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September 21, 2008 10:45 AM

Foul Ball: Congressional Committee Criticizes New Yankee Stadium Deal

Posted by Brian Baxter

UPDATE/CORRECTION: Sept. 22, 12:43 p.m. The 14th paragraph of this story has been updated and corrected with new information.

Ohio congressman and former Democratic presidential candidate Dennis Kucinich is not a fan of the New York Yankees.

Before the historic baseball franchise closed out its last game at Yankee Stadium on Sunday night with a 7-3 victory over the Baltimore Orioles, North America's most successful professional sports team was the target of political vitriol during a Capitol Hill hearing on Thursday.

Kucinich, chairman of the House Oversight and Government Reform Committee, claimed that the Yankees and New York City officials had conspired to misrepresent the value of city land to the IRS for purposes of obtaining sweetheart tax deals from the federal government for the construction of a new stadium in the South Bronx (pictured here).

Newyankeestadium

"The practice of providing taxpayer subsidies to the building of sports stadiums is a transfer of wealth from the many to the wealthy," Kucinich said at the start of the hearing. "[N]ot only have we found waste and abuse of public dollars subsidizing a project that is for the exclusive benefit of a private entity...but also we have discovered serious questions about the accuracy of certain representations made by the City of New York to the federal government."

That would seem to put the Yankees' lawyers directly in the crosshairs of the diminutive Democrat. Akin Gump Strauss Hauer & Feld senior counsel Randy Levine is the team's president--he was also deputy mayor for economic development and planning during the Giuliani administration--and team COO Lonn Trost is the former head of the sports law practice at defunct New York firm Shea & Gould.

Nixon Peabody public finance partners Bruce Serchuk and Mitchell Rapaport were retained by the Yankees and the New York City Industrial Development Agency (NYCIDA), an arm of the New York City Economic Development Corporation (NYCEDC). Serchuk, who worked in the office of tax policy at the Treasury Department and in the IRS's chief counsel office, is considered one of the primary architects of the Yankees's strategy to obtain over $940 million in tax-exempt bonds to help finance construction for the team's new stadium, set to open on April 16 of next year.

The team requested an additional $350 million in tax-exempt bonds in June to cover construction of a giant video screen and other stadium-related cost overruns. With a price tag approaching $1.6 billion, the new stadium ranks as the most expensive sports complex ever built in the U.S. New York City will retain ownership of the land but won't charge the team rent or property taxes.

Kucinich and New York state pols like local Assemblyman Richard Brodsky, who testified at Thursday's hearing, directed their criticism on the valuations of land in the South Bronx put forth by the Yankees and the city.

Kucinich and Brodsky allege that the Yankees and the city deliberately misstated land values in Macomb's Dam Park--the city parkland where the new stadium is being constructed--citing assessments of between $45 per square foot to $275. Brodsky testified that the values are more akin to Manhattan property prices, and that the city and the Yankees fudged the numbers in order to obtain increased public funds. (The IRS allowed the city to issue tax-exempt bonds based on property values--the higher the value, the more the Yankees could borrow; Brodsky issued his own report on September 16 slamming the team and the city for subsidies.)

"This subcommittee's still ongoing investigation has uncovered substantial evidence of improprieties and possible fraud by the financial architects of the new Yankee Stadium," said Kucinich.

No one from the city or the Yankees testified at Thursday's hearing and neither Serchuk nor Levine responded to requests for comment. A Yankees spokesperson declined to comment, as did a representative for Boies, Schiller & Flexner--the firm the team traditionally turns to for litigation work.

Some lawyers with experience in stadium financings contacted by The Am Law Daily say that Kucinich's criticisms are nothing but cheap shots designed to garner headlines.

"[Stadiums] generate significant economic benefits in terms of associated sales tax, improved property value, urban revitalization, and they're a marquee asset and destination," says one public finance lawyer who requested anonymity. "These are not a one-way street of public dollars making rich people richer, but true public-private partnerships for economic development, as much as any other single asset you can imagine. But they don't come free."

As this lawyer sees it, without the tax breaks, the Yankees would have likely moved the stadium to another nearby region--like New Jersey or Connecticut--that would have made the tax breaks available. And, some argue, the people of the South Bronx--one of the nation's poorest congressional districts--are better off with the Yankees than without them. (For a breakdown on the exemptions and subsidies being provided by the city, state, and federal governments, click here for a spreadsheet compiled by New York City's Independent Budget Office.)

"Infrastructure assets in most parts of the world are financed on a public-private-partnership basis where the line between what's public and private is not a black-and-white thing," the public finance lawyer says. If, for example, Toyota considers building a plant near San Antonio, and the city chooses to roll out an economic development package to entice the company to build there, is that giving away private money or encouraging economic development for the sake of revitalizing a region?

"A year ago you would have said we have a free market economy. Today the government owns an insurance company and it's about to own the entire mortgage market."

This source, who is familiar with the new Yankee Stadium deal but has no direct involvement in it, rejects Kucinich's allegation that any of the lawyers involved did something illicit in lining up financing for the House That Jeter Built.

"We're talking about many, many teams of lawyers working with the IRS, which issued a private letter approving the structure because it was grounded in established law," the lawyer says. "The federal government was fully involved in approving this transaction, which couldn't have been more public."

Still, the New York Daily News has obtained e-mails between Levine and Seth Pinsky, president of the NYCEDC, demonstrating a cozy relationship between the two.

"The policy question is whether Congress thinks that a facility like a sports stadium--which is to be used primarily by a private, for-profit, professional athletic team--ought to be financed with tax-exempt bonds," the public finance lawyer says. "If they say 'no' and want to write that into law, fine, but I don't think it's the time to be discouraging economic development."

Kucinich will soon have the opportunity to hear that point of view in person: The next scheduled hearing is set for October 7, in which Yankee officials are expected to testify.

Download opening statement of Dennis Kucinich.

Download testimony of Assemblyman Richard Brodsky.

Download testimony of IRS associate chief counsel Stephen Larson.

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"Infrastructure assets in most parts of the world are financed on a public-private-partnership basis where the line between what's public and private is not a black-and-white thing" Not sure why your source needed to go off record to peddle this line (says, ahem, this pseudonymous commenter). Infrastructure a sports arena ain't. There are some arguable benefits to having a private party build and operate some infrastructure, especially if the public sector feels it lacks the expertise to do so, in which case, tax-exempt financing might be acceptable. A sports facility simply isn't, unless the public sector gets a MUCH more extensive amount of use from the facility, as it often does in Europe. Your source, who I suspect is at Nixon Peabody, should also be suspect for using the cover of anonymity to pursue the highly dubious argument that a tax-exempt financing was central to the Yankees staying in NY (Stenbrenner going to move them to Tampa?). The Jets/Giants were able to build a decent new stadium without a tax exemption.

That article which talks about South Bronx, says its "New York's poorest congressional district." Not the nations. And I would have an incredibly hard time believing, even then, that based on the article, that when they are talking about New York, they are talking about anything other than the city.

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