Virginia Beach approves “private” arena plan that would use $7m/year in public money

The Virginia Beach city council voted last night on which of two arena plans to pursue, and according to the Virginian-Pilot, it “chose United States Management’s privately financed proposal” over a competing bid that would have “relied almost exclusively on taxpayer money from the city and state and would have forced the city to pay $262.5 million in debt service over the next 25 years.”

Well, that’s a no-brainer, right? So how does USM intend to pay for the arena without public money? Let’s see:

USM’s plan calls for it to spend more than $200 million of its own money to build the arena, then receive up to $7 million annually in tax revenue to pay down its debt.

Um, excuse me, what?

People, people. I understand that this whole “money” thing is hard to wrap your brains around. There’s money now, and money next week, and my money, and your money, and it can all be so confusing sometimes. But even elected officials and journalists have to understand that $7 million a year in tax revenue isn’t private money, right?

Actually, it could be more or less than $7 million a year — USM is asking to get 1% of the city’s hotel tax, plus a full kickback of all “taxes generated by the operation of the arena,” which presumably means sales, income, and property taxes, though don’t go looking in the Virginian-Pilot archives for an explanation of any of this. If tax revenues go up, USM gets more money; if they go down, USM has to cover the shortfall.

This is still likely better for the city than the competing W.M. Jordan plan, which would have required the public to pay off $10.5 million in annual bond payments, plus other costs. (The city would own the arena under the Jordan plan, but as we’ve covered here before, the last thing a city wants is to own an arena; it’s owning the arena’s revenue streams that’s the important part.) Of course, the USM plan could still fall apart — which given that it relies on getting a $200 million loan from a bank in China, seems like a pretty likely scenario — in which case the Jordan plan would be back on the table.

The important thing is, though, that whether you have the city paying to build an arena and “repaying” itself through the taxes paid by arena patrons that would normally go to the general fund, or the team paying to build an arena and repaying itself with those exact same taxes, it’s pretty much the same kind of tax subsidy. The Virginian-Pilot could have run a headline like “Council chooses less risky arena proposal,” but instead it went with “Va. Beach council picks privately funded arena plan,” which has the advantage of being more grabby, if the disadvantage of not actually being true.

7 comments on “Virginia Beach approves “private” arena plan that would use $7m/year in public money

  1. Now that New Jersey is forcing the Red Bulls to pay property taxes will that have any effect on these arena tax schemes?

  2. That’s state law, so probably no. Except that team owners building future stadiums will likely be more insistent that they not own the building itself, so as to avoid property tax.

  3. Not sure which moron first decided that kicking back taxes generated by a project to pay for it is a sound use of tax dollars… Tax revenues are generated not as “profit” for a city, but to pay for the services and infrastructure that the building or project consumes on an ongoing basis annually.

    If we bought cars this way, when we signed on the dotted line for a new Bentley there would be a second contract agreeing not only that the dealer/company must do all maintenance for free, but that Bentley/VW would also send you annual checks to cover the cost of fuel (arguably, to cover DOUBLE the cost of the fuel) the vehicle uses.

    How stupid are taxpayers and their elected representatives, anyway?

  4. I still want to try, in lieu of sending a check to the IRS one year, sending a letter saying, “If I hadn’t worked this year, you wouldn’t be entitled to any income tax from me, so I’m keeping it all for myself. You’re welcome!”

  5. Well it’s nice that the Virginia Beach council has fallen in line and realized that tax revenue belongs to us rich guys, but personally, I wouldn’t buy a politician down there if you paid me. It’s so… podunk!

  6. “Now that New Jersey is forcing the Red Bulls to pay property taxes will that have any effect on these arena tax schemes?”

    Probably not, many cities subsisting arena either already own the building or work with the organization to work around them having to pay property taxes.