sir.
STATEMENTS OF ASSEMBLYMAN RICHARD L. BRODSKY, 92ND ASSEMBLY
DISTRICT NEW YORK STATE; PROFESSOR CLAYTON GILLETTE, NEW YORK
UNIVERSITY SCHOOL OF LAW; AND PROFESSOR BRAD R. HUMPHREYS,
DEPARTMENT OF ECONOMICS, UNIVERSITY OF ALBERTA
STATEMENT OF RICHARD L. BRODSKY
Mr. Brodsky. Thank you, Mr. Chairman and members of the
subcommittee. I am pleased to be able to transmit to you today
a full copy of the committee report on the decision by New York
City to subsidize the new Yankee Stadium. The report is based
on previously secret and undisclosed documents, sworn testimony
before committees of the legislature, and direct discussion
with involved public and private persons. It sets for the
action of New York city officials and others in the achievement
of a package of public benefits to the New York Yankees
totaling about $1 billion.
The report concludes that, in spite of public claims by
elected officials and the Yankees, there are almost no new
permanent jobs created, no new economic activity in the
impacted communities. The bonds we use for private benefit, the
public is paying the cost of repayment of those bonds and of
construction of the stadium. Massive ticket prices announced by
the Yankees were never a concern of the public officials who
set forth the public conditions for the subsidies, and instead
of dealing with that issue, city officials used bond proceeds
to purchase a luxury suite at Yankee Stadium, itself.
In spite of State law requirements that there be a
measurable public benefit in exchange for these massive public
subsidies, such benefits do not exist. The tax system was
manipulated in order to make the deal financially viable.
I will be glad to answer specific questions on these
matters of State concern to the extent you wish me to do that.
They are outlined at length and the documentary evidence behind
them are cited at length in the interim report.
There is a growing national consensus that public financing
of private sports facilities serves no useful public purpose.
The New York City model is whatever additional proof needs to
be offered behind that assertion. Whatever the emotional and
political benefits of sports facilities, there is no public
benefit that has been put forward in the process of approval.
There is a second concern about the specific proposed
regulation, IRS regulation. Let me note one caveat. I come from
a State that sends to Washington, DC, about $80 billion more
than it gets back. The only supportable reason for this given
in New York and elsewhere is that anything that addresses the
imbalance of payments is in New York's interest. That is not a
trivial argument, but, given that the benefits here are not
flowing to the public but to a wealthy private corporation
headquartered in Ohio and to people who don't live in New York,
my objections to the deal stands, notwithstanding my concern
about the balance of payment issues.
The IRS regulation will deal with a fundamental fact
dealing with the explosion of public debt around the Nation. It
is not being done by elected officials; it is being done by
off-book entities such as public authorities, local development
corporations, things not under the normal control of elected
officials and not normally subject to debt restrictions of a
kind that others have. That is not good public policy and
should stop.
The third Federal concern has to do with specific evidence
uncovered in our investigation with respect to the private
letter ruling issued by the IRS. The IRS questioned the city.
The city swore that the property would be handled as would any
other taxable property in the city of New York in the same
class. The statements making those representations are included
in my testimony and in the report.
In the end that is not what happened. The city inflated the
value of the land underneath the stadium and the stadium
facility, itself, for reasons that I can suspect but can't yet
prove. The bottom line is that on the land value, while the
surrounding area is assessed $9, $20, $30 and $40 per square
foot, the land under Yankee Stadium is assessed at $275 a
square foot. The procedures they used to come to this inflated
conclusion include not dealing with comparables in the same
county; accepting unverified numbers; calculating the site at
17 acres, although it was only 14.5 acres; failure to adjust,
as professional and legal requirements are, for changes in
value; and, most damning, the city did two separate assessments
for different Federal and State purposes.
In order to assure that the park land under Yankee Stadium
which was being taken from the community would be replaced by
park land of equal value, the city was required to do an
assessment. Instead of telling them about the $204 million
number, which would have required $204 of park land back in,
they did another assessment and came in at $21 to $28 million,
depending on how you read it.
The second appraisal was done based on a State requirement
of a statute I wrote. That came in at $40 million.
Where the city had an economic interest in a lower
appraisal, it went out and found that; where there was an
apparent interest in a higher appraisal, it found a way to get
that done.
One final observation. This whole mess is the consequence
of a fundamental flaw in Federal policy. Put aside the
chairman's questions to the IRS about whether they ever
independently verified whether there was a valid public purpose
to the tax expenditures through the tax exemption process. We
have created a system, the Congress and the administration have
created a system that pits States against each other. That is
marked by an elegant blackmail by powerful economic interests
who threaten to leave.
There is no national interest in having the Government of
the State of New York gleefully announce that he has persuaded
by the use of taxpayer money a company to leave Maryland or
Ohio or California and come to New York. That is a net no-gain
for the national economic interest. Yet, that very pirating and
blackmail is the consequence of the unmitigated subsidies in
these sorts of deals.
I urge the Congress to finally end that and to no longer
permit the tax exemption policies of the national government to
be used as ways to whip-saw States into lowering their taxes
for special, private, and usually powerful interests.
Thank you very much for this opportunity to present the
interim report and our findings to the committee. I will be
glad to answer any questions you may have.
[The prepared statement of Mr. Brodsky follows:]
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Mr. Kucinich. Thank you very much, Assemblyman Brodsky.
Professor Gillette, you may proceed.
STATEMENT OF CLAYTON GILLETTE
Mr. Gillette. Thank you, Mr. Chairman and committee
members, for the privilege of testifying before you today. My
summary remarks this morning are intended to suggest the proper
scope of the tax exemption should be tied to fostering
democratic accountability and financial transparency at the
local level. The use of PILOTs, at least as structured in the
Yankee Stadium deal, does not readily meet that test.
Any analysis of the proper scope of the tax exemption must
begin with the proposition that the exemption constitutes a
subsidy from the Federal Government to the entity that benefits
from the proceeds of the debt. There are two circumstances
under which a Federal subsidy to projects initiated by State or
local governments is appropriate. The first involves projects
that are positive external effects; that is, projects that
return benefits beyond the jurisdiction that utilizes the
funds.
The second category of projects that warrant Federal
subsidy encompasses those that enhance the autonomy of local
governments generally. Autonomous localities can experiment
with government projects that, if successful, can be copied
elsewhere, can encourage an efficient sorting of local public
goods, and can confer broader social benefits by attracting a
tax base that will be more productive in the attracting
locality than in alternatives.
If the purpose of the exemption is to enhance local
economy, however, it is crucial that the subsidy be used in a
manner that actually reflects local preferences rather than
simply deals between local officials and groups that have
disproportionate access to the local decisionmaking process.
Current Federal tax law maps on to this template closely.
First, it provides a relatively broad exemption for bonds
issued that will have projects of multi-jurisdictional effects.
In addition, Federal law permits the exemption to be used to
foster local conceptions of the ideal mix of public goods,
but--and this is an important condition--Federal tax law
contains a variety of provisions that can best be understood as
imposing on a locality the obligation to ensure that the
decision to undertake a subsidized project does, in fact,
reflect the preferences of local residents.
For instance, locality may take advantage of the Federal
subsidy, even for a sports stadium, if it is willing to finance
the stadium from municipal revenues that have been generated by
the traditional taxing mechanism used by the city to fund the
public goods and services that it provides, what are referred
to in the Treasury Department regulations as generally
applicable taxes.
Expenditures made through this process are likely to have
been subjected to an appropriations competition for scarce
resources in the municipal budget that ensures transparency,
monitoring of the municipal budget by taxpayers, and therefore
an outcome that is likely to reflect expenditures that
constituents actually prefer.
Even qualified private activity bonds that are eligible for
the tax exemption include requirements that enhance
transparency and democratic accountability in the local
decisionmaking process. For instance, most forms of private
activity bonds are subject to a volume cap imposed on
jurisdictions. The volume cap serves as an effective substitute
for the benefits of the budgetary process by creating
competition for projects that are eligible for tax-exempt
financing.
Finally, a private activity bond is not eligible for the
Federal exemption unless the governmental issuer approves the
bond after a public hearing following reasonable public notice
or through a voter referendum.
Now, how do payments in lieu of taxes [PILOTs], fit into
this scheme? The answer to that question, I submit, affects the
difficult inquiry into the conditions on which PILOTs should
qualify as generally applicable taxes rather than private
payments, since PILOTs have characteristics of both.
In resolving this ambiguity about the proper
characterization of PILOTs, I submit it is useful to consider
how they fit with the issues of transparency and democratic
accountability that I have argued pervade generally applicable
taxes and other features of Federal exemption. PILOTs may lack
transparency and susceptibility to monitoring, at least to the
extent that they are treated in municipal budgets differently
than taxes, are dedicated to particular payments rather than
paid into the local treasury appropriated in the same manner as
other expenditures, or are treated as contract revenues to be
transferred or disposed of through a process that varies from
and is less observable than appropriations from a fixed budget.
For instance, the mayor of the city of New York has taken
the position that PILOTs constitute contractual rights that
have been individually negotiated by the city rather than tax
payments, and, as such, the mayor's offices claim that PILOTs
are not revenues of the city susceptible to payments to the
general fund controlled by the City Council; instead, they are
arguably, in his view, assignable to city projects within the
discretion of the mayor.
Indeed, the difficulties related to monitoring the use of
pilots are exacerbated to the extent that PILOTs are deemed by
applicable taxes, so that the bonds they secure qualify as
governmental bonds rather than private activity bonds. Under
those circumstances, failure to treat PILOTs in the same manner
as tax revenues paid into and appropriated from the municipal
treasury through the normal budgetary process means that the
bonds that they secure will not be scrutinized through the
monitoring process that typically applies to municipal
revenues.
On the other hand, because these bonds are not private
activity bonds, they are also not subject to the alternative
means of assuring transparency and monitoring, such as volume
cap and the public approval requirements. In short, at least to
the extent that PILOTs are treated differently from taxes, they
permit evasion of the democratic scrutiny that ensures that
federally tax-exempt projects and financing structures reflect
constituent preferences and serve the objectives of local
autonomy.
None of this is to say that the use of PILOTs to finance
local projects is illegitimate. If the State or locality
believes the PILOTs are desirable, that jurisdiction should be
perfectly free to employ that structure. But nothing about the
fact that PILOTs are useful from a local perspective requires
that the Federal Government allow use of a Federal tax subsidy
to support it. Indeed, it is plausible that by disadvantaging
opacity in public finance, Federal tax law can actually provide
useful incentives for the reform of an anachronistic procedures
in State and local finance.
My thanks for your time and attention. I would be pleased
to answer any questions you might have.
[The prepared statement of Mr. Gillette follows:]
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Mr. Kucinich. I thank you Professor Gillette.
Professor Humphreys, you may proceed. Thank you.
STATEMENT OF BRAD HUMPHREYS
Mr. Humphreys. Thank you very much, Mr. Chairman and the
rest of the committee members that are here.
The first point I want to address is to put this PILOT
decision in a broader public policy perspective, and this
addresses some of the points that were made by Assemblyman
Brodsky just a moment ago.
When you look at the whole deal, at the bottom of it the
idea was that the Yankees and the Mets were given this kind of
special treatment because they threatened to leave New York.
From an economic perspective, the important part about that is
that the reason that is a credible threat is that major league
baseball enjoys an explicit antitrust exemption granted by
Congress. That, I think, is the root cause of this problem.
If you are going to look somewhere about addressing this
problem, the antitrust exemption is the place to start, because
that is why Congresswoman Watson doesn't have a National
Football League team in her District for the last decade or
more; it is because you have to get to the anti-trust exemption
if you are going to reduce the leverage that teams have over
State and local governments.
So another important part about this is that the Yankees
have raised their prices significantly, and I want to address
how significantly. Clearly, baseball teams charge a lot of
different prices--$10, $12, $15--different price levels, and
teams that move into new stadiums clearly raise their prices.
But it is hard to assess how much they raise their prices by
because of the many different prices they can raise.
The important part I think about the Yankees case is that
at the top end their price increases are exceptional, a 600
percent increase in the price of the highest ticket that they
are offering. That is off the scale compared to the last 30
years of price increases that we have seen in major league
baseball when teams move into new stadiums.
At the average, it is also very, very large. It is four
times the average increase of a team moving into a new stadium.
That is a lot of price increases.
Now, the Yankees have claimed that they are holding the
price of the bleacher tickets the same, and that is somehow
good for the average fan. Well, what they have announced is
that the full season ticket price of bleacher tickets is the
same, so if you buy 81 tickets for the bleachers you can get
them for $12. We don't know what the bleacher price is going to
be for walk-up sales, which is what is appropriate for looking
at the average baseball fan.
So those are exceptional price increases.
Next I want to talk about the effective consequences of
this PILOT ruling for stadium financing. The Yankees get to
build their stadium using tax-exempt bonds, which carry a lower
interest rate. That reduces their interest cost.
The way the Congress intended the 1986 Tax Reform Act to
work was if you are a State and local government you are going
to finance your stadium through tax-exempt bonds. You must use
general tax revenues to finance the principal and interest
funds.
So State and local government, elected officials, are
responsible to the taxpayers and voters by keeping the budget
in line, and that provided a sort of Governor on the size of
any spending on stadium projects.
Well, what effectively the PILOT decision does is it
removes any of those sort of limits on spending on stadium
projects because you would no longer have to worry about how
the principal and interest payments are going to fit into your
budget if you are a State and local politician. You got the
money from the Yankees, so issue all the debt you want and let
the Yankees build the largest and the most expensive stadium
ever built in the history of major league baseball.
Look at what happened to the Nationals just a few years
ago. Their stadium cost about $600 million. The Yankees'
Stadium is costing twice that.
What is one of the reasons that it is costing twice that?
Well, because they get issued these tax-exempt bonds.
Finally If you look at the documentation surrounding the
whole PILOT decision, again and again we see that one of the
rationales for granting the Yankees this benefit was the
economic benefits that are going to be generated to the
community from the new stadium. The primary issue there is all
these construction jobs that are generated building this new
stadium.
Well, there is a tremendous amount of scholarly evidence
and peer reviewed academic journals that says there are such
new benefits associated with stadium construction projects.
Just because you look at the new stadium being built in New
York and see a lot of construction jobs there, that doesn't
mean that those condition jobs are new economic benefit to the
community. In fact, the evidence is that it is not. Those are
just construction jobs that would have been undertaken
somewhere else in New York that didn't get built because of the
Yankee Stadium.
So we can't conclude, just because there is a couple of
thousand construction jobs created to build the stadium, that
is really new benefit to the community.
So, in summary, I would say that the important point of the
hearing is: let's don't have special benefits given to the
Yankees. I would say there is a larger public policy issue
here: let's don't have special benefits given to major league
baseball in the form of an explicit anti-trust exemption, but
let's examine both issues.
Thank you. I will take your questions now.
[The prepared statement of Mr. Humphreys follows:]
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Mr. Kucinich. Thank you, Professor Humphreys.
I would like to start with Assemblyman Brodsky. It is clear
from your report that you believe the city's sole rationale for
deviating from the State's uniform tax exemption policy was the
threat that, absent public financing, the Yankees would depart
New York City. It is also clear you don't believe that the city
has provided any real evidence of the Yankees actually making
such a threat to the city.
On the other hand, you acknowledge the Yankees operate as a
virtual monopoly under antitrust laws. Many economists have
pointed to this status as a key to understanding why sports
franchises extract such lucrative deals from cities.
Is it possible, Assemblyman, that even if the Yankees never
made an explicit threat to the city, it was an ever-present
backdrop to the negotiations with the city for a stadium deal?
Mr. Brodsky. Mr. Chairman, let me, if I may, mildly correct
the question. This report has nothing in it about my beliefs.
What this report has is evidence adduced after review of
documents. I would like to share with you my beliefs, but that
is not what is in the report.
In the report there is evidence that the city stated as a
matter of law that the sole reason for giving the benefits was
the threat to leave, so that whatever the policy questions are,
that was stated as the reason.
The evidence we uncovered shows that such a threat was not
made, and when asked under oath, the head of the IDA sort of
conceded that he didn't know if, when, and how such a threat
was made.
To the extent that it was in the ether, in the background,
and was something that the city had to sort of be worried about
without an explicit threat, it seems to me that when you are
negotiating a billion dollars worth of goodies you ought to
have more than the other.
Second of all, for that to be a real threat there had to be
a place for them to go. Given the timing of this deal, if they
were going to leave were they going to go to Jersey? They had
said publicly they would not do that.
So the evidentiary basis for what we uncovered is that
there was no such threat, and that if it had been made it was
not credible.
Well, we are playing chicken a little bit here because no
leader of the city of New York wants to be the public person
responsible for losing the Yankees, and in that case I would
simply suggest that there was a public process to test it. They
had an obligation to tell the truth and they did not.
Mr. Kucinich. Professor Humphreys, would you comment on
that, because this is in line with your testimony?
Mr. Humphreys. Yes. I would love to.
I think that, whether or not somebody would testify under
oath that there was a threat made, the threat is always there.
Because the League operates as a monopoly, we know from
economic theory that monopolists reduce output in order to
extract monopoly rent. In this context, reducing output means
that they have fewer teams than they would if we didn't have
the antitrust exemption, so that means that there are viable
markets open somewhere.
I will point out that in the 1970's when Yankee Stadium was
being renovated, I believe the Yankees played a whole season
outside of Yankee Stadium in Connecticut. Just because they
said they weren't moving to New Jersey doesn't mean that they
were----
Mr. Brodsky. Shea.
Mr. Humphreys. Was it in Shea? But just because they said
they wouldn't move to New Jersey, that doesn't mean that there
was not other viable markets that they could move into. So I
think it is a credible threat, even if it is implicit.
Mr. Kucinich. Professor Gillette, when the Industrial
Development Agency and the city decided to issue $900 million
worth of bonds for the Yankee Stadium project, or an additional
$360 million of bonds to complete the project, what is the full
range of potential cost, economic and otherwise, facing the
city?
Mr. Gillette. I'm sorry. Let me make sure I understand your
question, Mr. Chairman. What are the implications?
Mr. Kucinich. Let's suppose that we conclude that the
assessment of Yankee Stadium was improperly inflated by New
York City and, in fact, the stadium is not worth $1.2 billion,
but is closer to $900 million. Can you explain the possible
consequences if this were established, including economic
consequences for the city and the bondholders and the potential
legal liability for other parties in the bond offering?
Mr. Gillette. Certainly.
Mr. Kucinich. And after you conclude, I would like Mr.
Brodsky to comment on this, as well.
Mr. Gillette. Then I think that, again, when we are
speaking hypothetically, but there could be extraordinarily
serious consequences for the city of New York.
First of all, I take under circumstances Mr. Larson said
today if it turns out that the representations were inaccurate
than the PLR would not necessarily be effective, and the
Internal Revenue Service would have the ability to declare
those bonds taxable.
If those bonds were, in fact, taxable, then bondholders who
purchased them on the belief that the interest they received
was tax exempt are going to be, shall I say, mildly upset.
Either the city will have to step up and pay to the IRS the
lost revenue to the Federal Government, which I believe you
classified this morning as somewhere around $200 million. The
city would have to step up to that to avoid the imposing of
additional tax liability on the bondholders. Or, if the
bondholders do face that liability, one would assume that they
are going to make claims against the city.
If, in fact, what you are suggesting is that there may have
been some knowing misrepresentations, then I take it the city,
along with other participants in the bond process--but you
asked primarily about the city--would be subject to liability
under the anti-fraud provisions of the 1934 Securities Act. I
am not a securities lawyer, but my understanding certainly is
that a municipal corporation is a person for purposes of
section 10(b) of the 1934 Securities Act and for purposes of
liability under that provision.
Mr. Kucinich. You know, as we go to Assemblyman Brodsky for
a response, and then we will go to Mr. Cummings after Mr.
Brodsky replies, this question I think is properly framed
through your testimony of the wildly disparate price per square
foot of the land.
You testified that on the one hand the land was assessed at
$275 per square foot, and on the other hand the second
appraisal by the Park Service was----
Mr. Brodsky. The gross numbers are easier.
Mr. Kucinich. Twenty-one.
Mr. Brodsky. It is $21 million versus $204 million.
Mr. Kucinich. So, in light of what Professor Gillette said,
what are the implications here?
Mr. Brodsky. Well, the implications, first, as Professor
Gillette said, has to do with the telling of truth in both the
State process and the Federal process. It would have an
implication for the National Park Service and the State law
requirement for replacement of park land. But the most profound
effect would be as to whether or not the revenues generated
from the PILOTs would be sufficient to pay the debt service on
the tax-exempt or taxable bonds.
Assume you needed $50 million a year in debt service, at
the new assessed value the PILOTs would only generate $35
million. You have a $15 million shortfall with respect to
payment of debt service.
Mr. Kucinich. And who would have to make that up?
Mr. Brodsky. That would be a matter for the courts to
determine as between a series of wronged persons. The
interesting question here is what constitutes the violation of
a promise to the IRS. As was cited in the report in my
testimony, the city specifically said that it would assess the
property as would any other property of the city be assessed.
That did not happen.
The consequences of that are first a matter for the IRS. I
admire the unwillingness of the IRS to comment publicly on a
specific taxpayer's issues. That is the correct policy. Having
said that, I don't know what it takes to get their attention. I
think that is going to come out in the wash as the IRS reviews,
apparently, the newspaper reports.
Mr. Kucinich. I want to thank the gentlemen.
We are going to go to a second round of questioning, but I
want to defer now to my colleague, Mr. Cummings, for questions.
Thank you, Mr. Cummings.
Mr. Cummings. First of all, I want to thank all of you for
your testimony.
Assemblyman Brodsky, in Baltimore when we built the
stadiums, we built two stadiums almost simultaneously, the
Ravens and the Orioles, but when Orioles Stadium came around
there was this belief that what you said, there was a lot of
competition in other places and that we might lose the Orioles.
It was a genuine concern.
I am trying to figure out, you seem to think that was a key
in all of this; is that right? In other words, that possibly
you might lose?
Mr. Brodsky. No, my view is what we did was we established
that was the legal reason the city of New York gave, even
though it could not substantiate it.
Mr. Cummings. I got you. And so you don't believe that to
be true?
Mr. Brodsky. I don't know, but I do know that the
obligation of the public officials in charge of the public fisc
is to check it out. I do know that Mr. Steinbrenner had at some
point said they would not leave. Whether they would leave and
the New York Mets would leave and there would be no sports
teams in New York, I believe that would be a political
impossibility and I believe this is a political question, as
well.
Mr. Cummings. Probably would go crazy.
Mr. Brodsky. You know, we are just a few country lawyers up
there, but we know enough to protect the interest of our
people, and there are condemnation remedies if someone tries to
take a partnership out of the city or the State. There are lots
of things to do. We shouldn't have to get there. In the end, my
only point is that, although the law requires public economic
benefits in exchange for public subsidies, that did not happen,
and the mere conjecture about leaving is not enough as a matter
of policy or of law to justify a billion dollars of public
money.
Mr. Cummings. It seems as if people rally around. I
remember when we were dealing with the Baltimore deal, the
Orioles, I swear, I was trying to figure out what benefit was
coming to the city. I mean, I couldn't figure it out. It seemed
like everything was going to the owners, so I kind of concluded
that this was a rah-rah kind of thing. In other words, let's do
it for the good of the city; that is, having a cohesive
element.
You know, there is not a lot to bring people together, but
teams seem to be able to do that. It was attractive for
tourists, maybe, when they come in. Maybe. I see you shaking
your head. Why are you shaking your head?
Mr. Humphreys. I lived in Baltimore for 17 years.
Mr. Cummings. Good. So you know what I am talking about.
Mr. Humphreys. I do exactly. Yes. Your point is exactly
right. The benefit is all intangible, according to the research
evidence. It is a sense of community, and it allows people like
me and you to bond about the Orioles or something like that.
Mr. Cummings. Right.
Mr. Humphreys. Which other things in society can't do.
Mr. Cummings. Right.
Mr. Humphreys. The tangible economic benefits associated
with tourism are not there, even if they are claimed. So I
think you are exactly right about where the benefits are.
Mr. Brodsky. If I may, Congressman, there is nothing like
professional sports to make public people nutty.
Mr. Cummings. To make public people what?
Mr. Brodsky. Nutty.
Mr. Cummings. OK.
Mr. Brodsky. If you will recall the introduction by Justice
Blackman in his decision on the Curt Flood case, unlike any
case I have ever read, the entire first portion is a recitation
of who his favorite baseball players are. Now, this was a
distinguished jurist and a figure of national legal repute.
When you start talking about sports in the context of
government, you have finally found something that we as public
officials don't have to force on the public and say be
interested. They care.
Mr. Cummings. Yes.
Mr. Brodsky. That level, I think, of political and voter
interest makes us do things we would do for no other enterprise
in our society.
Mr. Cummings. Are you all of the opinion that there should
not be this kind of tax favoritism when it comes to teams?
Mr. Brodsky. Yes.
Mr. Cummings. All of you? I mean, do you see any reason why
we should have this type of situation where folk can take
advantage of this tax exemption?
Mr. Gillette. Congressman, I want to be a little more
reluctant than my colleagues on the dais up here and say it
depends on who the we is. That is, if a particular municipality
or municipal officials going through a process that reflects
the true preferences of their constituents decides that, the
absence of economic benefits notwithstanding, the kinds of more
ephemeral benefits that Assemblyman Brodsky and Professor
Humphreys are referring to, warrant a particular use of public
money, then I, a fan of local autonomy, say that is just fine.
But that public money should be the municipalities' public
money if it is a municipal decision.
So if we mean by we is the municipality actually
internalizing all the economic effects of its decision, I have
less difficulty, even though I might disagree.
What I do disagree with is the notion that simply because a
municipality says we believe, as local residents, that this is
in our local interest, that necessarily entails the use of a
Federal tax exemption so that non-residents of that
municipality are required to subsidize the local decision.
Again, I am a huge fan of local autonomy. I think for that
reason it is appropriate for the Federal tax exemption to be
available in many cases to foster local decisions, but I see
nothing in our federalism, certainly nothing Constitutionally
that says that, simply because a locality has decided to pursue
a particular project, it has a call on the Federal Treasury as
well as the municipal treasury.
Mr. Cummings. Yes.
Mr. Brodsky. What he said.
Mr. Humphreys. And I think that your question, sir, is:
should we allow tax-exempt bonds to be used to finance these
projects. Now, that means that there is a subsidy coming from
every U.S. taxpayer, and I think that is inappropriate, because
you are asking the entire country to subsidize the individual
preferences of whatever the municipality is to build their
palace of a sports stadium. That is bad policy, any way you
look at it.
As Professor Gillette has pointed out, it should be the
locals who should pay, because they are the ones that are
getting the benefit from it. So if we are talking about Federal
tax dollars, I don't see any justification for it whatsoever.
Mr. Cummings. I guess the other thing, as I close,
Professor Gillette, you have to have, even in the scenario you
just gave, there is something called integrity that you have to
have there. I think sometimes there is some smoke being blown
all over the place, and when the smoke clears maybe, just
maybe, the folks are believing that there may be some benefit
other than the rah-rah effect, and what you all are saying is
rarely--and I am just curious.
Do you know of any situations where you think it was
appropriate? In other words, where there was integrity with
regard to what the taxpayers were getting out of it, and that--
because I noticed a lot of promises are made up front, and then
after a while you don't see a thing. Sometimes you see a loss.
So I'm just wondering, do you all see any situations now that
exist in your research?
Mr. Brodsky. Well, in my earlier direct testimony,
Congressman, I did point out that New York exports revenues to
the Federal Government to the tune of about $80 billion a year.
Mr. Cummings. Right. I heard that.
Mr. Brodsky. And there is an argument that says anything
that keeps the money back in New York is a good thing. So to
the extent we exclude the context, the revenue export context,
and ask the simple question you asked, which is, is there any
benefit that you see from these public expenditures, my answer
is no, I do not.
Mr. Humphreys. I think there have been instances where
taxpayers got their fair share. Those have been these instances
where there was a referendum, it was on an increase in local
taxes to pay for stadium improvements. They passed that
referendum and they used the money. Green Bay is a classic
example of this. The residents of Green Bay voted themselves a
tax increase that was about $1,000 a year in order to renovate
Lambeau Field. I think that is a clear expression of local
interest, and they were willing to pay through higher taxes,
and they got a renovated Lambeau Field.
Those instances are few and far between, though.
Mr. Cummings. Thank you, Mr. Chairman.
Mr. Gillette. May I just add? I would agree. I think,
Congressman, that the way to ensure what you are referring to
as integrity is through physical transparency at the local
level, so that if what are being used are taxes that go through
the normal budgetary appropriations process of the
municipality, as Professor Humphreys referred to, there I think
you have the greatest likelihood that the expenditure is going
to be monitored by local residents to ensure that the
expenditure is made in a manner consistent with local
preferences.
The problem with PILOTs is they are not necessarily
funneled through that appropriations process. They may, as in
the case of Yankee Stadium, be treated as off-budget,
essentially tax expenditures, where they are far less
susceptible to monitoring, and therefore it is by no means
clear that the expenditure reflects what residents really want
done with tax dollars or with the opportunity cost for tax
dollars.
Mr. Kucinich. I think, Professor Gillette, when you talk
about transparency--Assemblyman Brodsky, maybe you can shed
some light on this--do you know, in your inquiry, how the New
York City Department of Finance came up with the $275 per
square foot amount and who actually did the assessment?
Mr. Brodsky. Yes. We met, after reviewing documents,
directly with Department of Finance personnel. The seven
elements of this assessment are listed in my direct testimony.
Without going over all of those, when we raised with them the
question of why they didn't take comparables in the Bronx, why
they took them in Manhattan, when we raised with them the
failure to adjust for lot size and location, they literally
fell silent. I mean, I would say, Well, why did you not do
that, and they literally sat there.
There is a substantial question about the manipulation of
land assessments on the New York City assessment roles that
this issue illuminates. There is a related development right
near the stadium called the Bronx Terminal Market. It is being
done by a very large and powerful developer in New York City
who has an interest in a lower per square foot land value. That
land value was calculated, two blocks from the stadium, at $9 a
square foot. Where there was a city interest in a higher per
foot value, again, just the land, the city assessed it at $275.
Mr. Kucinich. I am going to go back to questioning
Professor Gillette, but what my colleague, Ms. Watson, said
earlier, you look at what is going on and the turmoil that is
hitting Wall Street right now, which at the center of it is
that the value of securities and securitized instruments was
grossly inflated. This is what the whole subprime lending thing
is about. And so it appears from your testimony, Assemblyman
Brodsky, as you state, there are much broader questions
reflected here, although in this particular case the disparity
between $275 per square foot and $45 per square foot requires
this subcommittee to not rest until the silence is broken. So I
thank you.
I want to ask Professor Gillette, New York City and New
York State have argued that the Treasury Department's proposal
to revise the PILOT rule unfairly discriminates against the
city and State because it effectively prohibits the use of
PILOTs, the one financing mechanism available for New York to
finance tax-exempt bonds in New York. First, can you explain
why, as you understand it, New York cannot finance tax-exempt
bonds in the same manner as the District of Columbia, that is,
from the proceeds of a tax imposed on its citizens specifically
to finance stadium bonds?
Mr. Gillette. My understanding is that New York State has a
Constitutional provision that requires all local debt
essentially to be what is called faith and credit or general
obligation debt, so that New York City cannot funnel off
particular revenues and dedicate them to a bonded project.
Other States do not have this kind of limitation, and
therefore have greater flexibility with respect to their
financing opportunities.
Mr. Kucinich. So what is your reaction to this argument
that the Federal Government should design its regulations to
take into account particular features of New York laws? Do you
think that this is a sound principle routed in federalism?
Mr. Gillette. My guess is federalism actually cuts just the
other way. I mean, federalism suggests that States ought to
have opportunities to design their governmental structures any
way they want. We don't need cookie cutter State Constitutions.
Different States can experiment with different restrictions and
different allowances for their State governments.
But what federalism entails is you have to take the good
with the bad. If you want the opportunity to fashion your
governmental structures in a way that is free of control of
Federal Government, then every once in a while you may be
disadvantaged by that governmental structure.
If New York State or the residents of New York State were
to determine that, in fact, the disadvantage of not being able
to utilize certain Federal opportunities or federally created
opportunities was so great, then New York State, the good
residents of New York State have the opportunity to amend the
Constitution, which is exactly what they have done in the past,
for instance, with respect to allowances for what is called tax
increment financing, TIF financing, which my understanding is I
believe would not have been allowed but for a particular
Constitutional amendment.
Mr. Kucinich. Well, Professor, you have heard the IRS
testify here today that the fact that a State treats PILOTS for
certain purposes as if they are not taxes would be a legitimate
consideration whether the IRS views the PILOT as a generally
applicable tax. Are you aware of any way in which New York law
treats the type of PILOTS used in the Yankee and Mets deals as
non-tax revenues?
Mr. Gillette. As non-tax?
Mr. Kucinich. Right.
Mr. Gillette. It is not clear to me how New York State
treats these PILOTs. It certainly seems that the Office of the
Mayor has made a claim that they are not tax revenues and
therefore can be expended through a process other than the
normal process that would apply to, for instance, property
taxes.
Mr. Kucinich. Thank you.
Professor Humphreys, how do you respond to the argument
that demand is the ultimate check on a team hiking ticket
prices? Under one version of this theory, because the new
stadium is roughly the same size as the old one, the supply has
remained the same. Thus, the only way the team could raise
ticket prices is to capture increased demand for the enhanced
experience at the new stadium. What is wrong with this
analysis?
Mr. Humphreys. Well, the consumer's willingness to pay is
ultimately the cap or the limit on what the Yankees are able to
charge for tickets. Right? So there is some truth in that
statement that the demand does limit this. But the Yankees are
not competing with anybody.
Mr. Kucinich. Well, should we care if the Yankees raise
ticket prices exponentially for good seats if there is still a
sizable minority of affordable seats available for less-wealthy
fans or if the games are still available on TV?
Mr. Humphreys. Well, I think we should. I think we should
because of the consumer surplus that is out there. Right? So
there are many, many fans----
Mr. Kucinich. Do you want to elaborate on that?
Mr. Humphreys. Sure. Think about some of your constituents
who are Cleveland Browns fans and they buy Browns tickets and
they pay whatever the value is of those tickets, but their
value that they place on the experience probably is much higher
probably than what they have to pay because of the place the
Browns hold in the community. Right? So there is a tremendous
amount of consumer surplus that gets generated by professional
sports. That is enjoyment that you don't have to pay for.
So the Yankees are able to capture a lot of that consumer
surplus--that is the internalized benefit that people get from
that--by raising their prices for what is essentially the same
product. It is watching a Yankees game. That reduces welfare to
consumers, the sort of total benefit that consumers get from
consuming this product. So that makes the community worse off
if a private enterprise like the Yankees is able to capture
more of that consumer surplus through the act of changing
prices. So it has economic consequences, and they are
important.
Mr. Kucinich. You testified as to the amount of the ticket
price increases. Did you quantify that?
Mr. Humphreys. Yes, I did.
Mr. Kucinich. Can you again? Let's talk in terms that fans
relate to.
Mr. Humphreys. Sure. The average price increase of a
baseball team that moved into a new stadium over the last 30
years was about 20 percent. Right? The Yankees' average price
increase is 139 percent, so it is many, many times. Baseball
fans would expect to pay higher ticket prices when a team moves
into a new stadium, but that is an extraordinary increase, well
above--you have to look very hard to find any evidence of a
team moving into a new stadium that increased prices by
anywhere close to this amount in the last 30 years in baseball.
Mr. Kucinich. Now, how do you put that in the context of
the fact that, according to reports and according to
information this subcommittee has, that city officials will
have a luxury box available to them?
Mr. Humphreys. Well, this is part of the dirty little
secret of the economics of these stadium deals. As part of the
negotiation, if you are going to provide a brand new stadium
with publicly subsidized money for a team, that is very common
in these lease deals for the local officials to get access to a
lot of free tickets. And if you look at the lease deals for
both the new Yankees and Mets Stadiums, they are getting a lot
of tickets and they are getting luxury boxes. These are not
like, well, we have some bleacher tickets left over, we are
going to give them to you so you can use them. It is a very
valuable service that they are getting for free.
Mr. Kucinich. I don't know if staff has this information,
or maybe one of the people who testified does. Do city
officials who have access to this luxury box, do they pay for
these tickets at the market value of the tickets so that they
just have access to it and they are paying for it, or are--Mr.
Brodsky.
Mr. Brodsky. The luxury suite is purchased with the
proceeds of the bonds. The city officials, themselves, pay
nothing.
Mr. Kucinich. Are there any ethics laws in the State of New
York with respect to what kind of a benefit somebody can----
Mr. Brodsky. It depends on whose money it is. If that is
city money, which the city says it isn't, then it is city money
for the city officials. That is OK. If it is private money,
which the city says it isn't, then the private money is buying
a benefit for the city officials. It is extraordinarily
complicated, and I think----
Mr. Kucinich. Does the outcome of the IRS ruling have a
bearing on this?
Mr. Brodsky. No, because these bond proceeds are from the
taxable bonds. It is a question of whose money it is. It goes
to your question about whether PILOT is a tax payment or
something else. For the purpose of the exemption, it is a tax
payment; for the purpose of these things, it isn't. So what
this needs is a forensic accountant and somebody who wants to
apply the law fairly to everybody.
I didn't get any pleasure out of this mess, but the fact of
it is that when you examine the details of the economic and
legal relationships they stink, and somebody has to start
saying there is no public interest in this that can be measured
or was measured by the people who made the decision. It was
done in secret, and it was done in ways that benefited them and
not the public at large.
Mr. Kucinich. But along those lines, you know, we are both
in politics. You sound like you have some connection that is
close to your constituency. How do people respond to it when
they understand that New York city officials will be able to go
to games for free while the rest of the Yankees fans are going
to pay--what's the percentage increase?
Mr. Humphreys. It is 600 percent at the top, 139 or 140
percent on average.
Mr. Kucinich. OK, from 140 percent to 600 percent increase.
How do people relate to that?
Mr. Brodsky. Well, the reactions I have seen, including in
electronic media, is, Oh, there they go again. I have a great
belief in the virtue and integrity of public service, but this
kind of stuff kills it.
Mr. Kucinich. Yes. OK, Professor Humphreys, I want to go
back to this idea of the ticket prices. What do you say to the
argument that if the market will bear higher ticket prices it
is because the stadium-goers are benefiting from this enhanced
experience and are willing to pay more money for that, and by
definition the market is guaranteeing the optimum utility given
the full stadium experience?
Mr. Humphreys. Well, I would say that the market would
guarantee that if there was competition. All these sort of nice
properties of markets and prices efficiently or in a good
economic sense allocating scarce resources like tickets to
Yankees games, that all works if there is competition, and in
particular if there is some viable substitute, some close
substitute or some other producer that is able to sort of curb
the tendency of monopolists to raise prices.
I mean, we certainly know from economic theory that
monopolists raise prices. That is why utilities are regulated.
And it is not outside of the purview of public economic policy
to regulate prices charged by other monopolists.
Mr. Kucinich. Right. I just have a final question here, and
that is, given your expertise, can you explain how cities who
build stadiums for teams typically deal with stadium naming
rights? I have always been mystified at how cities can make a
rather enormous investment of tax dollars, whether it is local,
State, or Federal, into these facilities and then have somebody
else come along and put their name on it. How do these cities
who build these stadiums deal with naming rights, and, to the
extent the teams are typically granted these rights, how much
are these rights worth and why are cities willing to grant them
to teams?
Mr. Humphreys. Well, the details of naming rights are
hashed out in the negotiation between the teams and the cities
when they are building the facilities. The teams always have
the upper hand in that negotiation for reasons we have talked
about through the course of this hearing. But you can always
threaten to move. There is all sorts of reasons that teams have
this power in negotiating. So they hash those things out, and
it is, I think, a sort of low-cost concession that a city or
local government can make to a team. OK, we will give you the
naming rights, even though they are incredibly valuable. That
is one of the reasons that it is often given to the team.
Now, it is not always given to the team. There are
instances where cities have retained the right to name the
stadium or have control over the name of the stadium, so I
wouldn't say it is always given away, but it is basically
because of the power the teams have in these negotiations that
awards them that. And it is incredibly lucrative. It is tens or
hundreds of millions of dollars for these naming rights deals.
The Atlantic Yards case in New York is a classic example. A
bank paid almost $200 million for the naming rights of that
facility.
Mr. Brodsky. Congressman, you might want to look at the
related activities of the Yankees and the city in selling off
the salvage assets of the stadium.
Mr. Kucinich. Selling off what?
Mr. Brodsky. The salvage rights to the seats. I am told,
for example, that the Yankees are now, instead of replacing
bases on the first inning and fifth inning, are replacing them
much more regularly and selling them as memorabilia at $800 a
pop. Now, whose property that is is something the committee, my
committee, is currently looking at. But you can go on to the
selling channel on TV and buy yourself a foul pole and buy
yourself some of the dirt from Yankee Stadium, and the bases,
$800 a pop.
Mr. Kucinich. Thank you. As this committee's work
continues, the price of dirt at Yankee Stadium may go up. I
want to advise the witnesses that this subcommittee is going to
continue its work, that we expect at a hearing in the not-too-
distant future to have invited guests from the city of New York
Finance Department and from the New York Yankees. It may be in
October, which has generally been a good month for the Yankees.
I want to thank you for your presence here. You have
contributed greatly to helping to improve the understanding of
these issues. I particularly want to thank Mr. Brodsky, because
your report is something that members of this committee should
have the opportunity to read in full, and I am certainly going
to transmit your testimony, as well as the others individually,
to the members of the committee so that they have a chance to
review it, because these are serious national policy issues
which the witnesses have raised.
We are grateful to you, Assemblyman Brodsky, Professor
Gillette, Professor Humphreys, for testifying.
This has been a hearing of the Subcommittee on Domestic
Policy of the Oversight and Government Reform Committee. The
topic of today's hearing: ``Gaming the Tax Code: Public
Subsidies, Private Profits, and Big League Sports in New
York.''
I want to thank all the witnesses. This committee stands
adjourned.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]