KC’s successful arena district shows even successful arena districts can be huge taxpayer money sucks

With the Milwaukee Bucks owners proposing a $1 billion arena-plus-entertainment-district that could be partly funded by kicked-back property taxes on the entertainment district part — a TIF, in other words, with the arena only excluded because it wouldn’t pay property taxes at all — the Milwaukee Journal Sentinel’s Don Walker took a look on Saturday at Kansas City’s Power & Light District, which has a somewhat similar funding scheme. And he found good news and bad news:

Today, the eight-block Power & Light District is a destination for Kansas City residents with themed bars, fine-food restaurants, shopping, a live outdoor entertainment area and a huge high-definition television that broadcasts sports to passers-by. The half-million-square-foot district is anchored by the world headquarters of H&R Block and the Sprint Center, the city’s multipurpose arena that opened in October 2007.

That’s good!

City manager Troy Schulte said that, in the first few years, the district was generating about $5 million in tax revenue, leaving a $15 million gap that had to be filled from the city’s general fund.

That’s way less good!

Now, you can make a case that even if it’s costing the city some money, it could be worth it in order to revitalize Kansas City’s downtown, give locals some more entertainment options, and the like. (In fact, K.C. councilmember Ed Ford makes exactly this case, telling Walker that “if I could go back and someone had told me at the time this would transform downtown but it will cost $15 million more a year on top of the super tax-incremental financing district we had, I would support it.”) But $15 million a year is a lot of money: That’s enough to finance maybe $225 million in improvements, meaning the city is forgoing that much in other spending in order to pay off the Power & Light District — and that other spending could be on things that were even more beneficial to city residents and their economy. Plus, even a good chunk of that $5 million a year that the district is providing in TIF taxes is likely being redirected from spending elsewhere in town, so some of that is a loss for the city as well. And if the entertainment district is this successful, it’s possible that a developer would have been willing to do it for a lesser subsidy — meaning K.C. could potentially have had its downtown destination and eaten its tax revenue, too.

Finally, all this leaves out the Sprint Center itself, which is losing about another $12 million a year for the city, and which never lured a pro NBA or NHL team as it was promised it would do. All in all, that’s a pretty expensive way to turn your downtown into a nightlife district — I’d love to see the cost-per-job numbers, but Walker doesn’t provide those — and a cautionary tale about how expensive subsidized developments can be, if anything. Hopefully Milwaukee residents and newspaper editors understand that

If the $500 million arena came as a part of an overall downtown development deal – one which benefited the city and Milwaukee County as a whole, not just the Bucks — we’d be much more amenable to state taxpayer money going toward this initiative.

*Sigh*.


20 comments on “KC’s successful arena district shows even successful arena districts can be huge taxpayer money sucks

  1. Well, in Cleveland at least, taxpayer subsidized stadiums are an enormous win. Just today, cleveland.com informs us that “Cavs vs. Chicago is ticket to cash registers ringing in downtown Cleveland.”

    They even found an economist (employed by that pillar of scholarly research, Huntington Bank) to deny that this is simply moving money around. Of course, even if we presume that this is somehow introducing new wealth to Cleveland from someplace (and that this isn’t just, um, moving money around) and that it “will boost the city’s image and economy long after the last buzzer,” there’s no attempt to quantify whether stadium subsidies generate a net ROI in real numbers.

    But who needs that, right? I’m sure that when the city and county’s creditors want paid, they’ll be happy to accept buzz and q-ratings.

  2. Matt,

    Supply side economics (which is real, despite what academic pontificators and Neil will tell you) means that productivity creates wealth WITHIN A STATIC AREA. In other words, downtown Cleveland’s new wealth doesn’t have to be “moving money around”. It could be new local wealth due to people being more productive because they want to go to Cavs games.

    On KC, this is purely anecdotal but to a man (or woman, in two cases), every local I’ve asked about P&L and the arena agrees that it’s a money suck, rarely goes, but is happy it’s there.

  3. “Supply side economics (which is real, despite what academic pontificators and Neil will tell you)”

    Show your work, Ben.

    “On KC, this is purely anecdotal but to a man (or woman, in two cases), every local I’ve asked about P&L and the arena agrees that it’s a money suck, rarely goes, but is happy it’s there.”

    Presumably they’re not happy it’s a money suck, though. Which goes back to the question of whether all this return-to-urbanism development going on nationwide would have happened just as well without subsidies (or with lesser subsidies).

  4. All economic activity is money “moving around”. That’s the point, isn’t it?

    Is there an example of a downtown revitalization that didn’t happen with extensive public investment? Almost every city that I can think of that is trotted out whenever the “return-to-the-city-core” thing comes up has always had some associated big public project(s). Whether renewed private development interest came because of or in spite of public money is debatable.

    I would think ending up with a giant, empty white elephant like the Sprint Center would be something to be avoided at all costs.

  5. Evidence is not necessary for factuality.

    Supply side economics is the only logical explanation for real economic growth of any kind. Otherwise, why isn’t our prosperity level equal to that of the Dark Ages?

    On KC, I hate to admit this but I think you are correct. I think that the return to urbanism would happen with or without new stadiums, and I think that in most cases the team owners are just taking advantage of a cultural trend.

    Now, please delete this comment and never bring it up to me again.

  6. Honestly, I really don’t mind that these things cost money. They look like fun, etc, etc.

    What I mind is that when people say, “This is going to make us $15M/Year! We’re gonna get rich!”, and then it doesn’t at all, that’s when I get mad. Just tell the truth; they’re beautiful, they’re fun, and they lose money. Just be honest.

    Why is this so hard?

    I really do think my estimate for Sacramento is about right. The bond payments will be about $23M, and we’re only guaranteed about $8M. I think this will generate SOME new tax revenues, like maybe $5M, at most. That’d be on the high end. So… Annual losses of around $10M. And that’s fine if that’s what people want. But if you spell it out that way and the people reject it, move on.

    At least voters in KC approved this.

  7. MikeM – The Sacramento City Treasurer estimated that the new tax revenue (property tax, sales tax, possessory tax, and hotel tax) frin the arena AND all of the ancillary development to be $2 million and the vast majority of that would be generated by the ancillary development. Of course, this was before the kings said that they will probably need a subsidy to complete the ancillary development.

  8. Sprint Center is hardly an “empty white elephant”! It’s busy virtuallly every night, and much better without an NBA or NHL team hogging all the best event dates. AEG, which manages the arena, has paid the City a percentage of profits each year since opening.
    Yes, the enitre redevelopment was approved by the voters, and has dramaticly changed the development and population base of Downtown KC! Nothing anecdotal there.

  9. Ah, I get it. Because there are NBA Playoff games in Cleveland, and this is exciting to people, the sale of tickets creates an incentive for labor that did not exist before. To pay for their playoffs night out, they work harder, and the total wealth of society increases.

    That’s… an interesting concept… but if there exists useful additional work for people to do, and their motivation is just not adequate to do it, shouldn’t wages rise until the market clears? I thought that was basically the core feature of a market-based economy?

  10. I agree with the sentiment that public funded arena are a bad investment, but THIS IS KANSAS CITY. They had a 2% chance of ever getting a basketball team and a 0.05% of ever getting an NHL team in that building before they built it.

    Public funded arenas in NYC or LA are a bad investment, but public funded arenas in Kansas City are a really, REALLY bad investment! (and I wouldn’t say Milwaukee is that much better of a situation either. Both are “sleepy” markets in regards to national-marketability.)

    The Sprint Center is nothing more than a March Madness destination & occasional concerts. Milwaukee can(and do) host pro teams, but still doesn’t change that fact that their taxpayers bent over to make it happen, which makes me feel even worse for the KC residents that continue to take shots filling the Sprint Center’s money pit but don’t get a sports teams as a chaser.

  11. RA, I haven’t heard any noise about SBH asking for more handouts, er, panhandling, er subsidies (sorry, not sure what happened there).

    However, in this plan for the trolley, the rate of taxation is lower at the arena, which will result in another $10M tax break over 30 years.

    http://www.sacbee.com/news/local/transportation/article20148363.html

    SBH pays one rate, everyone else pays a much higher rate. How is this not a subsidy, too?

  12. ShowMe: You’re correct that the Sprint Center is doing great business, but the revenue share from AEG isn’t coming close to paying off the city’s costs to build the place. (See the link included in this original post.) So it’s not a white elephant, but it is a money pit.

  13. MikeM, Check out this editorial from the Bee: http://www.sacbee.com/opinion/editorials/article16956056.html This is one of the media sources over the course of a few days that mentioned that the kings were talking about it. “Ranadive and Kings President Chris Granger acknowledged the “chatter” that they may seek another city subsidy.”

    As for the streetcar, the city claims there was a “mistake” in the tax-rate schedule and have corrected it. The arena will now pay the same rate on the building as everyone else. (See http://portal.cityofsacramento.org/~/media/Corporate/Files/Finance/PIF/Streetcar-District/Streetcar%20District%20RMA.pdf – last page) They get a free ride on the land, however, so they are still getting a subsidy there. As for the “mistake” allow me to translate: We tried to give them a larger subsidy and got caught and had to adjust it.

  14. “Much of the economic boost from the arena would come from the surrounding $500 million development. Ranadive and Kings President Chris Granger acknowledged the “chatter” that they may seek another city subsidy – which would be problematic – but said it’s too early in the budgeting process to know for sure.”

    The way they’d do this is to make us hostages. “Oh well, I guess the City can continue to lose money. It’s their choice. But there is an alternative: Invest more, then start breaking-even.”

    If SBH went to the Council at any point in the next year and said, “We need more.”, I’m not sure they’d have 5 votes. So at that point, Ranadive could even do something as radical as halting construction. The 2-3 week full-trial coming up in late June could be the key here, because I think this judge is going to put street-parking revenues off-limits. Off-street can still be in play, but any changes to the current on-street meters will have to be justified.

  15. Some ironies in MKE:
    Even being in a hyped-up playoff game last week, the Bucks could not fill the current arena (good thing, given their 54-point demise). And that was with a huge presence of Chicago Bulls fans.

    Many here like the “idea” of having an NBA team way more than they like the Bucks…

    KC’s downtown did need need a jumpstart (maybe not this costly to taxpayers) but Milwaukee already has a hopping entertainment scene in several districts, including two within blocks of the arena. MKE took in $1.8 Billion in tourism spending last year. Bucks want to capture more of those dollars under the Arena Tent, so it can get an even bigger revenue skim.

    There are many draws that bring tourists to MKE: Summerfest is “World’s Biggest Music Festival” and Irish Fest reportedly biggest such festival in the world (including Ireland). People come for Harley-Davidson blowouts from all over the world. A world-class museum also a tourist magnet.
    Bucks are way down the list, but as noted, some Bulls fans do visit.

    Modest subsidies should be able to keep Bucks here but they’re likely to get massive ones: “Greed is good!” as they say on Wall Street…

  16. I think this strikes to the heart of the edifice complexes most cities have. It is far easier to point to an entertainment district with new restaurants, well maintained public area’s, and a bustling nightlife as a success. It is much more difficult when that infrastructure investment is much more diffuse, like bringing up neighborhood sidewalks up to ADA standards, or investing in small parks in neighborhoods. Its what separates cities that are good to live in, and cities that are good to visit.

    This is especially salient in light of the recent discovery, surprise, that the Inner Harbor somehow didn’t turn Baltimore into a bonanza of money and development except in the areas where the subsidies and focus flowed. Little, if anything, was done about the core failures in the cities services that results in the systemic inequalities that occur and reinforce poverty today. Recent events strike a blow to the myth that a “revitalized” (revitalized for who?) downtown core does little for the people living there.

  17. MilwaukeeNative, that’s really exactly what’s going on in Sacramento. There was a cruddy mall, and the 6 or so blocks it encompassed plus maybe another six blocks around it were pretty dead. I didn’t want to go there at night either. You want to get mugged, there’s a good place right there.

    But downtown Sac goes from C-Broadway (about 26 blocks) and from 5th to 30th (about 25 blocks), most of which is housing, but quite a bit of it is pretty cool restaurants, galleries, small shops, entertainment venues, and so forth.

    You’re not going to touch the housing. That’s a done deal.

    Basically, they wanted 100% of these 500 or so blocks to be completely vibrant, all the time; I’m saying that in an area that large, maybe it’s okay that 20 of those blocks don’t draw many nighttime visitors. I don’t think I’m crazy.

    It’s already not easy to find parking in this area during the day, or about 5 nights a week. They really think an arena is going to increase the tax base very much? I don’t. I think it’ll raise our tax base by MAYBE $5M, if they’re extraordinarily lucky. It’ll probably be closer to the $2M RA cited.

  18. Cities with downtowns in decay are in trouble. No question about that. And I don’t even oppose all revitalization plans that include a stadium. Driving traffic downtown and opening new bars, restaurants, etc. can be great for a city. Problem I have seen, however, is most community leaders get lazy and very quickly settle on stadium ideas based on nothing beyond liking how it worked out someplace else.

    Our last mayor went all-in trying to get a minor league baseball stadium built downtown. Mind you, we already had a nice ballpark in the suburbs where the team was drawing record attendance with ample parking. But he wanted it downtown where traffic would have been a nightmare basically because he couldn’t think of anything else to serve as a cornerstone for his downtown redevelopment plan. There wouldn’t have been an extra cent spent in the city–all the money spent at bars and restaurants near the current park would have just been shifted downtown. We got lucky because A) Public sentiment was overwhelmingly against the idea and B) The mayor couldn’t figure out a way to pay for it.

  19. By far the largest problem I have with these arena projects is that politicians get sucked into this notion that “We’re gonna get rich!”, and eventually, it turns into “Well, we have a choice; we can either go bankrupt, or we can accept that we made a mistake and must now pay for this either through higher taxes or service cuts. We apologize.”

    Nine times out of ten, these lose enough money to eventually need a bailout. Just be honest about that one little thing. I don’t see why it’s that hard. In our case, this was made more difficult because this was for our mayor’s former employer, so he was willing to listen to anything. Last I heard, the estimate was 11,000 jobs created. I’m not sure they could put 11,000 people in total in that 4 block area where the arena will be. It doesn’t even make sense.

  20. Hey MikeM, Did you see the latest? Now the streetcar will generate $2 billion in economic activity and 12,000 new jobs. Add that to the 11,000 from the arena and we now have 23,000 new jobs in that little bitty area! http://www.kcra.com/news/Voting-underway-for-Sacramento-streetcar/32829252

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