Flagging economy, financing problems plague Brooklyn arena

The arena's financing depends largely on the ability to issue up to $800 million in tax-exempt bonds.

The Internal Revenue Service in 2006 proposed tightening the regulations of tax-exempt bonds to severely limit their use to pay for sports stadiums. A final decision, which could affect the arena as well as the bonds used to build stadiums for the Yankees and the Mets, is still pending. An IRS spokesman wouldn't say when a ruling is expected.

Goldman Sachs Group Inc., the lead bond underwriter for Atlantic Yards, declined comment on prospects for the arena financing. Barclays Capital, which signed to a $400 million deal to name the arena the Barclays Center, remains committed to the project, spokesman Brandon Ashcraft said.

But parts of that deal are contingent upon the timing of the arena's construction.

So is aid from New York City; the city and state each have contributed $100 million in subsidies, with penalties attached if Atlantic Yards doesn't complete the first phase of the project on a set schedule.

Ratner has appealed to government officials, citing the difficulties of financing the project in a downturn, but no more help has been promised.

"Without relief from the IRS, the project will be significantly more expensive, and even more challenging," said Janel Patterson, spokeswoman for the city's Economic Development Corporation. "But we all remain committed to seeing the project move forward."

Even a favorable ruling that would allow Ratner to sell bonds for the arena might not help in an economy where investors are wary of large-scale projects with uncertain completion dates, bond and sports finance experts said.

"In this credit climate, it's going to be very challenging," said Marc Ganis, a sports finance expert in Chicago, though he and others think Ratner will eventually succeed. "It's made lending far more challenging and far more expensive, at least in the sports industry."