FC Cincinnati now wants the Port Authority of Greater Cincinnati to own its stadium since Hamilton County doesn’t want to. (Does “own” mean “pay for”? Reply hazy, ask again later.) Or maybe Newport, Kentucky, since, according to team president and former city council members Jeff Berding, that would allow the team to recoup its entire $100 million through tax increment financing kickbacks of property taxes paid on the property. How would it generate a whole $100 million in TIFs? Reply hazy, ask again later.
Would-be Seattle arena builder Chris Hansen hired University of Washington public finance professor Justin Marlowe in May to compare the economic impact of his Sodo arena proposal to that of the KeyArena renovation plan, and he has issued his report, which says that the Sodo plan would create three times as much tax revenue for Seattle ($103 million over 35 years vs. $34 million for Key). On the other hand, the Key plan would include some kind of sharing of arena revenues, though that wouldn’t kick in until the Key developers got their share, and, yeah, basically it’s a muddle. On the whole, it seems to give the edge to Hansen’s plan, if only because that arena would pay property taxes, but I’d need to sit and break down the math to say exactly by how much, and I’ve been waiting for time to do that all week, so clearly it’s not happening. Reader exercise!
Oakland A’s executive VP Billy Beane promised that once the team gets a new stadium, it will stop trading all its decent players once they start to get expensive: “There’s only one way to open a stadium successfully, and that’s with a good, young team. … Really what’s been missing the last 20 years is keeping these players. We need to change that narrative by creating a good team and ultimately committing to keep them around so that when people buy a ticket, they know that the team is going to be around for a few years.” Which could make sense if a new stadium draws enough fans that having a winning team boosts revenues enough to pay for player salaries, though we’ve heard this song and dance before elsewhere.
What does $74 million in public subsidies buy Minnesota Timberwolves fans and staff? New seats, new restrooms, new locker rooms, an ice floor that doesn’t leak, two new loading docks, and a big glass wall, because everybody’s gotta have one of those.
Joe Nocera, late of the New York Times op-ed page, has a new Bloomberg View opinion piece up titled “You Can Pay for a Ballpark Without Fleecing Taxpayers,” which namechecks this site and even provides a link, for which I should be grateful. Nocera and I failed to connect before it was published, though (he emailed me, I didn’t respond in time), so instead he is going to get berated here for misrepresenting my perspective, because that’s just how I like to bite the hand that feeds me clicks.
Anyway, here’s Nocera’s nut graf, where he brought me into the story:
In searching “Field of Schemes,” the go-to website for news about sports stadiums, I came across a rather different story, about the efforts of the Pawtucket Red Sox, the Triple-A minor league affiliate of the Boston Red Sox, to get a new ballpark. Although the dollars are far smaller (though not so small for Rhode Island), it does show that a team and a government can put together a deal that includes public financing but doesn’t hose the taxpayer. It’s kinda heartwarming, actually.
From there, it goes into a long, accurate description of former owner James Skeffington’s demand for $60 million in stadium subsidies, threatening to move the team out of Rhode Island if he didn’t get them. And then a long, not quite as accurate description of how after Skeffington’s death, team part-owner Larry Lucchino asked again for only $38 million in stadium subsidies, where the “city and state would receive a revenue stream that would not only cover the debt service but would probably make it a profitable venture for the government,” and “there were no threats” to move the team.
Okay, couple of things here. First off, the only revenue stream that the city and state will receive is “tax revenue generated in and around the stadium” — i.e., money that the city and state would normally collect anyway, but which would now be siphoned off to help pay for stadium construction costs via a tax increment financing district. There’s no way to reasonably project how much the TIF fund would collect — these things have failed spectacularly before — and more to the point, this is regular old tax money, not any actual revenues that the team would be giving up to help repay the public’s debt.
Anyway, if Nocera wants to opine that the new PawSox deal is a better one for the city than the old one, it’s his column. (And he’s certainly right that it’s a better deal than Miami got for the Marlins stadium, though there are bank robberies that were better deals than that one, so that’s a pretty low bar.) But for the record, I would never call the new Pawtucket stadium plan a “win-win” — more of a “well, at least we got them to knock a few million dollars off their ridiculous subsidy demands, even if they’re still threatening to move Worcester.” Sadly, that’s a less grabby headline, but I’ll go with what I’ve got.
The agency’s boundaries are suggested to be Flagler Street to the South, Northwest 22nd Avenue to the west, and the Miami River to the north and east, though the resolution says the study being sought could expand that area if needed.
Community redevelopment agencies by statute create trust funds that retain 95% of the increase in tax revenues from their area above the taxes that were collected before the agency was born. The agency uses that money to finance or refinance any redevelopment it undertakes. In this case, it would include stadium land and Metromover construction, though it could include more.
This would be tax-increment financing, in other words, with all the attendant problems thereof. And because redevelopment agencies can only be used for areas in need of redevelopment, this would require the area to be declared “slum and blighted” — including the Marlins’ stadium that opened next door just three years ago in the last attempt at revitalization. This is not going to help get people to Marlins’ games.
“It involves not only our Legislature leadership — Senator Fitzgerald and Speaker Vos, that I typically meet with on a weekly basis, but also representatives of the city of Milwaukee, the county of Milwaukee as well as the Bucks and I believe in the end we will find a viable alternative. We`re working with members of the legislative leadership, the city of Milwaukee and the county, and we’re having meetings even this week on that and once we reach a conclusion, we’ll be announcing that fairly shortly,” Governor Walker said.
Kit Beyer, [an Assembly Speaker Robin] Vos spokeswoman, said Vos has consistently said that in order to keep the Bucks in Milwaukee, city and county officials “need to step up more. He looks forward to learning what they can offer when they meet this week.”…
In addition, there is an expectation that the City of Milwaukee and Milwaukee County will be asked to contribute. No specific details of what the city and county could contribute have been released, though it is expected the city’s contribution will be in the form of tax-incremental financing districts for the expected ancillary development near the new arena site.
Put all the tea leaves together, and it sounds like Walker and city and county officials are going to be scrounging around for any future taxes that can be credited to the Bucks’ presence — even if some of these taxes would be collected on other entertainment options if the Bucks left — to see if they can get to $250 million. This is where that “ancillary development” that the Bucks owners promised last week comes in handy: If you package together enough stuff, and count up all the taxes that it’ll be paying, and then pretend that nothing else that would pay taxes will ever get built if not for the Bucks’ presence, then it’s all free money to the state and city, so why not just hand it right back to the Bucks owners, right? Right?
It all sounds so reasonable, and makes me yet again sad that I can’t find a YouTube video of that “Odd Couple” episode where Oscar’s gambling buddy wins big at Felix’s opera club casino night, uses the money to repay Oscar on a debt, and then Felix insists that it’s really his money and Oscar should give it to him, because “it’s from me to him to you to me, like an isoceles triangle.” Math is tough!
“There’s absolute security for the taxpayers,” Walker said. “No new taxes, no drawing on existing revenues, no exposure to the future…”
Well, except for the uncertainty of what happens if NBA salaries don’t soar to the point where enough new money pours into state coffers that the government can use it to pay off $220 million in arena bonds. How likely is that? I was all gearing up for some painful Excel crunching, but fortunately Walker’s office has made a handy-dandy chart for us:
That red block along the bottom is how much the Bucks (and visiting teams’ players, pro-rated for the days they play in Milwaukee) pay now in state income taxes, which is $6.52 million a year. The current Bucks player payroll is $62.6 million, and the top state income tax rate is 7.65%, so about two-thirds of that figure comes from the team’s roster, with the rest presumably coming from visiting players, team execs, hot dog sales people, and the like.
How much would salaries have to rise to make the green part of the above chart come true? Walker’s projected state revenue in the year 2046 is about $45 million, meaning at a 7.65% state income tax rate, we’re looking at $588 million in payroll. If two-thirds of that is the Bucks, then for a 12-player roster, the average player salary would have to be $33 million a year in order to make these numbers work.
Is that as crazy as it sounds? The average NBA player salary 31 years ago was $330,000, and it’s $4.1 million today, so it’s on pace with historic trends. (Salaries have leveled off the last few years, but they’re expected to take a big jump in the next CBA thanks to the league’s lavish new TV deal.) But past performance doesn’t guarantee future returns, and lots of things could torpedo that assumption:
The cable bubble could burst. In fact, it’s a near-certainty that nobody will be watching NBA games in 2046 by turning on a cable box — broadband Internet will have replaced it decades before then — but the issue isn’t really what pipe people use to get their sports fix but how much they’re willing to pay for it. Right now, sports on TV is a loss leader for cable companies to get viewers to buy their service at all; once everybody is watching TV on the web and companies don’t have to worry about cable cutters (because everybody has to have Internet service whether they want to watch TV on it or not), the economic calculations start to change. Unless you envision a future where a huge number of people happily pay $1000 a month for the right to watch sports on TV, NBA revenue — and salary — inflation is going to have to level off sometime soon.
Basketball could sink in popularity. The NBA has done great at expanding its marketing in recent decades, but who knows what the future holds? Competition from leagues in other nations? Kids defecting to watching e-sports? Not that this necessarily would mean plummeting salaries — baseball has lost market share for a while now, but continues to rake in more cash — but it wouldn’t help.
If any of that comes to pass, it’s not altogether clear what happens to Walker’s arena bonds: I haven’t been able to find any indication of what the backup revenue stream would be if income tax revenues don’t balloon as expected. (There will have to be something, though, or else nobody’s going to buy these bonds.) But this is essentially an income-tax variant on a TIF — an iTIF? — and if the increment fails to materialize as they so often do, the only possible answers would be new taxes, drawing on existing revenues, or the Bucks paying of the debt themselves … okay, ha ha, that’s not very likely.
(I should also note that I’m slightly skeptical that Walker’s green triangle would be enough to finance $220 million in bonds — it looks like about $600 million in nominal dollars, but the bulk of that is pushed way back into the future, which is going to require tons of finance charges like Miami took on for the Marlins. But a more specific accounting is going to have to wait for someone with better Excel skills than me.)
And finally — finally — keep in mind that all of this is not actually found money, but rather income tax receipts that the state of Wisconsin would otherwise be able to spend on other things if they weren’t handing it over to the Bucks owners. Unless you assume that the Bucks would definitely leave without $220 million in subsidies, and that Milwaukee sports fans wouldn’t find something else to spend their money on that would increase income tax receipts elsewhere, neither of which is anywhere close to a sure thing.
What Walker appears to have done is to come up with a way of writing a $220 million check to the Bucks that is rationalized in the most politically acceptable way possible: It’s not new taxes, it’s not existing taxes, it’s just future taxes on future imaginary super-rich basketball players who otherwise wouldn’t be playing in future Milwaukee because the future NBA will have future teams everywhere but there unless the state subsidizes a new arena. (And the city or county — Walker assumes another $50 million from those taxpayers, though he doesn’t specify how.) That still may not be enough to win over the state legislature, whose leaders were making mildly skeptical noises after Walker’s announcement yesterday, but it’s got as good a shot as anything.
Andrew Zimbalist, a sports economist at Smith College in Massachusetts, says studies have found there is no statistically positive correlation between sports facility construction and economic development.
“Bear in mind that this is an observation about the average case,” Zimbalist said via email. “It does not mean that in a particular case that there can’t be a positive or negative effect. I would say in individual cases one has to look carefully at the financing and lease terms, as well as elements of land use and the local economy.”
The Bucks will argue that plans for ancillary development near the arena site will bring new construction jobs, new dollars and new development to a revitalized downtown Milwaukee.
Mark Rosentraub, a professor of sports management at the University of Michigan, says the key for Milwaukee and the Bucks is whether the anticipated ancillary development is successful. The new Yankee Stadium in New York, he said, was a “complete wasted opportunity. One billion dollars was spent and it had no impact at all on the south Bronx.”
This is, so far as I can tell, unprecedented in the history of Don Walker reportage, which normally lends itself to this. Maybe he’s actually starting to realize that only citing the people proposing the arena plan isn’t the best way of doing journalism—
Patrick Marley of the Journal Sentinel staff contributed to this report.
Heather McCoy of KUCI, whose show I’ll be making my weekly appearance on at 8 am Pacific today, asked me yesterday what was up with Chicago Mayor Rahm Emanuel’s much-ridiculed plan to build a $125 million basketball arena for private DePaul University. The answer, it turns out: Damn the ridicule, full speed ahead.
The Metropolitan Pier and Exposition Authority board has approved the purchase of the final land for a planned entertainment district in the South Loop around McCormick Place. … The city is contributing $55 million in tax increment financing to McPier for the project, of which $26 million will go for hotel and ABC building land and $29 million toward hotel construction. McPier paid $14 million for the remaining land needed for the DePaul arena.
The state legislature approved the plan last spring, then the city council followed suit with a “very quiet” vote in favor last July. Now that the land has been acquired, construction can begin, and Chicago will at last have the 10,000-seat arena that it’s been lacking for all those concerts by bands that are too big for 5,000-seat venues but can’t fill 20,000-seat venues. In other words: Nickelback, please never retire.
The Virginia Beach city council voted last night on which of two arena plans to pursue, and according to the Virginian-Pilot, it “chose United States Management’s privately financed proposal” over a competing bid that would have “relied almost exclusively on taxpayer money from the city and state and would have forced the city to pay $262.5 million in debt service over the next 25 years.”
Well, that’s a no-brainer, right? So how does USM intend to pay for the arena without public money? Let’s see:
USM’s plan calls for it to spend more than $200 million of its own money to build the arena, then receive up to $7 million annually in tax revenue to pay down its debt.
Um, excuse me, what?
People, people. I understand that this whole “money” thing is hard to wrap your brains around. There’s money now, and money next week, and my money, and your money, and it can all be so confusing sometimes. But even elected officials and journalists have to understand that $7 million a year in tax revenue isn’t private money, right?
This is still likely better for the city than the competing W.M. Jordan plan, which would have required the public to pay off $10.5 million in annual bond payments, plus other costs. (The city would own the arena under the Jordan plan, but as we’ve covered here before, the last thing a city wants is to own an arena; it’s owning the arena’s revenue streams that’s the important part.) Of course, the USM plan could still fall apart — which given that it relies on getting a $200 million loan from a bank in China, seems like a pretty likely scenario — in which case the Jordan plan would be back on the table.
The important thing is, though, that whether you have the city paying to build an arena and “repaying” itself through the taxes paid by arena patrons that would normally go to the general fund, or the team paying to build an arena and repaying itself with those exact same taxes, it’s pretty much the same kind of tax subsidy. The Virginian-Pilot could have run a headline like “Council chooses less risky arena proposal,” but instead it went with “Va. Beach council picks privately funded arena plan,” which has the advantage of being more grabby, if the disadvantage of not actually being true.
So what would happen if Reno were actually to default on its stadium commitment? As it turns out, the original stadium deal was to pay off the stadium with the resulting rise in property tax receipts — so-called tax increment financing, or TIF — except that, as is so often the case, property tax receipts didn’t actually go up, leaving the city to fund the stadium debt out of its general fund. That means the city council must vote on making the payments every year, and there’s nothing stopping them from voting “no.”
If that were to happen, we’d enter uncharted waters: As the Reno Gazette-Journal puts it, “Well, baseball could leave. Baseball could also take the city to court.”
This is essentially the same scenario that Columbus was considering with the Blue Jackets last year, except that there it was a good-government group with a broken website that was pushing it, whereas here it’s actual people running for actual office who are threatening to play the default card. I’m kind of hoping they do, not because I have a particular interest in the fate of either the Aces or Reno’s budget, but because it would be extremely interesting to see how a court would rule on the legality of a city stopping payments on an already-built stadium. I suspect you’d see a lot of city attorneys — and good-government groups — poring over a hypothetical Aces v. Reno ruling for years to come. Though in the meantime, it’s still at least a good cautionary tale about the risky nature of TIFs, if anyone is listening.
The New York Jets Manhattan stadium plan may be long dead, but its legacy lives on in the form of “Hudson Yards,” the mixed-use development project that was supposed to surround it on Manhattan’s West Side. Back in 2005, you will recall, Mayor Michael Bloomberg succeeded in convincing the city council that key to getting tens of thousands people to shlep several blocks west of Midtown to see football, the Olympics, or whatever, was to build an extension of the #7 subway line west of Times Square. This would cost $2 billion (if you think that’s a lot, don’t get me started on the 1,500-foot tunnel in Queens that cost $645 million), but never worry, as it would all be paid off by increased property tax payments by new development on the site — that’s right, a TIF.
The Bloomberg administration paid $234 million during fiscal year 2012 to a city-created development group that oversees the huge new commercial and residential complex, one of the mayor’s most ambitious projects.
City Hall quietly earmarked most of that money — $155 million — to the Hudson Yards Infrastructure Corp. in late June, because the group has not been generating enough revenue to pay the annual interest due on $3 billion in bonds it issued.
Of course, there are still hopes that Hudson Yards development will one day take off as originally planned — as Gonzalez wryly notes, “Maybe it will in 50 years, when most of us are dead.” If only anybody could have seen this coming.
The NBA and city of Sacramento officially issued their plans for a new Sacramento Kings arena on the site of Cal Expo yesterday, and you sure can’t accuse them of thinking small: It includes a 350-acre “living village” with a new indoor fair space, and retail, office, and residential buildings, and a whopping price tag of $1.9 billion. If this sounds familiar, it’s because it’s a dead ringer for the similar office/residential/arena plan that is currently in the process of collapsing in Brooklyn, thanks to plunging demand for office or residential space.
All parties seem to be aware that this is not the best time to be looking for billions for a development project, with NBA arena consultant John Moag (formerly of the Maryland Stadium Authority, where he helped get stadiums built for the Baltimore Orioles and Ravens) calling it “not a shovel-in-the-ground project,” and saying the arena wouldn’t open until 2013, with the rest of the project following over the next 25 years. That will give them time to finalize such niggling details as finding an interested developer, and figuring out how to pay for it all — there’s talk of tax-increment financing, but no real details.