The Treasury Department has bailed out Bruce Ratner.
In a much-anticipated ruling issued late Monday, the federal agency exempted Ratner’s Atlantic Yards project from a ruling that bars the use of tax-free bonds in certain developments.
Atlantic Yards was apparently exempted because it is “substantially in progress” — a term defined as having received “preliminary approval of the government” with “significant expenditures” before Oct. 19, 2006, and with a finance plan in place that contemplated the use of tax-free bonds.
The exemption will almost certainly be challenged by project opponents.
“Ratner does not qualify,” said Daniel Goldstein, a longtime project opponent who pointed out that Ratner’s project was not approved by state lawmakers until December, 2006.
It did receive a preliminary approval in July, 2006 by the Empire State Development Corporation, a quasi-public body, though it is unclear if ESDC qualifies as “the government,” in the Treasury Department’s ruling.
An ESDC spokesman said his agency had decided that Atlantic Yards does meet the requirements for exemption from the new federal rules.
As such, Ratner’s side was hailing the ruling as evidence that the developer of the $950-million basketball arena at the corner of Atlantic and Flatbush avenues could go ahead with an estimated $800 million in tax-free financing.
“We are of course very pleased with the Treasury Department regulation,” said Ratner spokesman Joe DePlasco. “The regulation will help us move forward with a project that is critical to the ongoing economic vitality of Brooklyn and the city.”
The issue at hand dates back two years, when the Internal Revenue Service proposed a regulation that would prevent cities from taking land off the tax rolls in exchange for fixed, rent-like payments called Payments in Lieu of Taxes that do not rise — like normal taxes — as property values go up. Such PILOTs are typically less than normal property taxes.
The regulation would have barred developers from using federally subsidized bonds for projects that involve PILOTs, unless the payments were structured to reflect a property’s actual value.
For two years, city and state officials lobbied the Treasury Department on Ratner’s behalf, arguing that such a regulation — if implemented — would undercut a key development tool.
The payment scheme is routinely used for public projects like hospitals, but critics have argued that when it is used to boost private developers, the program cheats ordinary taxpayers.
“It allows the city to stick it to taxpayers on behalf of developers,” said Neil DeMause, author of “Field of Schemes,” which focuses on the massive public cost of stadium financing.
Despite apparently winning the right to raise money through tax-free bonds, it’s still unclear whether Ratner will be able to find investors for those bonds, given the decline in the economy.
Indeed, the Treasury Department ruling comes after a series of blows to the failing project. Ratner said in September that he would begin construction by December, but he quickly had to backtrack on that date after a state court agreed to hear a lawsuit challenging the project’s reliance on eminent domain.
Oral arguments in that case will be next year.