Monday, July 20, 2009

The real value of the station naming rights (far less than $4M, or even $2M), and the MTA's stonewalling about setting the price

[Corrected July 21]

So, was the Metropolitan Transportation Authority's (MTA) sale of naming rights to the Atlantic Avenue/Pacific Street station for $200,000 a year over 20 years "a goodly sum," as the New York Times described it in an editorial last month?

No, since, as I describe below, the present value cost to developer Forest City Ratner to slap "Barclays Center" on the stations would be far less than the $4 million sum casually used by the press, and likely well less than $2 million.

After all, the MTA describes the deal to buy the railyard as still worth $100 million, in present value, though the developer would put $20 million down, then over 22 years would write checks that, cumulatively, would be about $173.5 million, at a very attractive interest rate of 6.5%. Total = $193.5 million.

How calculation was made

Michael D.D. White, in his Noticing New York blog, was the first to argue that the naming rights were undersold, though the WNYC piece linked to suggests it's a very inexact process.

So I queried the MTA via a Freedom of Information Law (FOIL) request:
During or after the 6/22/09 MTA Finance Committee meeting, CFO Gary Dellaverson said MTA staff, in an effort to set a price for the naming rights agreement considered for the Atlantic Ave./Pacific St. station, looked at naming rights deals set by other transit systems. I would like a copy of any memo or report that MTA relied on to analyze the price of such naming rights deals.

To be precise, if you go to the audio of the press conference, at about the 11-minute mark, Dellaverson said, "We've never successfully completed a naming rights before.... I don't have a nifty little spreadsheet to show you how we came up with $200,000. Our real estate division did review some naming rights that had been done by transportation and other entities. But y'know, we kinda felt our way into it."

MTA rejects FOIL

The MTA's response:
Pursuant to N.Y. Public Officers Law Section 87(2)(g), an agency may withhold records which "are inter-agency or intra-agency materials which are not: (i) statistical or factual tabulations or data; (ii) instructions to staff that affect the public; (iii) final agency policy or determinations......". In accordance with this provision, certain intra-agency documents are being withheld from disclosure and therefore your request is denied.

So they may not withhold documents that are statistical or factual tabulations. It seems to me that, at the very least, they could provide a redacted document.

After all, the trend nationally is toward more openness. A March memo from Attorney General Eric Holder, regarding the federal Freedom of Information Act (FOIA) states:
As President Obama instructed in his January 21 FOIA Memorandum, "The Freedom of Information Act should be administered with a clear presumption: In the face of doubt, openness prevails." This presumption has two important implications.

First, an agency should not withhold information simply because it may do so legally. I strongly encourage agencies to make discretionary disclosures of information. An agency should not withhold records merely because it can demonstrate, as a technical matter, that the records fall within the scope of a FOIA exemption.

Second, whenever an agency determines that it cannot make full disclosure of a requested record, it must consider whether it can make partial disclosure. Agencies should always be mindful that the FOIA requires them to take reasonable steps to segregate and release nonexempt information. Even if some parts of a record must be withheld, other parts either may not be covered by a statutory exemption, or may be covered only in a technical sense unrelated to the actual impact of disclosure.


Calculating the value

So, how much is the "$4 million" deal really worth?

[Corrected] I've revised these figures based on an email from a reader.

With an interest rate of 6.5% (which the Manhattan Institute's Nicole Gelinas called "laughable"), the same for the railyard deal, the present value would be $2,203,701. 

With a super-attractive (and unlikely) interest rate of 4%, the present value would be $2,718,065.

But with a more realistic interest rate of 10%, given the cost of corporate borrowing, well, the deal would be worth just $1,702,713 (not $594,575, as I wrote earlier). 

Given that Forest City Ratner would save more than $100 million on building the promised railyard, the naming rights deal, whether calculated at 4% or at 10%, is chump change, not a "goodly sum."

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