Scott Walker offers $320m+ for Bucks arena, lets future generations decide what to cut to pay for it

The final Milwaukee Bucks arena plan as it will be submitted to the state legislature was indeed released yesterday, and it looks an awful lot like what was reported last week. The final tally, with newly revised items in italics:

  • $55 million in state bonds, to be repaid out of general funds. (With interest this would be $80 million in payments over time, but present value is still $55 million.) Nobody is bothering to tie this anymore to future NBA player income taxes, but either way it’s just straight state spending.
  • $20 million from the state to pay off the remaining bond debt on the Bradley Center.
  • $93 million in bonds sold by the Wisconsin Center District, with payments to be drawn from various county taxes that currently go to fund the district’s other expenses. By delaying payment on the bonds until starting in 2028, the district’s actual costs would rise by about another $50 million.
  • $55 million in uncollected county revenues ($4 million a year over 20 years, again coming to $55 million in present value) that the state will somehow find a way to collect. Much of that money, however, is owed not to the county itself but as restitution money to victims of crimes, reports Urban Milwaukee’s Bruce Murphy, and a good chunk of the rest may simply be uncollectible; if the state can’t collect it, the county would have to come up with it out of its own budget.
  • $47 million from the city in tax-increment financing (kicked-back property taxes on new development around the arena) and cash, for a new parking garage and other stuff.
  • Lots of free land, value as yet undetermined.
  • The Bucks owners would be responsible for any cost overruns above this amount.
  • There would be a “clawback” provision allowing the public to recoup some of its costs if the Bucks left Milwaukee anyway. (It’s unclear whether this means that the Bucks would not have to sign a long-term lease as part of the deal.)

That comes to at least $320 million in public money, pretty much all of it coming from revenue streams that are now being used, or that could be used, to pay for other public needs. Gov. Scott Walker declared yesterday that lost player income taxes over the next 20 years if the team left plus maintenance costs for the Bradley Center over the next 10 years — I don’t know why taxpayers would need to spend big bucks to maintain a building with no team playing in it, but let’s run with it — would come to $419 million, a figure that as the Milwaukee Journal-Sentinel put it, “has not been independently analyzed.” Or as Jake’s Economic TA Funhouse somewhat more snippily put it:

The $120 million in maintenance figure seems to have come straight out of Walker’s ass. The Journal-Sentinel article says the number is closer to $20 million, and reality indicates that would be less need to pay for maintenance in a Bradley Center facility which wouldn’t have 45-50 Bucks games a year to host.

Jake also notes that a good chunk of the losses from not having NBA players around to tax could well be made up for by having locals spending on other things, which would increase income for people in those industries, which could then be taxed, etc.

Anyway, this is Walker & Co.’s offer; now the trick is seeing whether city, county, and state legislators will go for it. Initial reports from the J-S were decidedly meh:

“I don’t really have a handle yet on where the support is,” [Senate Majority Leader Scott] Fitzgerald said, underlining the uncertainty. “It’s difficult to gauge right now.”…

“I’m not a believer in government supporting sports arenas for millionaire players and billionaire owners,” Rep. David Murphy (R-Greenville) said. “This is a deal that needs to be vetted very well. The tires need to be kicked and maybe not with one foot but two.”

The Milwaukee city council will be holding a meeting at 1:30 pm today on the arena plan, so maybe we’ll be able to gauge legislator sentiment a bit better after that, though it’s the state senate that’s expected to be the heavy lift. Legislative Joint Finance Committee chair Sen. Alberta Darling told the J-S she might not even hold a budget meeting until after next week so she and other can have “time to sell it to their fellow Republicans” (in the J-S’s words), so read into that what you will.

Finally, it’s worth at least a mention that the Koch brothers, who have been Walker’s biggest boosters for his attempts to cut pretty much everything from the state budget, are not fans of the Bucks arena plan, presumably because it doesn’t involve cutting things from the state budget. This is either a sign that the Kochs don’t actually own our entire political system, or that they’re willing to give Walker a pass on the Bucks arena so long as he’s with them on more important things, like busting public-employee unions. I’m guessing the latter, but if you need to cheer yourself up today by believing the former, be my guest.


20 comments on “Scott Walker offers $320m+ for Bucks arena, lets future generations decide what to cut to pay for it

  1. “One of the biggest contributors to the crisis are Governor Walker’s 2011 tax cuts, which disproportionately benefit wealthy property owners and corporations, and have cost more than twice as much as originally predicted. New data shows the credits will cost the state at least $275 million in additional lost tax revenue over the next two years.

    This is almost exactly the amount that Governor Walker wants to slash from the University of Wisconsin system, a threat that has already led several campuses into laying off hundreds of professors and staff.

    The tax cuts are a major cornerstone of Governor Walker’s tenure — one he brings up in nearly every speech he’s made as he “explores” a bid for the White House.
    But the singular focus on slashing taxes has taken the state from a billion dollar surplus to a nearly $2 billion deficit.”

    From ThinkProgress early last month. But the Bucks need a new arena. So sure tack on another $320M in future obligations that become someone else’s problem in the future. It’s like watching Wisconsin turn into Arizona.

  2. Neil, nice work on covering this. What I don’t understand about the Bradley Center is that even if the Bucks move, Marquette and Admirals hockey will still take dates. Plus, won’t BC replace the Bucks with concerts and other events that would acutally pay more than the Bucks?

  3. You would think of all the people who might actually mean it when they say they are a fiscal conservative it would be this guy, but no he is just another political stooge.

  4. I don’t “hate” the idea of a new arena but I do find tearing down a building not quite 30 years old and not paid off a bit of an obscenity. It’s not even the reliance on the taxpayer to get it done but rather the structure and total cost of the deal. What is even more objectionable is the hypocrisy of Scott Walker and ranting about fiscal prudence on one hand and subsidizing billionaires with public funds on the other.

  5. “Jake also notes that a good chunk of the losses from not having NBA players around to tax could well be made up for by having locals spending on other things, which would increase income for people in those industries, which could then be taxed, etc.”

    I agree with most of your points, but not this one. A big part of NBA player salaries comes from NBA sourced TV contracts. That cannot and will not have the possibility of having a substitution effect if the Bucks leave. Sure, the cash spent directly on tickets has the possibility of being re-distributed in the the local economy but i’d argue a big piece of the pie (TV contracts and also corporate sponsorship and luxury suites) will likely completely disappear if the Bucks leave.

    I’m not making an argument that Walker negotiated a good deal (he did not), but it is absolutely true that the State would lose a big chunk of tax revenue if the team left.

    On a separate point, i’m surprised the subsidies on the separate $400m development is getting such positive press. If just the arena was built, the land surrounding it would undoubtedly become more valuable and other developers would have a higher probability of purchasing it from the government at market rates and developing the land. While local politicians tried to spin this as a positive for the overall project, negotiating this aspect of the deal was not only unnecessary but costly to the taxpayers.

  6. Kevin: Yes, at least one economist has made that point about TV contracts to me as well. I guess it depends on what you mean by “good chunk” — the substitution effect would still exist, it just would be smaller than in some other situations.

    As for the ancillary development, I agree with you to a point, though I’m not so such an arena makes the land surrounding it all that much more valuable. (Not compared to a 365-day-a-year development like, say, a hospital, anyway.) Still, approving subsidies for that part does seem to be leaving money on the table — something at least one county supervisor (I think — link isn’t at hand right now) brought up today.

  7. Here’s the official explanation for Walker’s far-fetched claim about the massive Bradley Center shortfall if the Bucks leave. It’s from a letter from MMAC (chamber) prez Tim Sheehy to Urban Milwaukee in response to a Bruce Murphy report:

    “Which brings me to your second point, that the claims we made in the questions were “laughable”. I note you did not take issue with our claim regarding the $700M loss in revenue (calculated by the Department of Revenue), so I assume that you are referring to the $100M in short fall for the BMOBC over the next 10 years if the Buck’s leave. The detail of this “claim” is as follows:

    $25M in ongoing capital expenses and major maintenance
    $30M in deferred major capital repairs and maintenance
    $20M debt service
    $25M in lost sponsorship revenue
    $10M in net loss revenue associated with Bucks
    $10M in lost revenue without substantial renovation
    The point here is, if the Bucks leave, yes there will be some costs that go away, but bottom line “net results” indicate the state will own a depreciating asset, with no major tenant, and significantly reduced revenue sources. (My opinion, the BMOBC board has stretched and extended the life of the original capital assets, many facing their 30 year life, that’s prudent Milwaukee stewardship, but if you have a beef, take it up with the BMOBC board, not ours). This State owned facility will be responsible for ongoing maintenance, capital repairs, and a diminished ability to compete for other events (major concerts) without additional capital upgrades over and above this list provided. In addition, the centers workforce would decline by about 330-440 jobs.”

    There are too many dubious claims to refute them all. A few stand out. The “$10 million in net loss revenue” (over 10 years) is laughable, since the Bucks pay no rent or anything else to BC. The BC paid them almost $5 million last year. The reason for the BC’s $20M debt on an arena it got for free, is these outrageous Bucks payouts. The presumed loss of sponsorship income is contradicted by sizable naming rights contract the now-named UWM Panther Arena paid for a 50-plus-year-old arena a block away.

    The capital repairs are, of course, mostly items demanded only by the Bucks. The BC would likely make up for the Bucks with other events, and not have to give the Bucks their huge percentage…
    Walker et al just went with these made-numbers and made them look even scarier by being on a chart…

  8. Scott Walker the great fiscal conservative.

    He’s like Rick Santorum to me. Mucus stuck in the nostril. A turd that won’t flush.

  9. Neil – A couple more points on substitution effect. yes, I absolutely agree it will be in effect, though the economics of the Bucks would indicate that the substitution effect would be pretty low given the breakdown of how the Bucks earn revenue relative to the NBA. A few points:

    – The Bucks are near the bottom of the NBA in team payrolls (28 out of 30). The Bucks player payroll was $57.5m, which is $15 million less than the median NBA team payroll of $58m. What this means, is that opposing teams playing in Milwaukee are paying higher state income taxes to the state of Wisconsin than the Bucks do.
    -The Bucks are a “taker” in the NBA’s revenue sharing program. Meaning, a portion of the revenue the Bucks use to subsidize player payroll is coming from outside the state of Milwaukee from other “richer” teams.
    – Bucks attendance is and has been near bottom of the league for many, many years.

    In summary, my primary point here is that unlike most NBA teams, the Bucks revenue sources are skewed towards revenue streams that not directly earned within the state of Wisconsin and if the Bucks leave, only a small portion of spending can be re-distributed into the Milwaukee economy. Ticket revenue is less than your average team, therefore the possibility of re-distributed spending is low. Therefore, when I say “a big chunk” – I’m arguing that well in excess of 50% of player salaries are paid from revenue sources earned out of the state of Wisconsin.

  10. I’m blowing up the message board today, apologies.

    One other point. Forbes estimates that gate receipts for the Bucks are $17 million per season with $58m in player payroll. While Forbes is far from perfect, it does provide a consistently applied benchmark to compare the Bucks to the rest of the NBA. I sourced a few large and small market teams for comparison to the Bucks.

    – Chicago Bulls have gate receipts of $65 million with $73m in player expenses
    – The NY Knicks have $119m in gate receipts against player expenses of $95m
    – LA Lakers have $96m in gate receipts compared to player expenses of $89m
    – Utah Jazz – $36m in gate receipts compared to player payroll of $64m
    – OKC Thunder – $54m in gate receipts compared to player payroll of $78m

    My primary point here is that the Bucks get a significantly smaller portion of total revenue from gate receipts than your average NBA team. Gate receipts are the primary form of spending that can be re-distributed into the local economy and gate receipts represent the primary form of revenue that is generated by economic activity in the local market. Given this, you can make a strong argument that the state of Wisconsin is getting a strong import of tax revenue that isn’t directly sourced by economic activity within the state.

    http://www.forbes.com/teams/milwaukee-bucks/

  11. Thanks, Kevin — it’s an excellent point, and those Forbes numbers are pretty striking. You’d probably want to add in local TV/radio revenue as well (if the Bucks weren’t there, those stations would be doing something with that money, or they’d be charging less to viewers/advertisers and they’d be able to do something else with their money, etc.), but yeah, the Bucks’ substitution effect should be way lower than that for, say, the Knicks.

  12. This sure sounds like a lawsuit waiting to happen:

    But it turns out, that $120 million figure is rather suspect. Most of it — some $76 million — is owed to the county courts but the vast majority of that is restitution money that must be repaid over time to victims of crimes, explains Dave Ehlinger, Fiscal Operations Administrator for the courts. In short, the state can’t get its hands on this debt to fund a new NBA arena.
    http://urbanmilwaukee.com/2015/06/04/murphys-law-abele-plan-for-bucks-arena-wont-work/

  13. To add to Jbaghai’s point, Wisconsin state statute 973.20(12)(b) requires that, in a case where the judge orders both restitution and a fine, the restitution must be paid in full before any payments are applied toward the fine. Not all judgments have both, obviously, but that’s one more barrier to using that money to pay for the arena. Oh, and I don’t think I’ve ever seen a case where the judge didn’t order a payment plan, so that will slow down the collection of that money that much more.

  14. Kevin, Thanks for sharing the Forbes issue. The Bucks’ and NBA’s push for a new arena has often been stated as a path to more revenue streams (as with other teams and venues). That’s valid for any biz, but the question is how much should they be able to extract from their community’s coffers to do that.

    In FY2014, the Bucks were paid $4.7M of the $11.3M the Bradley Center took in from products and services (41.6 percent). Meanwhile, the BC is $20M in debt after getting a fully donated venue, $10M in state subsidies since 2006, and about $18M in sponsorships in recent years. Yes, a new arena will bring in more revenue streams but how will they be channeled? Will more people attend games when the ticket prices will inevitably rise? A winning team will help, but will an arena be able to sustain itself and the Bucks at the same time? And will the taxpayers and city/county/state be winners or losers in how much they invest?

  15. Milwaukee Native – Don’t get me wrong, I agree with you. Notwithstanding the lost tax revenue, this *deal* is a major gamble that is in no way guaranteed to be a sound investment for the community. It’s probably more likely than not to be a major cash drain for your city/county/state.

    Also, while my above points were aimed at proving the validity to lost revenue streams if the team leaves and pointing out that substitution effect isn’t likely to be as large as other markets, it’s a bit ironic that building of this arena has a decent shot of creating a substitution effect going forward. If the Bucks get their way and the new building generates significant spike in ticket sales, you can probably foresee that those ticket sales will pull from elsewhere in the economy. Future increases in player payroll (outside of the new TV money that is kicking-in in two years) are not likely to create significant new tax revenue as the Governor claims.

  16. Another point about the “cheaper to keep them” arguments. The Bucks lease runs another two seasons. If no deal is reached, you will probably see the franchise move, possibility even before this upcoming 2015-2016 season. I don’t know the particulars of the Bucks lease, but I would have to imagine the city/county/state could require a buy-out of some-sort and that buy-out could be in the tens of millions of dollars. Politicians are clearly trying to leave this out as it hurts their arguments for massive public financing.

  17. Kevin, Thanks for the clarification…They also are trying to directly “substitute” spending at nearby taverns in a separate arena “entertainment” annex (a Bucks monopoly) they want taxpayers to subsidize as well.

    Does anyone else find it ironic that the best these pols and their flacks could come up with to pitch their bad deal is a rephrasing of a snide comment by men about their women? That the term is also the title of a B movie and country song is ever richer:
    From Wikipedia:
    Cheaper to Keep Her may refer to:
    “Cheaper to Keep Her” (song), a song by Canadian country music artist Aaron Lines
    Cheaper to Keep Her (film), a 1981 comedy film directed by Ken Annakin

    Maybe Barrett or Abele will recycle it as a campaign slogan. They seem tone-deaf enough to do so…

  18. I think Kevin brings up some great points.

    One question for Kevin, Neil or anyone else: Is it still the case that players could dodge state income taxes by spending at least 180 days in a state like Florida? I remember Derek Jeter doing that near the end of his career.

  19. Players can reduce their state income taxes that way, not eliminate them:

    http://www.forbes.com/sites/anthonynitti/2013/03/27/derek-jeter-calls-florida-home-tax-savings-soon-to-follow/

    tl;dr: Jeter still had to pay pro-rated New York taxes on the days he actually played or practiced in the Bronx.

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