FINANCING NYC’S HUDSON YARDS AMERICAN PLANNING ASSOCIATION 2017 NATIONAL PLANNING CONFERENCE

9109955

MODERATOR: LOURDES GERMAN, LINCOLN INSTITUTE OF LAND POLICY PANELISTS: ERIC KOBER, NEW YORK CITY DEPARTMENT OF CITY PLANNING BRIDGET FISHER, SCHWARTZ CENTER FOR ECONOMIC POLICY ANALYSIS (SCEPA) WILLIAM GLASGALL, THE VOLCKER ALLIANCE

Hudson Yards Financing Eric Kober

NYC Dept. Of City Planning May 7, 2017

Hudson Yards Development Plan

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Hudson Yards Infrastructure Corporation

• A local development corporation established by the City of New York • Undertakes project financing through the issuance of bonds, and the

collection of revenues to support operations and service debt • Staffed by New York City OMB • Mayor appoints majority of five-member Board; also includes City

Comptroller, Speaker of City Council

HYIC Bond Issues

• $2 billion in December 2006; $1 billion in October 2011 • Funded:

• Extension of No. 7 subway ($2.4B) • Acquisition of a portion of Eastern Rail Yards Transferable Development

Rights (ERY TDR) from MTA ($200M) • Parks, Streets and Property Acquisition ($400M)

HYIC Revenues for Debt Service

Assigned Revenues • Payments in Lieu of Taxes

• Real Estate Taxes • Mortgage Recording Tax

• District Improvement Bonus Payments • ERY TDR Sales Subject to Annual Appropriation • Property Tax Equivalency Payments • Interest Support Payments

Conversion Date

• Conversion Date represents a threshold date at which certain specified financial metrics, relating to debt service coverage without City interest support payments, are achieved

• Before Conversion Date, HYIC is not required to repay bond principal • After Conversion Date, HYIC must establish a schedule of sinking fund

installments to repay bond principal

Hudson Yards Financing

Bridget Fisher

The New School Schwartz Center for

Economic Policy Analysis (SCEPA)

Research - Tax Increment Financing Joan Youngman, Lincoln Institute: “A plethora of economic studies have reached no consensus as to the effect of TIF on economic growth.” Richard Briffault, Columbia University” “There is little clear evidence that TIF has done much to help the municipalities that use it.” What you do see? • Used in areas of growth, not blight • Copycat behavior • Commodification of communities • Coopting land use process

Benefits of TIF: Off-Budget A Framework for Development: Far West Midtown Guiliani’s DCP 2001, pg. 61

“…the City and State could fund the capital improvements out of general or agency-specific revenues. In this alternative, the tax revenues generated by development would be considered adequate support for incremental debt service.” “…the capital improvements for Far West Midtown would be placed in direct competition with all other City and State capital priorities, decreasing the likelihood that these improvements…would be implemented in a coordinated and timely manner.”

Benefits of TIF: Framework for Development Hudson Yards Master Plan Preferred Direction Bloomberg’s DCP 2003, pg. 10 “Because of this ‘self-financing’ structure, the infrastructure requirements will not compete for scarce public resources for other worthwhile projects. At the same time, we must recognize that little, if any, development will occur without these pubic investments, and financing them will only be possible by encouraging a critical mass of densities and uses.”

Costs of TIF: Public Trade-offs 1. Commodification: relies on increasing property values,

drives density & commercial office space 1. Risks: city bears risk of business cycle ~ Great Recession 1. Costs – city pays interest payments & subsidizes

development 1. Governance – Off-budget by choice, not necessity ($13

billion below debt ceiling)

Cost of TIF: Hudson Yards Increased Costs: • HYIC bonds considered more risky than GO bonds • Under state law, HYIC debt cannot be backed by city • Translates into a higher interest rate Direct Taxpayer Subsidy: • City agreed to pay interest until HYIC can - indefinitely • $475.4 million, 2006 to 2020 (IBO) • $1 billion total in all taxes and payments forwarded to HYIC

Indirect Costs: • Discounted PILOTs decrease revenue to pay back interest &

principal • City has to backfill funding for public services

Costs of TIF: Hudson Yards Public investment in subway was billed as the public subsidy for private development. Yet, reduced PILOTS are 2nd layer of incentives. Reduce property tax revenue by 40% for 19 years with the possibility of extension. 1. Related’s 30 Hudson Yards & mall $328 million 2. Related’s 50 Hudson Yards $177 million 3. The Moinian Group, 400 11th Avenue $65 million 4. Brookfield Properties, 401 9th Avenue $115 million

Success of TIF: Hudson Yards Related-commissioned report by Appleseed: HY will contribute $19 billion/year to city’s GDP • Assumes 5% vacancy rate. Midtown hovers around 8-11%

(Colliers International)

• Assumes all new business to the city 10 Hudson Yards 30 Hudson Yards Coach – Midtown KKR - Midtown L’Oreal – Midwon Related – Midtown SAP – West Village & Midtown DNB - Midtown VaynerMedia – Midtown Time Warner – Midtown BCG Digital Ventures – Midtown & Flatiron Wells Fargo - Midtown Intersection – Midtown & Lower Manhattan Sidewalk Labs – Lower Manhattan

Questions about TIF from Hudson Yards: Land value capture is a relationship between land and finance. • What process should facilitate that relationship? • How can we help the public understand the trade-offs? • Who bears the costs?

Tax Expenditures, Abatements, and Development: Current Disclosure and

Information Gaps

American Planning Association 2017 Conference

William Glasgall Program Director, State & Local

The Volcker Alliance May 7, 2017

https://volckeralliance.org wglasgall@volckeralliance.org

Twitter: @WGlasgall 646-343-0152 (o) | 973-715-8665 (m)

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Tax Expenditures: How They Are Disclosed (Sometimes)

What Are Tax Expenditures?

“Tax expenditures are provisions in the tax code that allow for special treatment of a source of income or a certain type of expense. Such treatment usually results in a reduction in tax liability for the taxpayer. In principle, these tax benefits could be provided by direct appropriation, thus these provisions are referred to as ‘expenditures.’ They represent tax revenues that would have been otherwise generated if not for this preferential treatment in the tax code.”

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Source: Georgia Office of Planning and Budget, Tax Expenditure Report for FY 2017 https://opb.georgia.gov/tax-expenditure-reports

What Do Tax Expenditures Cost?

• Tax breaks may cost states & localities $80-300 billion or more/year. No one knows for sure!

• NY State tax expenditures totaled $18.8 billion, according to the state Division of the Budget FY18 estimate.

• NYC 421(a) abatements cost $1.3 billion in FY16, according to CAFR.

Source: Volcker Alliance research

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Examples of Tax Expenditures

• Deductions mirroring federal ones (mortgage and business interest, muni bond interest in some states, charitable donations, medical costs, depreciation and other business expenses)

• Senior-citizen property tax rebates; child credits • Some educational benefits • Sales-tax rate cuts or exemptions (often enterprise zones,

food, clothing, services, prescription meds, purchases by governments and nonprofits

• Economic-development credits and loan guarantees targeting job creation (factories, Amazon warehouses, movie and TV production), R&D credits

• Exemptions and credits for universities, churches, housing creation, historical structure and farmland preservation

Source: Volcker Alliance research

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Tracking State Tax Expenditures

• Most states and some cities (such as NYC) provide annual or periodic reports on tax exemptions, abatements, and credits

• At least 9 states don’t include tax expenditure reports in budget docs. This hides potential future liabilities in “balanced” budgets

• While some states (IL, for example) disclose the info in Auditor’s or Comptroller’s reports, at least 5 states have no or very limited disclosure

• GASB Statement 77 expands disclosure of certain programs Source: Volcker Alliance research, Institute for Taxation and Economic Policy

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GASB #77 Disclosure: Critical Data, With Gaps

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What is GASB Statement 77 & Why Do We Care?

• A step toward standardized disclosure so journalists, taxpayers, planners, and investors can benchmark programs. GASB 77 is for fiscal years beginning after 12/30/15. NYC reported and is first known filer.

• Statement No. 77 defines a tax abatement and contains required disclosures about a reporting government’s own tax abatement agreements and those agreements that are entered into by other governments and that reduce the reporting government’s tax revenues. (Source: NYC FY 2016 CAFR)

• Not every tax break is included! GASB 77 requires disclosure of abatements when there is an agreement between a specific entity and the government. Many breaks are general.

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How GASB Defines Statement 77

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Source: Presentation by Pam Dolan, project manager, GASB, at Council of Development Finance Agencies Webinar, March 14, 2017. https://www.cdfa.net/cdfa/cdfaweb.nsf/ord/webcastslides201703.html/$file/Slides_GASB77_Webcast.pdf

GASB #77 Required Responses • Purpose of the tax abatement program • Tax being abated and dollar amount • Provisions for recapturing abated taxes • Commitments made by tax abatement recipients • Other commitments made by a government in tax

abatement agreements, such as to build infrastructure assets

• What other governments’ tax abatements may cost a city or county in foregone tax revenue. Disclosure includes name of the government entering into the abatement agreement, tax being abated, and how much

Source: Ken Tysiac, “GASB issues standard requiring disclosure of government tax incentives,” in Journal of Accountancy, Aug. 24, 2015. http://www.journalofaccountancy.com/news/2015/aug/gasb-tax-incentive-disclosure-standard-201512846.html#sthash.NtNFByjR.dpuf

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What May or May Not Be in #77 Disclosure

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Source: Miller Edwards and Dan McRae, “Tax Abatement Disclosures, “ https://www.accg.org/library/ACCG5-17-16MJGASB77.pdf

GASB #77 Gaps

• General tax expenditures are excluded • Tax breaks after $$ is spent are not included in #77 • Who received the abatement? • How much is committed for future years? • Tax increment financing deals may be excluded • How productive were the abatements? Source: Volcker Alliance research

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Tax Expenditures in NYC: Tax Expenditure Report

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Source: NYC Dept. of Finance, Division of Tax Policies, Annual Report on Tax Expenditures, Fiscal Year 2016, at http://www1.nyc.gov/assets/finance/downloads/pdf/reports/reports-tax-expenditure/ter_2016_final.pdf

NYC Disclosure of Property Tax Abatements: GASB #77 Section of CAFR

35 Source: Comprehensive Annual Financial Report of the Comptroller for the Fiscal Year Ended June 30, 2016, at https://comptroller.nyc.gov/wp-content/uploads/2016/11/CAFR2016.pdf

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“Empire State Development today announced that BlackRock, a global leader in investment and risk management, will create 700 new jobs and retain 2,672 employees in New York State, in a major expansion of its global headquarters... BlackRock will move its headquarters to a new skyscraper that will be built at 50 Hudson Yards, on the Far West Side.” Source: “ESD Announces BlackRock to Create 700 Jobs and Preserve More Than 2,600 Jobs in Major Manhattan Expansion,” at https://esd.ny.gov/esd-announces-blackrock-create-700-jobs-and-preserve-more-2600-jobs-major-manhattan-expansion

Tax Abatements in NYC: Hudson Yards

Source: Comprehensive Annual Financial Report of the Comptroller for the Fiscal Year Ended June 30, 2016, at https://comptroller.nyc.gov/wp-content/uploads/2016/11/CAFR2016.pdf

Press releases

GASB #77 report in CAFR

Abatement Disclosure Gaps

• Specific property tax abatements need to be obtained through FOIL requests

• Abatements are disclosed by street address and total abated, not by recipient or individual program

• GASB #77 filings don’t include program productivity (number of housing units, jobs, etc.). Disclosure in other reports is spotty at best.

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FINANCING NYC’S HUDSON YARDS AMERICAN PLANNING ASSOCIATION 2017 NATIONAL PLANNING CONFERENCE

9109955

MODERATOR: LOURDES GERMAN, LINCOLN INSTITUTE OF LAND POLICY PANELISTS: ERIC KOBER, NEW YORK CITY DEPARTMENT OF CITY PLANNING BRIDGET FISHER, SCHWARTZ CENTER FOR ECONOMIC POLICY ANALYSIS (SCEPA) WILLIAM GLASGALL, THE VOLCKER ALLIANCE