Madison Square Garden Hasn’t Paid NY Property Taxes In 37 Years. Will Cuomo Make It Permanent?

Governor Andrew Cuomo's latest pitch to expand Penn Station is an overflowing grab bag of promises to commuters and city residents to improve what the governor called in his budget speech yesterday the station’s “seven levels of hell”. The governor is proposing 40 percent more train capacity, airier concourses and unspecified new development in a "cohesive transit-oriented district." The plan also boasts an accordingly mammoth price tag: $8 billion to buy up an entire block of Midtown property, according to one estimate, most of which Cuomo hasn't yet identified specific funds for beyond the idea of siphoning off future retail rents and property taxes.

Meanwhile, sitting atop the now-buried train station is one of the state's biggest poster children for corporate tax giveaways: Madison Square Garden, which thanks to a state law passed at the behest of then-mayor Ed Koch in 1982 has now gone 37 consecutive years without paying property taxes. The total cost in lost revenue to the city over that time period is now $555 million, according to the latest calculations by the city's Independent Budget Office. If current property value trends continue, MSG's total tax break could clear $1 billion by 2030.

It's an alarmingly high figure, made even more so by the fact that the tax break, first proposed by Koch in order to encourage the Knicks and Rangers to renovate rather than moving to New Jersey, was, according to the mayor, initially supposed to end after just ten years. ("I went to bed at night believing it was a 10-year abatement," Koch told the Times years later.)

In the decades since, MSG's eternal tax break has become a white whale for budget reformers and enraged Knicks fans alike; possible repeal has become a recurring feature of IBO's annual budget options documents offering ways to saving the city money.

Asked for an explanation of the continued need for the tax break, a Madison Square Garden spokesperson provided this statement to Gothamist: "We appreciate that people have their opinions about our location, but the truth is that Madison Square Garden’s tax abatement pales in comparison to the billions in public benefits received by the other New York sports venues.”

Yet repeated proposals to put an end to the tax break in Albany — which controls virtually all of New York City's tax policies because that's how the state likes it — have gone nowhere. As a member of the State Assembly, Brian Kavanagh introduced bills to repeal the MSG tax break in 2013, 2015, and 2017, gaining the backing of other city-based state officials but never advancing out of committee. (Now a State Senator, Kavanagh has introduced similar legislation in the senate the last two years. It currently sits—you guessed it—in committee.) The New York city council did pass a resolution in 2014, introduced by now-Council Speaker and likely 2021 mayoral candidate Corey Johnson, calling on the state to repeal the tax break, but it fell on deaf ears in Albany.

The decades-long inaction can partially be explained by the odd nature of the tax break: It's the city losing tax revenue as a result, but the city council has no say over state law. While the state legislature could repeal the law at any time, it's under little pressure to do so given that none of the money would go toward filling state budget holes.

And then, there is the considerable pressure the legislature is likely under from Cuomo, who has long counted MSG owner James Dolan and his family as major campaign donors, though that seems to be on the wane since they sold off Cablevision to Dutch telecom giant Altice for $17.7 billion in 2016. (Then-MSG business partner Irving Azoff did give $10,000 to Cuomo's reelection campaign in 2017, and MSG itself is a regular donor to both Democratic and Republican state legislative campaign committees.)

“[Legislators] look at it as a cost of doing business with the governor,” says John Kaehny, director of Reinvent Albany, which has called for stricter oversight of state tax breaks. “Do you really want to go to war with the governor, who’s going to be protecting one of his core patrons on this?”

Neither Kavanagh nor Senator Brad Hoylman, who last year suggested repealing MSG's tax breaks and using the proceeds to fund the MTA, replied to Gothamist’s queries about the possibility of reviving such legislation, or about why repeal bills have gotten so little traction in Albany. Johnson's office also did not reply directly to Gothamist questions on the topic, though a council spokesperson did say that "The Council will examine the issue of a special permit for Madison Square Garden when it comes up for review in 2023." (MSG's operating permit that allows it to sit atop Penn Station is a separate issue, one that is within the city council's purview but which the council kicked ten years down the road the last time it came up for a renewal vote.)

Meanwhile, Cuomo's Penn Station expansion plan (which is at least the sixth iteration of an expansion plan since one was first floated by then-Senator Pat Moynihan in the early '90s) proposes another massive tax kickback, siphoning off untold billions of future property-tax dollars — technically payments in lieu of property taxes, or PILOTs—from an undisclosed area around the train station to pay for expansion of the transit complex. It’s the same mechanism that was used to partially subsidize Hudson Yards, accounting for just over $1 billion of the city’s $5.6 billion total tab.

The governor's Powerpoint presentation on his plans includes a diagram on page 51 showing a "development district" that would include Penn Station and several blocks around it. Cuomo's office referred questions to the state Empire State Development corporation, which indicated that this would be both the size of the new project and the size of the PILOT diversion district, though "the exact boundaries and parcels have yet to be finalized."

If Madison Square Garden does end up within the area carved out to pay PILOTs, notes Kaehny, that could have the effect of cementing MSG's tax break in place — or at least limiting the amount of future taxes Dolan and his successors pay, and ensuring that the proceeds go to the governor's redevelopment project, not to city coffers.

“In the post-Amazon world, I think Dolan will end up paying something," says Kaehny. “But it will be a lot less than he would pay the city.”