The Times reports today that New York City’s Industrial Development Agency is preparing to issue an additional $341.2 million in tax-exempt financing “on behalf of the Yankees and Mets” to finish building their new ballparks, in addition to the more than $1.4 billion in tax-exempt financing already outstanding for the stadiums. It’s true that the city isn’t responsible for actually paying back this debt if something has gone wrong with the teams’ own calculations of revenues needed to service the debt. But one wonders to what extent bondholders expect that the city would step forward and help make good on this debt if something ever went wrong.

Consider how banks like Citi, a few years ago, had all kinds of obligations off their books in “structured investment vehicles.” The banks weren’t legally obligated to use their own corporate credit to back these obligations in a crisis. But, when the crisis came, the banks had to step in and make good on the obligations, to protect their own reputations, severely exacerbating their own problems. (See also, Fannie, Freddie, US government.)

It’s hard to see how New York, after putting its heft behind the Yankees and Mets and allowing the teams to use their credit infrastructure, including tax exemption, to fund their ballparks, could ever just stand by if that debt ever required restructuring.

And yes, bondholders are supposed to be sophisticated and understand the differences between different types of credit, but sometimes they’re not. Big institutional bondholders also conceivably could use the clout they have as potential supporters of future New York issues to pressure New York into helping on any hypothetical restructuring on the ballpark debt, too.

This risk may not be the biggest problem New York faces today. But it is another potential headache down the road.

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