N.Y. Giants’ Hometown Penalized by Stadium Tax Standoff
East Rutherford, a suburb of 8,900 people about 13 miles (21 kilometers) west of Manhattan, is struggling to assemble the state’s tardiest budget as it battles the team over a tax bill. Investor patience is wearing thin with the borough, which risks a second credit downgrade this year and may have a spending plan imposed by the state. The penalty investors demand to own some of its bonds is almost eight times as steep as three years ago.
The town sold $12 million in short-term notes yesterday, its third such borrowing this year. The borough is seeking to collect $1.5 million in property taxes on the Giants’ practice center, which the team and state say is exempt under a 1990 agreement.
“The fact that they need to use notes to pay for cash flow means that there’s uncertainty about the timing or the outcome of the future revenues,” said Daniel Solender, who helps manage about $17 billion of municipal bonds at Lord Abbett & Co. in Jersey City. “Given the focus on local-government stress around the country, it is understandable that the state wants to avoid those kinds of issues in New Jersey.”
East Rutherford is the latest U.S. municipality hosting a professional sports arena to find the teams’ profits don’t always trickle down. Harrison, New Jersey, 10 miles south, lost its investment grade status last year after the $200 million venue for Major League Soccer’s Red Bulls failed to meet projections.
Borough general-obligation bonds maturing in 2019 traded on Oct. 17 at an average yield of 3.02 percent, or 2 percentage points more than benchmark AAA debt, data compiled by Bloomberg show. When they were issued in November 2009, they priced at a yield spread of 0.27 percentage point more than top-rated debt.
The Giants play at MetLife Stadium, an 82,500-seat, open- air arena in the Meadowlands complex that opened in 2010. The $1.6 billion facility, which replaced the 34-year-old venue across the street, was primarily built with private money.
The borough insists that Timex Performance Center, the site where the Giants practice inside the Meadowlands complex, amounts to new, private development and should pay $750,000 a year in real estate taxes. The team and the New Jersey Sports & Exposition Authority, which owns the land, sued to stop the town from collecting the money, saying the facility is covered under a $6 million payment in lieu of property taxes the agency gives the town each year.
East Rutherford’s proposed budget relies on a total of $4.1 million it hasn’t collected, including $2.6 million from the sports authority for costs related to a mall project. That’s more than 16 percent of the borough’s anticipated 2012 revenue, Moody’s Investors Service said in an Oct. 10 report.
“They’re assuming that their budget is going to be supported by these two revenue sources, which is far from certain,” said Eric Friedland, head of municipal-credit research at Schroder Investment Management North America, which oversees about $2 billion in munis. “A more prudent manager wouldn’t assume those monies are in the bank until they are.”
Moody’s said it may cut its A2 rating, the sixth-highest, on the borough’s general obligations, following a January downgrade, because it has no budget. Lower ratings can raise borrowing costs as investors demand higher yields in exchange for what they see as more risk.
“It is kind of ridiculous that we’re in the middle of October” and East Rutherford doesn’t have a budget, Governor Chris Christie told reporters Oct. 23.
Christie’s administration gave East Rutherford until yesterday to approve a spending plan or it may set a tax rate. The borough is the last municipality without a budget out of more than 550 in New Jersey that run on a calendar year, Thomas Neff, director of the state’s Local Government Services division, said in an Oct. 16 letter to the mayor and council.
Councilman Thomas Banca said yesterday that the borough hasn’t adopted a spending plan or scheduled any meetings to do so. The state is reviewing budget documents turned over by the borough, Lisa Ryan, a spokeswoman for the state’s Community Affairs Department, said yesterday.
“It’s a private building and just like any other corporation or resident in the borough they are supposed to be paying taxes,” Banca said in a telephone interview. “We can’t just arbitrarily excuse someone from paying their taxes.”
Pat Hanlon, a spokesman for the Giants, and Wayne Hasenbalg, president and chief executive officer of the sports authority, declined to comment on the tax issue, citing pending litigation.
Victor Matheson, who teaches sports economics at College of the Holy Cross in Worcester, Massachusetts, said teams generally enter into subsidy packages with host cities that cover training facilities as well as the stadiums. Professional sports brings “almost no significant economic benefit” to the hometowns, he said.
“They are really designed to drive economic activity within those walls, not to drive economic activity in the local neighborhood,” Matheson said.
James Cassella, mayor of East Rutherford, said the town will persist in its effort to collect taxes on the training center, and won’t be deterred by threats of a downgrade or a state takeover of its finances.
“We’re more worried about our taxpayers than we are about Moody’s,” Cassella said in a telephone interview.
Following are pending sales:
UNIVERSITY OF WASHINGTON plans to sell $330 million in revenue bonds as soon as Oct. 30 via auction, according to data compiled by Bloomberg. Proceeds will go toward capital projects and refunding. (Added Oct. 25)
NEW JERSEY plans to sell $2.6 billion of general-obligation tax-and revenue-anticipation notes through competitive bid as soon as Oct. 30, data compiled by Bloomberg show. It’s the state’s largest short-term note deal, the data show. Proceeds will repay a loan from Bank of America Merrill Lynch and boost cash flow. (Updated Oct. 24)
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