County approves $125m tax gift to Carolina Hurricanes, city approval next up

Wake County, North Carolina yesterday approved $46.6 million a year in tourism tax spending — money from a 6% hotel tax and 1% restaurant tax imposed in 1991 — and the beneficiaries are set to include the Carolina Hurricanes and the Raleigh Convention Center, though not yet a proposed Raleigh soccer stadium:

  • The Hurricanes would get $9 million a year in tax money for the next 25 years, a present value of about $125 million. The NHL franchise has been looking at an arena renovation cost of up to $200 million, so this would pay for the bulk of that.
  • The convention center would get $3 million a year for maintenance, $2.2 million a year for parking and infrastructure, $19 million flat fee for renovations and new land acquisition, and $17.575 million a year starting in the mid-2020s for an expansion and new music venue.
  • The North Carolina FC USL team didn’t get its proposed $11 million a year stadium grant, but can still apply for part of the remaining funds, where it would compete against other arts groups.

I know that some of you are thinking about now, “But isn’t the whole point of a tourism tax to promote tourism, so the tax money should be spent on things that will bring tourists to town?” Sure, but then it’s important to ensure that the spending will bring tourists to town, and the return on sports and convention spending is historically really awful in that regard: Sports teams only bring in a tiny sliver of new spending compared to what they cost in subsidies, and conventions are equally dismal.

One solution, if you’re really determined to use tax dollars to encourage people to come to your town, would be to demand some kind of direct repayment from the beneficiaries: Sure, we’ll give you a pile of free cash, but then you need to share the resulting increased revenues with the public treasury. But that doesn’t appear to be what’s going on in Raleigh; rather, the Hurricanes and other operators will keep any windfall revenues, and local government will just sit back and hope that the rising tide lifts their fiscal boat as well.

This whole plan still needs to be signed off on by the city of Raleigh, but at this point it looks like all that’s left to decide is which private interests to funnel tax money to, not whether to do it at all. (It’s possible there are some ways that Wake County could use tourist tax dollars to displace other spending that would then be freed up for broader social goods like schools or whatever, as has been the case in other locales, but none of the coverage has addressed that.) If anyone was wondering why somebody would spend $420 million to buy an NHL team with attendance near the bottom of the league, you may have just gotten your answer.


11 comments on “County approves $125m tax gift to Carolina Hurricanes, city approval next up

  1. Well this certainly helps Dundon take the sting out of that $70m (maybe) loss on the AAF (or whatever it was called). And hey, isn’t that (helping billionaires avoid the consequences of their own bad decisions) what governments are for?

  2. I’ve been reporting on this issue on the ground here in Raleigh (and battling the soccer stadium’s proponents on Twitter and on message boards, drawing on much of the knowledge I’ve gained from reading Field of Schemes for years). A lot of the reporting on this issue has been very muddled in local media, so some of the key numbers are actually different than what some of the cited stories reported:

    The county actually approved $444.3 million in new spending in the current proposal, spread over the next 15 fiscal years. So it’s roughly $30 million a year, but it varies a lot from year-to-year. Counting spending that was already approved, the figure is $1.21 billion over 15 years.

    That $46.6 million is the amount left to be allocated over a span of seven years to “medium projects” such as our wonderful children’s museum and art museum. In theory the soccer team, which is actually asking for $13 million per year under its current proposal, could compete for these funds. But my sources, who’ve been reliable to date, tell me that the commission is disinclined to take money from a kids’ museum and give it to a soccer team, but is considering looking into other possible sources of money for stadium subsidies, such as the pools of money available for business development and transit-oriented developed.

    So while the soccer stadium battle is very far from over, it was certainly encouraging that the commission declined to award it any hospitality tax funds. At the most recent work session, it sounded very much like there was at least two, possibly three, members of the seven-member commission who were very, very skeptical about this whole idea, and only one ardent backer, which was also encouraging.

    FWIW, the Centennial Authority (read: the Hurricanes) asked the city/county to take on the full $200 million in debt to finance the PNC Arena improvements. County staff recommended taking on only $115 million in debt, but the commission voted to bump it back up to $130 million. Glasses half full/empty and all that.

    I am fighting the good fight here on the ground, and I am very grateful to Neil for all the great work he does on this site.

    • Thanks for the clarifications, David. So the upshot is that the soccer team owner got “Don’t hold your breath” while the Hurricanes got “How about we just give you two-thirds of what you asked for”?

      • You’re welcome! Yeah, that’s pretty fair, although I would caution that this is just round one of what figures to be a very long soccer stadium subsidy battle. Yesterday the city of Raleigh signed off on the feasibility study, which is slated to be completed in December–after this year’s municipal elections, in which every seat on the city council is up for election. The county commission, none of whose members are up for re-election until 2022, appears to be lukewarm on the proposal, possibly in part because Malik’s USL and NWSL teams currently play in a taxpayer-subsidized soccer park in Cary, which is also in Wake County. So this would involve spending a lot of tax money to move the team from one part of Wake County to another, which would present political challenges for the county commission. But depending on how the Raleigh City Council elections go this fall, Malik could potentially pivot and try to get the money from the city itself. That would present its own challenges because $13 million a year is not a trivial sum for the city (which has a total budget of about $1 billion, compared to $1.5 billion for the county), and there’s no more “magic bean” money that Malik can argue doesn’t really count as taxpayer money. But, yeah, round one went pretty well, I thought. I’m going to be really, really interested to read that feasibility study once it’s finished.

        James’s point below about the arena is correct, the Hurricanes wouldn’t be the *only* beneficiaries of the arena money, but obviously they certainly stand to benefit tremendously from the infusion to taxpayer money.

  3. In government-speak, tourism spending means…….“it means what I choose it to mean – neither more nor less.” In my county, the hotel tax is actually partly diverted to a basically unused regional airport. Despite a couple of major hub airports less than an hour away, our local leaders can’t let go of their dream that major airlines will go back to servicing smaller communities, and so we pay to keep that airport on the ready until those ghost planes return.

  4. One thing to keep in mind is that the Hurricanes operate the arena on behalf of the county. They do not own the arena. In addition to the Hurricanes it also hosts NC State basketball and is the only major arena in the area capable of hosting large events.

    • In the sports business, ownership isn’t really a plus — in fact, it’s generally a negative, because it means you have to pay property taxes. What’s important is control of the venue revenues, and as arena operator, the Hurricanes have that, so are effectively the beneficiaries of the tax money, whether it’s via hockey games or concerts or whatever they rent the place out for.

      • MLB is probably smiling because there aren’t too many places left that are willing to use taxpayer to fund sports

    • Depends on what you call “the area.” There are quite a few venues of different sizes capable of hosting large events in RDU.

  5. To be clear I am against most of these publicly funded stadiums. I live in Wake County and want no part of funding that soccer stadium. PNC Arena is a little different in my opinion. It was conceived first and foremost for NC State basketball and to fill the void of a lack of a major event arena in the area which it has done well. It did get upgraded to attract the Hurricanes. Has it been profitable for the county; no but it has in my opinion served a worthwhile purpose.

    • James, this is an interesting point. In larger metropolitan areas where no current arena/concert venue etc exists, they can fill a bona fide need. Do you know how many events the arena hosts a year (roughly)? Is at or above the magic 150?

      I would have less of an objection to publicly funded facilities if they remained publicly controlled and the spin off revenues accrued to the entity that paid for the building rather than a private (generally professional sports franchise) party. The difficulty I have with most is that they are built by the public (to the specification of the private business owner), the public retains ownership (and thus responsibility for taxes and often maintenance and upgrades) but it is the private ‘partner’ who vacuums up all the revenue streams.

      That’s a horrendous business model for a supposed public service.