Bucks arena bonds get slightly lower interest rate than expected, business journalist rejoices

Anatomy of a misleading sports finance article, the headline:

Bond sale for Milwaukee Bucks arena deemed a success

Ooookay. A success for whom? A success because the bonds were successfully sold? That’s a pretty low bar, no?

The lede:

With the Milwaukee Bucks poised to start construction on their new arena, the largest chunk of public funding for the project came through Wednesday and Thursday via the sale of bonds totaling $162 million at interest rates that experts said are a good deal for Wisconsin taxpayers.

A good deal for Wisconsin taxpayers, really? Tell me more.

The interest rate on a series of bonds for $108 million and secured by the state of Wisconsin had an overall interest rate of just 2.7 percent… “We’re pleased with the strong market response to this sale, resulting in a significantly lower than expected interest rate,” said Wisconsin Center District board chairman Scott Neitzel, who is secretary of the state Department of Administration.

Okay, so Wisconsin got a low interest rate on the bonds. That’s indeed good for taxpayers, since it means lower payments over time to pay off the $108 million. Wisconsin residents will still be on the hook for the $108 million in principal, though.

No new taxes are being implemented to pay the interest on the bonds.

Now this is just straight-up misdirection. No new taxes are being levied because all the money is coming out of general fund revenue: half from the state, half from the county after the state cut its funding for county programs to cover the rest of the bonds.

Another major selling point for investors was the fact that individual Wisconsin investors who bought the bonds enjoyed a tax exemption on both federal and state income tax, Bryden and others said.

“The tax advantage has appeal,” he said. “You don’t get those frequently.”

Another way of saying this is that the bonds are a very bad deal for federal taxpayers, who miss out on taxes on the income that bond buyers are sheltering from federal tax, and who don’t even get the benefit (?) of going to a new Milwaukee Bucks arena unless they live near Milwaukee.

All in all, the story here is “Bond payments for Milwaukee Bucks arena to cost maybe 2% less than expected.” That’s good news, but on a very different scale than the Milwaukee Business Journal is telling it. It’s almost like the only people author Rich Kirchen talked to were bond managers and the state officials selling the bonds — hey, wait a minute…

7 comments on “Bucks arena bonds get slightly lower interest rate than expected, business journalist rejoices

  1. It’d be capital gains tax, Neil. Gains (key word there) are not guaranteed when one invests capital. And not all investments are taxed. Federal and state taxpayers aren’t necessarily missing out on anything.

    • This is incorrect. Interest from bonds is taxed as income. If you sell the bond for more than you purchased it for, that’s capital gains. But the interest income generated is absolutely taxed as income. If the interest is not taxed, that is tax revenue that the feds and states are not receiving.

      • Yep….what Matt said. Last time I was in school …..that is how we were taught capital gains worked.

  2. Bond interest as a capital gain. Wow. Epic fail.

    And yes, Federal and State govts are missing out on revenue from these instruments that would ordinarily be taxed a income, but aren’t because of their special status.

    • You’re assuming the bonds issued are muni bonds. Pretty hard to justify issuing muni bonds for a facility enjoyed by a select few yet generating profit for a for-profit enterprise. Hence, these bonds in Wisconsin will be taxed as a capital gain.

      Then again, knowing how corrupt this entire process has been, I won’t be a bit shocked if the bonds issued under the premise of muni.

  3. Hey Niel just got a copy of your book. Stayed up till 3 reading it. I love it!! Well done. Thank you.