May 03, 2004

Brooklyn arena study, at the buzzer

With the New York city council set to begin hearings tomorrow morning on Bruce Ratner's planned Brooklyn Nets arena, Ratner late this afternoon released sports economist Andrew Zimbalist's long-awaited economic impact study of the project. (For those just coming in, Zimbalist is a longtime critic of sports subsidies who was hired by Ratner in December to study his plan.) Zimbalist's report is available for download in either full text or summary form; the quick and dirty breakdown is as follows:

• Assuming a Nets payroll of $65.5 million, and that 30% of players will live within New York City, Zimbalist projects $6.33 million a year in new city and state income tax revenue, for a present value (PV) of $136 million.
• Assuming that 30% of current Nets-game attendees who live in New Jersey, plus all those who live in New York and Connecticut, would go to games in Brooklyn, he projects new city and state sales tax revenue of $6.43 million a year, for a PV of $121.5 million.
• The project's 4500 new units of housing and 1.9 million square feet of office space, estimates Zimbalist, would draw new residents and business to New York City, generating additional new tax revenues of $870 million PV (housing) and $214 million (commercial).

That's economic benefits; now for the costs. Reached at his Smith College office, Zimbalist explained to fieldofschemes.com that Ratner did not provide figures for public costs, but did "vet" numbers that Zimbalist provided from media reports, assuring him that the public cost would not go above those figures. They are:

• $9 million a year apiece from the city and state for arena construction costs, for a PV of $261 million. (Note that this is far lower than the $28 million a year figure reported by the New York Times in January; none of the arena-watchers I've contacted can recall seeing the lower figure in print, but Zimbalist insists it has appeared "all over the place," and was vetted by Ratner as accurate.)
• $162.7 million to relocate Long Island Rail Road tracks, build a platform over the rail cut, and take private land by eminent domain, to which Zimbalist added a $25 million "contingency fund".
• $219.2 million PV in new ongoing costs, including operations and maintenance of buildings, and sanitation, education, police and fire services to the new development.

Phew. Looking at the totals, it's clear that Zimbalist's study considers the project a net gain for the public - at around $1.5 billion in new revenues and just under $700 million in new costs, he writes, "the fiscal impact of the Atlantic Yards project is a significant plus for the New York City and New York State treasuries." It's equally clear that the vast bulk of the public benefits - $870 million, or 58% of the total - comes not from the arena, but from the associated housing development. The arena, in fact, would be a money-loser according to Zimbalist, bringing in $257.5 million to city and state coffers while costing the public substantially more - exactly how much more depends on how you divvy up the land and ongoing costs, but even assigning one-fifth of them to the arena would mean the basketball portion would leave taxpayers with more $90 million in red ink.

The obvious question: Given that the arena is a net loss for the public and housing a net gain, why not just cover the Atlantic Yards with housing, then - either built by Ratner or by someone else lured by the offer of hundreds of millions in public dollars - and skip the Nets entirely? As a side benefit, the need to find room for the arena's bulk is the only reason for the controversial plan to demolish a block of row houses and condos; with housing alone, both evictions and eminent domain costs could be avoided.

If anything, Zimbalist's study raises easily as many questions as it answers. Are his estimates correct as to how many current Nets fans would shlep to Brooklyn to see the team there? Is it legitimate to assume, as Zimbalist does, that 30% of the businesses renting office space from Ratner would otherwise not come to New York, or that 4500 new housing units would mean 4500 new families moving into the city? Would there be additional public costs to subsidize rents for office tenants, as has been the case at other Ratner projects in Brooklyn? If the public share of arena construction is really only $18 million a year and not the $28 million a year the Times had reported, who's fronting the other $200 million or so in construction costs? Who's paying for the acquisition of development rights to the LIRR land? And if, as Ratner has suggested in the past, Atlantic Yards would be a "phased construction" built as the market demands, what guarantee is there to taxpayers that the developer won't simply ditch the housing element if the rental market is soft, and leave taxpayers holding the bag for the money-suck of an arena?

"I would never have undertaken this exercise," Washington State University sports economist Rod Fort tells us. "In essence, Andy is trying to forecast 33 years hence, and he's forecasting housing markets, which there are other people spending all their waking moments on. What you see is assumption after assumption after assumption after assumption."

More on this tomorrow, after the hearings. They should certainly be interesting.