(Updates with sports economist in seventh paragraph.)
Jan. 20 (Bloomberg) -- The New York Red Bulls, the soccer team owned by Austrian billionaire Dietrich Mateschitz, owes property taxes to Harrison, New Jersey, a tax-court judge ruled.
The Major League Soccer franchise named for Mateschitz’s energy-drink company is facing $3.6 million in 2010 and 2011 tax bills from the town where it plays home games. The team has refused to pay, saying the land where its stadium is located is owned by the tax-exempt Harrison Redevelopment Agency.
Judge Christine Nugent in Newark rejected that argument in a Jan. 6 ruling from the bench. She also dismissed the claim that because the team-owned stadium serves a public purpose, it should be tax-exempt. The next step will be to figure out what the Red Bulls will pay, said Al Cifelli, the town’s assessor.
“Harrison has had a difficult time as a municipal entity,” he said by telephone. “This is a shot in the arm.”
Negotiations may take place privately, Cifelli said. The 1.2 square-mile (3.1 square-kilometer) town across the Passaic River from Newark has said the tax bill should be paid in full.
Harrison, with 13,620 residents, had bet the soccer stadium would jump-start redevelopment in a community where per-capita income is 63 percent of the state average, according to U.S. Census Bureau data. The town borrowed $39 million in 2006 to buy and clean up the site, while Hudson County chipped in $45 million for a parking garage and the team paid $200 million to build the Red Bull Arena.
Giants Tax Brawl
The dispute between the Red Bulls and Harrison is similar to one pitting the National Football League’s New York Giants against East Rutherford, New Jersey, over the team’s Timex Performance Center, said Victor Matheson, who teaches economics at the College of the Holy Cross in Worcester, Massachusetts. The municipality had its general-obligation credit rating cut by Moody’s Investors Service this month partly because of a lawsuit concerning the matter.
The Giants franchise, which isn’t commenting on the issue, is fighting the borough’s pursuit of property taxes on its training center. The facility sits on land owned by a state agency, the New Jersey Sports & Exposition Authority.
The cases show how public subsidies don’t end once a stadium is completed, said Matheson, a sports-economics specialist.
“Sports teams seem to be more successful than most businesses in securing tax breaks,” he said. That’s partly because of the relative scarcity of alternatives, as there is only one Red Bulls soccer or Giants football team, he said.
Payments Miss Mark
A transformation of the industrial area surrounding Red Bull Arena into a neighborhood of shops and condominiums hasn’t come to fruition, with developers’ payments to the town totaling $1.34 million in the past year, compared with an estimated $11.5 million for 2011 when the project began.
In December, the town had to borrow almost $3 million to cover debt service on securities issued in 2006, according to Gabriela Simoes, Harrison’s finance officer. The municipality’s lack of a long-term solution to handle its obligations triggered a five-level rating cut by Moody’s in May. The Ba3 score is three steps below investment grade.
“We are aware of the judge’s decision and are currently reviewing its impact,” David Jacobson, a Moody’s spokesman, said by e-mail.
The Red Bulls, because of the tax-court ruling, is now the largest single taxpayer in the town, representing about 6 percent of the assessed property value, Cifelli said.
Town Council member Maria McCormick, a critic of the redevelopment project, said she’s concerned the team will refuse to meet its financial obligations to the community.
“I feel it will be a long process of reassuring Harrison taxpayers that they, Red Bull, will make that payment,” she said by e-mail. “Harrison will just keep paying attorney fees to keep fighting for this relief.”
Nugent pronounced her ruling at a hearing where a lawyer for the team, Thomas Denitzio, said the franchise would appeal, according to a transcript. The judge hasn’t issued a written decision.
“We respect the ruling of the judge and will continue to exercise our rights appealing the decision on several fronts,” Jurgen Mainka, a team spokesman, said today by e-mail. “We stand by and continue to be a willing and able partner for the future growth and development of Harrison.”
The town hasn’t yet sent out 2012 tax bills. Its budget will be proposed in February, Simoes said. Harrison approved a property-tax increase to help balance its $43 million spending plan last year and avoid dismissals of town workers, she said.
The case is Red Bull Arena Inc. v. Town of Harrison, 10999- 2010, Tax Court of New Jersey, Essex County (Newark).
--With assistance from Aaron Kuriloff in New York. Editors: Ted Bunker, Stephen Merelman, Pete Young.
To contact the reporters on this story: Romy Varghese in Philadelphia at firstname.lastname@example.org; David Voreacos in Newark, New Jersey, at email@example.com.
To contact the editors responsible for this story: Mark Tannenbaum at firstname.lastname@example.org; Michael Hytha at email@example.com.