December 2, 2009
What does a tiny Arab emirate have in common with the NBA's worst team, which currently plays in New Jersey? And why should the answer matter to a taxpayer in Buffalo or Syracuse? Nicole Gelinas, a Manhattan Institute fellow and the author of "After The Fall: Saving Capitalism From Wall Street -- and Washington," connects the dots.
Dubai World, the investment arm of the Dubai government, is in financial trouble. It's looking to freeze debt repayments and to cut the $60 billion that it borrowed to speculate on office towers, hotels, luxury retailers and the like. So? What's that got to do with the price of bagels? Gelinas explains:
- Albany and New York City have their own "Dubai Worlds" -- state-owned entities that borrow buckets of money to invest in oft-dubious projects without the "official" backing of taxpayers.
- New York's public authorities and other state-related corporations have $150 billion in debt.
- And some of these entities are smokescreens for boondoggles that taxpayers would never support if they thought they were on the hook.
The most recent example is Atlantic Yards, the $4.9 billion basketball arena and luxury-apartment project in Brooklyn:
- By December, developer Bruce Ratner must raise the arena's first bonds, $800 million approved by the Empire State Development Corp.
- The debt supposedly comes without a government guarantee: If revenues from luxury-box sales and such don't cover the debt, bondholders lose.
- By the way, Empire State Development (ESDC) absorbed the Urban Development Corp., whose February 1975 default helped precipitate the state and city fiscal crisis of the 1970s.
- Governor Hugh Carey and the Legislature then felt compelled to appropriate roughly $200 million (the equivalent of $800 million in today's terms) to complete unfinished UDC projects and prop up the authority until it could re-enter the debt markets a couple of years later.
Speaking of losing, the New Jersey Nets -- the team Ratner wants to put in the Brooklyn arena -- just fired its coach and tied an NBA record for futility by losing its first 17 games of the season. Ratner is in the process of selling a controlling interest in the Nets, along with a large share of the Atlantic Yards arena, to a Russian tycoon known as the "bachelor billionaire," who appears to have made his fortune in precious metals.
Source: E.J. McMahon, "Dubai Dribble," New York Fiscal Watch, December 1, 2009; based upon: Nicole Gelinas, "Dubai's Dilemma: A Warning to NY," New York Post, December 1, 2009.
For Post text:
Browse more articles on Tax and Spending Issues