Yankee Stadium’s troubled tax-free financing

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A number of recent stories in The Times have detailed growing concerns about so-called conduit bonds, a corner of the municipal bond market in which governments give private entities access to low-cost, tax-free financing.

As stories this week and last have detailed, companies that borrow through the conduit bond market are not subject to the same oversight they would be if they went through the corporate bond market.

The bonds are given tax benefits because they are supposed to pay for projects that provide a public benefit, but the bonds have proved risky for investors and been a drain on tax revenue for the federal government.

Bloomberg has taken an interesting look at one particularly high-profile conduit bond project that has run into problems.

The money in this case -- close to $240 million -- went to pay for several parking garages around the new Yankee Stadium in the Bronx, which opened in 2009.

The developer borrowing the money, Bronx Parking Development Co., is a nonprofit organization, which, like all nonprofits, has access to conduit bond financing. But this is no ordinary nonprofit, Reuters points out; it is a husband-and-wife team who have operated out of their house in upstate New York and developed a history of issuing municipal bonds for projects that defaulted.

That did not stop the New York City Industrial Development Agency, a governmental agency that has issued billions of dollars of municipal bonds for nonprofits and private companies, from issuing the bonds in 2007.

Earlier this year, the Bronx Parking Development Co. let its investors know that they are unlikely to be able to continue making interest payments on the bonds; they already had to dip into reserves to make a $6.9-million interest payment in April.

The problem does not appear to be with the New York Yankees, which has seen attendance 16% above last year’s level, according to Bloomberg (although Reuters, citing a different source, says attendance is off about 10%). Instead, the problems appears to stem largely from the developer’s move to hike the cost of parking to $35 a game this year from $23 last year.

Only 43% of the spots in the parking spots have been occupied through the first months of the season, leading to revenue 28% below projections. Many Yankees fans appear to have opted for the subway or parking at a nearby mall.

Now hedge funds are swooping in, hoping to get a deal on the bonds -- and potentially control over real estate next to one of the most famous stadiums in the world. The developer is talking about luring in drivers with better signs and potentially lowering the price of parking.

In the meantime, the tax exemption given for the project has attracted some biting commentary from Reuters blogger Felix Salmon, who wrote that ‘giving the tax exemption out for boondoggles like this is, well, mind-boggling.’

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-- Nathaniel Popper