Waiting for Bucks arena plan, Day 7: Hidden costs could drive taxpayer price tag to $370m

The big weekend of the Milwaukee Bucks arena plan announcement is behind us, and … there is still no Milwaukee Bucks arena plan announcement. But there could be one soon. But probably not today, as the legislature’s Joint Finance Committee isn’t even meeting today. It is actually required that a bill be introduced before it’s voted on, right?

Meanwhile, the Milwaukee Journal-Sentinel continues to be giving wall-to-wall coverage to whatever it can piece together about what the deal might or might not be. On Saturday, the J-S ran Don Walker’s final piece of reporting before his untimely death, on whether a new arena would really create 10,000 new jobs like those crazy realtors’ ads claim. And the findings, in a nutshell: Arena proponents say it will create a lot of jobs (“as many as 2,100 permanent, non-construction, non-arena jobs”), while economists like Robert Baade snort derisively (“All the Bucks are doing is changing the location of the building. How does it create new jobs? We’ve been over this. It’s the same tired argument”). Who’s right? What do the data show in cities where new arenas have been completed? Sorry, no room in this article, though a few minutes with Google should turn up some answers for you.

The Milwaukee media has also focused in on how the previously reported $270 million public price tag doesn’t include interest:

Now, a source tells FOX6 News the state’s contribution will be closer to $80 million — $55 million in principal and the rest in interest.

And:

Multiple sources indicated late last week that the new downtown facility would cost the public at least $400 million — including interest — under the draft plan the team, state and local officials are putting together.

That’s up from the original estimate of about $250 million, which would represent a mix of bonding, taxes, debt collections and other forms of public financing.

Now, calculating public costs this way is a little unfair. Yes, interest is real money, but it’s also money that doesn’t have to be paid out for a while, which makes it worth less than money that has to be paid out now. Think of it this way: If the state and county and city just put $250 million in an interest-bearing bank account, it could pay off something like $400 million over time. It’s why nobody says that really spent $1 million on their $500,000 house because that’s what their mortgage payments over 30 years add up to. And it’s also why economists prefer to use “present value” — how much money you’d need on hand now to generate the future payments — in which interest payments and the future discount rate usually more or less cancel each other out.

Usually, but not always. If a borrower is not just paying off interest but putting off paying off principal as well, then that can result in a balloon payment later on that costs far more than paying a lump sum up front. That’s what happened with the Miami Marlins stadium, and it could end up happening with at least part of the Bucks deal as well:

Under the latest draft proposal — which began circulating privately on Thursday night — the district wouldn’t begin using income from local hotel, car rental and restaurant taxes to pay down the $93 million bond issue until 2028…

Conservative estimates by three different sources put the total payments for interest and principal on the Wisconsin Center bonds at $190 million to $200 million — more than double the value of the bonds.

That’s not $190-200 million in present value (I don’t think), and since we don’t know the payment schedule, it’s impossible to know how much more this backloading of payments would cost taxpayers. But it’d be more, certainly — if not a full $100 million more, then certainly $50 million is possible.

Add in all the land and existing buildings that are expected to be thrown into the arena development pot by the city — one commenter identifies at least $36 million in those — and we could easily be looking at $100 million or so in hidden costs to this deal. And that’s before we even know everything that’s in the deal, mind you. It’s all the kind of thing that should be raising serious questions, if not in the legislature, then on the editorial pages of Milwaukee’s leading newspaper:

Let’s close the deal and build a new arena in downtown Milwaukee. It isn’t often that a community can pour a half-billion dollars into revitalization in a single stroke. This is one of those rare opportunities.

Right, that’s what I meant to say. How often does the public get the rare opportunity to hand over $370 million to a private sports business? Seize the day, people, and don’t worry about the fine print.