As the Pawtucket Red Sox owners continue to mull over whether $38 million in free money is enough not to throw back in the face of Rhode Island taxpayers, the state treasurer’s office has issued a report estimating that — you know what, let’s start with how WPRI is reporting it, then backtrack to explain what it actually means:
The new PawSox stadium and its surrounding area will need to generate about $5 million a year in state and city tax revenue to cover borrowing for the ballpark under newly enacted legislation, according to a revised analysis.
In a memo issued Monday, General Treasurer Seth Magaziner’s staff said their current forecast indicates about $3.2 million in tax revenue will be needed to make debt payments on the tax-backed borrowing for the project. In addition, bondholders will want to see about $2 million more in tax revenue generated on top of that to ensure some cushion.
So that’s not actually an annual cost of $5 million, mind you — that would be an insane interest rate on $38 million in public stadium debt. (12.8%, if this thing is working right.) Rather, it’s just Magaziner’s estimate of how much excess revenue the stadium would have to promise before bondholders would not get cold feet about buying something based entirely on future property tax revenues from development that hasn’t happened yet.
This is one of the big problems with tax increment financing projects, as the PawSox stadium would be: You’re basically drawing an arbitrary line around your development and declaring that any increase in property taxes within that zone will be siphoned off and used for paying for the development. Draw the line too large, and you end up including taxes from property that would have been developed anyway without the new project, and so cannibalizing money that the public treasury could otherwise keep; draw the line too narrowly, and you risk a shortfall in revenues. (Bondholders, being only concerned about getting a return on their investment and not on what’s good public policy, are naturally more alarmed about the latter prospect.)
So the good news is it wouldn’t really cost Rhode Island $5 million a year (which comes to a present value of almost $77 million, if this thing is working right) to pay off stadium bonds — any excess money could be kept by the Pawtucket Redevelopment Agency and used for something else. The bad news is that the size of the TIF district whose property taxes will be redirected to the PRA is probably going to have to be really freaking huge in order to placate bondholders — which means it’s extremely likely that taxes that have nothing to do with the stadium will be redirected to help pay for it. That’s exactly what Rhode Island House Speaker Nicholas Mattiello promised wouldn’t happen, but, well, “bait and switch” is such an ugly phrase.