No, the Nationals stadium isn’t a success just because business tax receipts are up, sheesh

Of all the examples of economic innumeracy that are brought to bear around stadium deals, confusing tax revenue raised for a project and tax revenue raised by a project is one of the most common. You’d think the concept would be simple enough: If you raise sales taxes, say, and they come in faster (or slower) than expected, that doesn’t make whatever you do with those sales taxes any better or worse of a deal, whether it’s building a stadium or setting the bills on fire to see if the Secret Service arrests you.

In his Washington Times column on Tuesday, sports columnist Thom Loverro starts out almost getting it right, declaring that thanks to the business tax, ticket taxes, and ballpark sales taxes on the Nationals stadium coming in faster than expected, “if city officials wanted to, they could pay off the 30-year mortgage on the $691 million ballpark — a $585 million debt now down to $395 million — 10 years early.” Then he wrote:

The cries of financial ruin and tax nightmares that ballpark opponents carried at the time into the debate against paying for the new ballpark ring hollow now, as the city’s coffers are overflowing with ballpark revenue.

I don’t actually recall anyone predicting financial ruin as the result of tax revenues falling short — and, besides, they easily could have, if the Washington economy had zigged instead of zagged. But, yes, better for the money you expected to arrive to actually arrive, instead of ending up with an e-pulltab fiasco that requires additional taxes to make up the shortfall. “Overflowing with ballpark revenue” isn’t quite accurate, but surely Loverro doesn’t literally mean—

The ballpark has been a gold mine for the city

Okay, that’s just plain wrong — or at least, plain wrong if all you’re doing is describing tax receipts. Let’s examine why:

  • By far the biggest portion of the Nats stadium debt — more than half the public total — is being paid off by that tax on large D.C. businesses. D.C.’s local economy is booming, and that’s good! But that’s still money that, if the tax surcharge had been passed for any other purpose, could be going to pay for something else — the fact that D.C. is collecting money faster to turn over to the Nationals isn’t a plus.
  • Increased in-stadium sales taxes are generated by actual stadium business, so this is a plus. It’s not as big a plus as stadium proponents would like you to believe, though, as some of that money would have been spent in D.C. anyway — so if Nats fans are spending more on hot dogs, that generates more sales taxes at the stadium, but less sales taxes wherever they would be eating if they weren’t at the game.
  • The new ticket tax surcharge is completely new, so more money there actually is coming from the team, yay! That’s also by far the smallest share of the money, though, less than 10%, so less yay.

In short, this is all good enough news, but doesn’t say squat about whether the stadium has been a fiscal success for D.C. — we have no idea whether tax revenue is up as a result of the stadium, just that tax revenue is up, period, so with more money sloshing around, there’s more to hand over to the Nationals more quickly. An equally accurate headline would have been “D.C. spending more money on Nationals Park debt each year than anticipated,” but that would have sounded like more of a downer.

I don’t entirely blame Loverro: It’s clear that this story was entirely prompted by D.C. councilmember Jack Evans (he’s the only person quoted in it, and the only source for the tax revenue figures), who never met a stadium deal he didn’t like, so would presumably be putting a positive spin on the Nats deal even if it had to be funded by selling public monuments. (“Who really visits the Jefferson Memorial anyway, amirite?”) It’s still a grossly misleading article, though, plus a single-source story where the source has a vested interest in making the project look good to make himself look good, so, yeah. Bad columnist, no donut.


17 comments on “No, the Nationals stadium isn’t a success just because business tax receipts are up, sheesh

  1. I’m assuming Thom put this together during broadcasting breaks on his radio show.

    There are a few great reasons for the growth of the business tax for large receipt businesses headquartered in the District.
    1. The phenomenal success of DC-based law/lobbying firms in gaining business in lobbying and litigation (these rank amont the largest firms in DC).
    2. The establishment of IT, consulting, and other contracting firms to provide services to the Federal government and other contractors.
    3. The movement of major firms from other locations to the District (or surrounding area) to better lobby/sell to the Federal Government.

    It would be typical but logically incoherent for a sports columnist to suggest that these changes–rooted in some pretty big moves in our government and economy–stem from a baseball stadium on the waterfront.

    In at least two of the cases, it might be questionable if these developments are signs of good things at all for the United States as a whole.

  2. In other words, the taxes that are paying for the stadium are being generated faster than expected, although for the most part this has nothing to do with the success of the stadium itself. This is exactly why taxes and bonds used to pay for stadiums should be 100% tied to stadium-generated revenues. That way, if and when the funding for a stadium falls short, the general public will know what people in the sports industry already do – that the financial projections that are often used to justify the expense of a publicly-funded stadium are an enormous lie. This is why they have to use projections instead of any real-world examples of stadiums being a boon to the local economy.

  3. The odd thing about this report coming from the Washington Times is that they are one of the most rabidly anti-tax, anti-government and anti-welfare news organizations you can find. Aside from military spending, the Washington Times generally considers governmental involvement in any sphere of human activity to be a de facto failure and likely to result in the demise of the Republic.

    There is an interesting connection between the conservative mindset and sports that has come to regard taxation in support of professional sports as a legitimate governmental activity. Scott Walker is the most prominent example, but there are many others in statehouses around the country.

  4. I think an interesting study would be on the residential impact the stadium has had in that area, and the financial boon to the city. Residents relocating from Virginia and Maryland will have a major impact on the city’s finances, and that neighborhood is booming.

    • DC could spend a billion dollars on any random blighted neighborhood and encourage people to move there.

    • Actually, pretty much every neighborhood in D.C. is booming, regardless of what if anything the city is spending there. If anything, the area around Nats Park was somewhat slower to develop, though it’s taking off now.

      A study of the economic impacts of getting people to move to the city would be great, but extraordinarily difficult, because sports team owners (like other developers) love to build in neighborhoods that are just on the verge of takeoff. So it’s tough to determine what would or wouldn’t have happened without the stadium there — would the development have happened anyway, would it have been built somewhere else in the district instead, would those people have stayed in the burbs? Good data is hard to come by.

    • “Residents” by and large aren’t relocating to the stadium area. They are relocating to Columbia Heights, Petworth, Brentwood, and all sorts of formerly unfashionable neighborhoods far from the stadium.

      The wants of these residents are pretty consistent. They want the possibility of a car-free lifestyle, local shopping, bars and restaurants, and lots of other young people. Later on, they want good schools for their kids. Nats Park has brought little of that. In fact, the neighborhood around the park has remained far duller than may other neighborhoods with far less “investment.”

      Sportswriters and politicians love to get in front of these stories to say how they “catalyzed” development. The real story doesn’t have a big role for them.

  5. Nice point about this column being single sourced, it reads like a press release.

    Same thing with the DC United stadium and their beat writer at the Washington Post. Might as well be on the team’s payroll.

  6. “The new ticket tax surcharge is completely new, so more money there actually is coming from the team, yay!”

    No, the ticket tax surcharge (a tax on the tax) is being paid by consumers; aka baseball fans. The team is only the conduit for the payment. And what is that “Yay” all about. Are you actually cheering for higher priced tickets?

    DC is “booming” because the taxpayer funded Federal Government is the only economic sector in our country that is growing. Labor force participation rate is near a 40 year low and we haven’t seen 3% growth since your guy took over the White House.

    $19,000,000,000,000 in accumulated federal operating deficit and you think the problem is that we are spending too much on BALLPARKS? Or is that we are not taxed enough?

    • The “yay” is because a ticket tax surcharge does not actually raise ticket prices, at least not much, for pro sports teams.

      Think of it this way: You’re the Nationals execs in charge of setting ticket prices. You sit down and figure, “How much can we charge before we start cutting into ticket sales so much that our profits go down?” (Normally you’d also need to account for the cost of production of the good, but the cost of selling an extra ticket is very close to zero, since all the players and other high-cost items are already paid for before tickets are sold.) Let’s say people are willing to pay an average of $50 per ticket before they start abandoning ship in droves. That’s going to be true whether it’s $50 that goes to the Nationals, or $45 that goes to the Nationals and $5 that goes to the city’s stadium fund — so either way, the Nats are going to charge the same price, regardless of the tax.

      I’m oversimplifying ever so slightly, but this is why economists consider ticket taxes — and only ticket taxes — to come out of the pockets of team owners, not the public. It’s slightly counterintuitive, but it makes sense when you think it through.

      The rest of the Nats stadium deal is godawful, though.

      • I think you are giving Nats’ executives too much credit here. If you’ve seen the stands, you know they have no clue how to price and sell tickets.

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