Wisconsin agency says Gov. Walker’s $220m “jock tax” for Bucks could cost state lots more

I’ve previously criticized the Milwaukee Business Journal’s Rich Kirchen for being overly credulous on the Bucks‘ arena, but today he reports on some news that’s not so positive for the team’s plans:

Wisconsin Gov. Scott Walker‘s proposal for the state to issue $220 million in bonds for a new arena in downtown Milwaukee could carry an actual cost of at least $380 million including interest, according to a preliminary estimate by the nonpartisan Legislative Fiscal Bureau.

Note that “including interest,” though. Is this just a case of misunderstanding the difference between present value (what a purchase costs you in today’s dollars) and nominal cost (what it costs you if you added up all your payments over time, like if you buy a $200,000 house and pay it off with $400,000 worth of mortgage payments over 30 years)? Or is it an actual case of the cost being higher than at first projected, like when it turned out that the Miami Marlins stadium included so many backloaded balloon payments that it was costing taxpayers an extra $450 million?

A little of each, it looks like. Since Gov. Walker’s plan relies on kicking back future income taxes from NBA player salaries, and NBA player salaries aren’t expected to soar into the necessary stratosphere for a while yet, the state probably would have to backload payments, which would increase the cost of the bonds beyond $220 million. How much, no one knows yet — Legislative Fiscal Bureau analyst Al Runde didn’t say — nor did he say how much additional the state could be on the hook for maintenance costs on an arena, something that has yet to be negotiated. Let’s just leave it at “a lot” for now, then.

Wisconsin tribe offers $200m for Bucks, no questions asked, if state just gives them a casino

And in other news that won’t officially be announced until later today: The Menominee Tribe of Wisconsin is expected to offer $200 million in money for a new Milwaukee Bucks arena if Gov. Scott Walker changes his mind about approving a new casino for them in Kenosha.

What’s the catch? Well, a Kenosha casino would undoubtedly draw off business from the Potawatomi tribe’s casino in Milwaukee, and the state agreed back in 2005 to reimburse the Potawatomi for any losses stemming from a new casino in Kenosha. The Menominee have previously promised to reimburse the state for any such losses, but haven’t put that in writing yet.

Of course, it’s always possible — not likely, but possible — that casino spending would grow so much that both tribes would come out ahead. Then you’d only need to deal with 1) the fact that if a new casino in Kenosha is really worth $200 million, the state could cut the same deal with the Menominee and use the money for something other than a basketball arena, and 2) encouraging Wisconsin residents to spend a whole lot more money at local casinos probably isn’t the smartest economic policy.

This seems likely to go down the same road as paying for a Minnesota Vikings stadium with casinos did, i.e., get kicked around in the press forever but not have legislators want to touch it. It does help shift the debate from “should the state help fund a Bucks arena?” to “how should the state help fund a Bucks arena?” though, so for that, the Bucks owners should probably send the Menominee a nice fruit basket.

Milwaukee Journal Sentinel runs actual journalistic report on arena project (just not Milwaukee’s)

I’ve been very harsh on Milwaukee Journal Sentinel writer Don Walker, with good reason, but credit where credit is due: He wrote a good article on Saturday on NBA arena plans, even citing Judith Grant Long’s research on total subsidies to sports facilities. It was an article on the Golden State Warriors‘ plans for a privately funded arena in San Francisco, mind you, not on the Milwaukee Bucks‘ plans for a mostly publicly funded one in Milwaukee, but still, at least Walker did lay out the basics of the Warriors plan and contrast it with the Bucks one.

Sure, it would have been nice if he’d dug deeper into how the Warriors owners expect to recoup their investment (development around the site, plus being the only sizable arena in one of the nation’s wealthiest markets) and whether it makes sense for the Bucks owners to do the same, but at least it quotes more than one person. Though the conclusion still leaves a bit to be desired:

In San Francisco, “They have a vision to make the Warriors world-class, second to none,” [Warriors spokesperson P.J.] Johnston said.

The Bucks leadership seems to have that same vision. Just a different way of getting there.

Yup, just two ownership groups trying to make their arenas the best they can, one by paying for it, the other by sticking taxpayers with half the bill. Potato, potahto, right?

Milwaukee mayor says he’d love for state to spend $220m on Bucks arena, hedges on city expense

Milwaukee Mayor Tom Barrett has endorsed Gov. Scott Walker’s plan to provide $220 million in state income-tax kickbacks for a new Bucks arena — as you’d expect he would, since it wouldn’t be coming out of his city budget. Also as you’d expect he would, he was noncommittal about the $50 million that Walker wants either the city or county to contribute to the project:

“We are certainly supportive based on what we know,” Barrett said. But he added the amount of support, which could come in the form of land for ancillary development near the arena, is heavily dependent on where the arena would be built…

“We need to know more about the arena site. The level of support is site specific. Different costs with different sites,” Barrett said.

Yes, that is true. It’s also true that how much land is devoted to any Bucks project — and whether it all gets to be off the property-tax rolls — is going to determine how much of a property-tax break the Bucks would get, previously estimated at $180 million. Milwaukee journalists have at least some projections of where an arena might go, they have access to property tax rates for other similar parcels, and they have fellowships paying for the time that it would take to do the calculations — you think somebody could provide at least a range of estimates? If we ask nicely?

Wisconsin speaker vows to slash governor’s Bucks “jock tax” plan by more than half

One Wisconsin legislative leader has responded to Gov. Scott Walker’s plan to divert future Milwaukee Bucks player income tax revenue to pay for a new Bucks arena, and despite being a fellow Republican, he is not so thrilled with it:

Gov. Scott Walker’s plan for a new Milwaukee Bucks arena has “zero chance” of passing the Wisconsin Legislature in its current form, Republican Assembly Speaker Robin Vos told county officials at a meeting Wednesday.

What form would give it a better chance of passage, then?

State Sen. Tom Tiffany, a Republican who represents the northwoods section of the state, predicted the Legislature would cut the arena bond figure to $100 million.

“I actually think that that’s a reasonable number,” Vos said.

Vos wants to see the city and county of Milwaukee fill in the rest of the gap, which given that Walker is already expecting those taxpayers to chip in $50 million in arena costs, would push the project’s budget gap to $170 million, even if the state provides $100 million in income-tax kickbacks. That’s a hefty chunk of change, so even if the legislature approves a scaled-back version of Walker’s plan, that’s going to be a heavy lift.

Or, you know, the Bucks owners could decide that a new arena is so badly needed that they’d be willing to cover a bigger share of the costs — hahahaha, just kidding, we know that almost never works.

Milwaukee sportswriter says good thing Bucks owners are so rich, or we couldn’t give them tax money

I know that you guys must be tired of me harping on Milwaukee Journal Sentinel staff press statement transcriber Don Walker, but seriously, what’s with this guy? One day after writing an article on Wisconsin Gov. Scott Walker’s plans to give the Bucks owners $220 million that consisted entirely of quotes from one of the Bucks owners (he’s surprisingly in favor!), Walker followed up with an article arguing that giving the team only makes sense because they’re richer than ever:

The dramatic increase in the rights deals between the league and the broadcasting companies ensured franchises in the leagues that revenue would at least double over the nine-year term of the deal. That means both teams and their players are in line for fatter bottom lines and bigger paychecks.

The prospect of increased revenue gave Walker assurances that capturing the new income-tax growth from visiting NBA players, members of the Milwaukee Bucks and even the team’s employees would be enough to pay the debt service on state-backed bonds.

There is a kind of logic here, which is that because the Bucks are projected to be raking in the simoleons in coming years, Walker can point to all the income taxes they’ll have to be paying, call that found money, and offer to hand it right back to the team. But still, the crux of the argument remains: Good thing the Bucks owners are even richer than ever, or we might not be able to give them tax money!

This is a point that you would expect someone critical of the arena plan to make somewhere in the article, probably down around the 15th paragraph, but Walker doesn’t usually play that way. Here’s who’s cited in the piece, in order of appearance: the state’s chief economist (helped come up with the arena subsidy plan), the governor (helped come up with the plan), the state assembly speaker (helped come up with the plan), state finance committee co-chair (likes the plan), state finance committee member (calls the plan “somewhat of a good plan”) — and finally, in paragraph #20, we have someone actually critical of the deal:

Rep. Chris Kapenga (R-Delafield) acknowledged in a statement that salaries of pro athletes had increased dramatically. “As those salaries rise, so too does the income tax collected by the state from those players. These revenues currently go into the state’s general fund and are used to for general operations, which includes everything from education to roads.

“The governor’s proposal would divert these increased tax dollars, which are included in future revenue projections, away from taxpayers to the owners of the Bucks to help fund the Milwaukee arena.”

The practical impact, he said, “is that all state taxpayers would be funding the new arena. The total cost, using average assumptions and including interest payments, could range from approximately $300 (million) to $400 million.”

This is now the second time that a Walker article has had a tacked-on quote at the very end that subverts the main point of the article, and the second time that Journal Sentinel statehouse reporter Patrick Marley has been credited as “contributing” to the piece. Which makes me wonder why the Journal Sentinel doesn’t just assign Marley to write about the Bucks arena controversy, since he clearly knows how to use a telephone, but I guess we should just be happy he’s involved at all.

Bucks co-owner says sending him a $220m check is “a great deal for Wisconsin”

Fresh off possibly his first Milwaukee Bucks arena article ever that actually cited people who weren’t personally involved in the deal, what’s Don Walker done for an encore? How about calling one of the Bucks owners and asking him if he likes it that the governor wants to give him $220 million? I bet the suspense is killing you!

“It’s a great deal for Wisconsin, a great deal for the state,” [Wes] Edens said in a telephone interview.

Edens said he did not have all the details of Walker’s proposal, but said it was clear the governor wants the city and state to cooperate.

“They will, right?’ Edens said.

And that’s pretty much the entire article: Edens doesn’t know much about the governor’s plan, but he likes the part about him getting taxpayer money. The only way this could have been remedied would have been if Walker (or his editors, presumably) had gone with a headline like, well, the one on this post. (Instead they went with “Bucks co-owner Wes Edens calls Walker arena plan ‘a great deal’.”) Can someone please poke the Milwaukee Journal Sentinel and remind them what the first syllable of “newspaper” is supposed to refer to?

Wisconsin governor’s arena plan depends on future NBA players averaging $33m/year salaries

Wisconsin Gov. Scott Walker unveiled his Milwaukee Bucks arena funding proposal yesterday, and oh man, was there ever a last-second plot twist. Walker is not, as rumored previously, proposing to raise $150 million for an arena by kicking back all state income taxes on Bucks players and other employees and also possibly some arena sales taxes as well. No, he says he’s going to raise $220 million, and only from Bucks income taxes — and only from new income tax above what team employees already pay:

“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.
  • Jon Bois could seize control of the NBA and make it die an agonizing death.

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.

And okay, really finally, I can’t let the Milwaukee Journal Sentinel article on all this pass without noting that Walker’s plan was apparently so remarkable that it stunned Journal Sentinel writer Don Walker into actually calling some economists to ask what they thought of it:

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.

Or maybe not.

Wisconsin governor to propose “jock tax” for Bucks arena, but do so when he hopes no one is listening

Rich Kirchen of the Milwaukee Business Journal, one of the two reliable press mouthpieces for the Bucks arena campaign, reports that according to “sources close to the situation,” Wisconsin Gov. Scott Walker will announce plans for a “jock tax” to provide state subsidies for an arena project. He’ll reportedly do so in the next week, because next Tuesday he presents his state budget, and he wouldn’t want to create a “distraction” by, um, talking about things he wants to spend state money on?

Anyway, remember that a “jock tax” isn’t actually a tax: It’d just be the state taking all the income taxes it collects from Bucks players (and executives, and hot dog sales people) and writing a check to the Bucks owners in that amount every year. The theory, I suppose, is that without the Bucks, the state wouldn’t collect any of that money — except that 1) if people weren’t buying hot dogs at Bucks games they’d still have to eat somewhere, and employees there would be paying taxes, and 2) really anyone working or running a business in the state of Wisconsin could make a similar claim, and they all did so at once the state wouldn’t have any money to run a government at all. Though Walker might not actually mind that.

Meanwhile, the other reliable pro-Bucks local writer, Don Walker of the Milwaukee Journal Sentinel, wrote an article yesterday about how Detroit is hoping to pin its redevelopment hopes on a new arena (hint, hint). Sources cited in Walker’s article: the developer behind Detroit’s project, a pro-development (if “cautiously” so) Detroit councilmember and community activist, a real estate consultant, and the Detroit mayor’s office. It’s not quite Walker’s most impressive work, but in terms of one-sided reporting, it still gets the job done.

Property-tax break could push Bucks arena subsidy to $330m

Bruce Murphy of Urban Milwaukee has estimated how much a full property-tax exemption for a new Bucks arena would be worth, and has come up with $325 million over 25 years. That’s a present value of about $180 million, which would be even more than the $150 million in direct cash subsidies that is being bandied about.

Given that not only the Brewers‘ Miller Park but the Bucks’ existing Bradley Center — notwithstanding its “100% privately funded” rep — got similar tax breaks, you have to expect that a new arena would, too, which means the Bucks could be asking for $330 million total in public subsidies for their project. I suppose if the Bradley Center is torn down and whatever is built there is returned to the tax rolls that would lessen the public cost a bit. But still: When calculating public sports venue costs, please remember to include all the costs. Got that, Don and Rich?