If the Zuccotti kids want to protest Wall Street bailouts, they should go occupy the Yankees’ luxury parking garages in The Bronx. Borough President Ruben Diaz Jr. wants to give the garages’ private investors a fat-cat rescue at the expense of Gotham’s Main Street mice.
Four years ago, the Yankees wanted a souped-up parking “system” for their new ballpark, and Mayor Bloomberg obliged. City Hall helped a previously unknown outfit, the Bronx Parking Development Co., borrow $238 million to build and run a $300 million parking paradise on city land under a long-term lease. (The state supplied the balance of the cash.)
But the mayor didn’t put the city’s credit on the line. Instead, the city’s Industrial Development Agency — which is not guaranteed by city taxpayers — sold the debt to bondholders.
No one ever said so outright, but bondholders were plainly supposed to assume that, because Bronx Parking’s board is stacked with city officials and city officials talked up the bonds, that the city was there should the deal run into trouble.
It sure didn’t make sense on the merits. The old parking lots generated $7 million a year, but the new lots were supposed to pay twice that in annual debt costs. And Bronx Parking can’t just raise prices to fill the gap. Not many folks will pay $35 to park when there’s a new Metro North station right there.
Reality has caught up. Last week, Bronx Parking made its payment to bondholders only by tapping an emergency fund. The firm must make two more payments by next October — and it doesn’t have the cash.
There’s no mystery about what should happen: The bondholders should take their losses.
But not if Diaz gets his way. Last month, the beep issued a call to build a “world-class” hotel and conference center where one of the garages stands. The hotel would pay Bronx Parking for the space — “stabiliz[ing] the financial situation we face so that we can ultimately meet our obligations to the bondholders,” the company said.
But the hotel would need a slew of local subsidies. How much? Well, it just cost $300 million merely to spruce up garages. Plus, Diaz will surely insist on a “living wage” for workers — adding costs.
The beep clearly hopes Bloomberg will go along to avoid a big bond default. Last week, Diaz’s lawyer, Al Rodriguez, said that if the parking-lot bond investors lose money, it would be “a huge financial disaster for the city,” because “bondholders will look at all city debt, and they’re not going to want to invest.”
No, bondholders should think no such thing. The documents blared warnings: “The bonds do not constitute and will not be a debt of the state of New York or the city,” and “An investment in the bonds involves a significant degree of risk.”
Diaz’s proposal relies on fear of a bond-market panic, which would force another 2008-style bailout of sophisticated investors. Apparently, such bailouts are OK as long as they come in the form of useful goodies, like the promise of taxpayer-subsidized construction jobs for Bronx voters.
But bondholders need to be taught a lesson. It’s bad enough national taxpayers have too-big-to-fail banks. Local taxpayers don’t need too-big-to-fail parking lots.
Bloomberg isn’t blameless, either. He should’ve stopped playing these coy debt games years ago. Now, the mayor’s office won’t say much more than to point out that the bonds aren’t city obligations, and that the city is working with the company “to try to generate more value from the project, if possible.” That value would come in the form of speeding up affordable housing at the site — housing that needs subsidies, too.
Bloomberg should say categorically that the city won’t step in with any bailout money. There’s no sense leaving bondholders room to hope when the mayor, as fiscal steward, has no choice.
The city has used the same wink-and-nod process it used for the Yankees’ parking to help “private” entities issue all kinds of debt, from $680 million for the Mets’ stadium to $2 billion issued by the Hudson Yards Infrastructure Corp.
The city can’t bail out everyone — so it should bail out no one.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.