More details are filtering out about how the two KeyArena renovation plans would be funded, in addition to the $90 million or so in tax kickbacks that each would require. Today, its that Oak View Group would be seeking to get the arena declared a national historical landmark, which would allow them to request $70 million in federal historic tax credits.
This led to a rare occasion where two sports economists disagree on the meaning of the tax credits, though it’s less a matter of economics than of semantics. In this corner, Holy Cross economist Victor Matheson, who tells the Seattle Times:
“I would not consider that a subsidy for the arena. Because I think that’s a subsidy that you would grant to anything you designate as an historical thing. In which case, it’s not the fact that it’s an arena that gets (the federal tax credits), it’s the fact that it’s historical that gets it.’’
In the other, West Virginia University economist Brad Humphreys, who counters:
“Absolutely, it’s a public subsidy. It’s tax dollars. Forgone federal taxes collected is an implicit subsidy. The only difference between this sort of subsidy and something from the state or county is whose pocket is this coming out of? It’s coming out of the pockets of everybody in the country.”
So who’s right? We’ve been through this before, both with Fenway Park and Wrigley Field, each of which got federal historic preservation tax credits for their renovations. Probably the best way to think of it is that historic tax credits aren’t a special subsidy, but they are a general subsidy — much like apartment buyers getting to deduce mortgage interest on their taxes isn’t a special subsidy to condo developers, but it still does help their bottom line. The only questions then are whether you consider historic preservation to be important enough to be worthy of a tax credit, and whether you consider KeyArena to be historic enough to be worthy of preservation — Matheson isn’t even so sure of that, noting, “I think it’s probably a crock that it should be a historical monument. “I mean, for God’s sake, this isn’t Soldier Field, or Ebbets Field or something. It’s KeyArena. I mean, come on.’’ (Matheson gives the best quotes.)
In any case, this probably won’t enter into the question of which of three arena plans (the two Key ones plus Chris Hansen’s SoDo arena) the city of Seattle rates as best, since it’d be money coming out of federal taxpayers’ pockets, not Seattle citizens’ in particular. But it is a good reminder that there are tons of ways for people who build stuff to use other people’s money to pay for the stuff they build.
I mean the building is at least visually interesting. I am not a fan of historic tax credits, but historic doesn’t just mean “old when the baby boomers were kids”. Time moves on.
A lot of the things marked historic 30 years ago were from the 20s and 30s. So there is no reason something built in 1962 should be too new.
Do people in the area actually like the structure and feel it contributes to the character of the area?
By and large, yes.
It was a major bone of contention to keep the current roof line the way it is when the last redo was done in the mid-1990s. Otherwise, they could have taken the pie wedges down and put up another typical boxy arena.
Remember also that the NIMBY is strong in that area of Seattle, and they ain’t gonna go for anything that’s gonna alter the existing sightlines, not one bit.
Ironically, had Seattle gone ahead and put a new megabox arena at the old Seattle Center Coliseum site, they probably would not have lost the Sonics and we wouldn’t be having this pleasant topic to discuss.
In spite of the fact that there are locals who like the structure and believe the Key contributes to the character of the area, It’s highly questionable that a big professional sports franchise from the NHL or the NBA can pencil out in a facility that would still be one of the smallest for both sports even after it is refurbished by one of the developers. Without existing room to add on profitable luxury suites in the future nor an availability of ancillary development in the neighborhood that pro sports franchise owners can profit from (which would be available w/ the SODO Arena), the Key Arena will potentially be a difficult building for the NHL and the NBA to financially sustain in the long term as the economics and the financial models of their sports change.
This talking point pops up a lot and its non-sense.
Proposed capacity for both Key Arena proposals is about 18,300 for basketball. The two most recently built facilities in the NBA (Golden 1 Center: 17608, and Barclays Center: 17732), and two of the three future venues in the pipeline (Chase Center: 18000, and the new Bucks arena: 17500) all hold less than that, and not all of those had ancillary development. Its the trend in the NBA to have much smaller venues. The new Key Arena’s will work just fine for a prospective franchise.
I think its crazy to think that either AEG or OVG would shell out that much of their own money for a facility that would be obsolete or unworkable for sports franchises.
You’re talking NBA capacities. When those arenas are scaled for NHL, you lose approximately 2000 seats. None of those arenas, with the exception of Barclays, which will be losing the Islanders, host the NHL, nor would they be acceptable to the NHL.
The big problems with the Key for any NHL and or NBA investor is the will be the revenue splits between the city, the developer and the team(s) and the landmark roof which will inhibit the ability to expand capacity as the revenue needs evolve. It’s very likely that the splits will not allow enough revenue for teams to continue in the Key over the long term, particularly as the revenue needs change with the increase in player salaries and, consequently, the salary caps. None of those arenas, to the best of my knowledge, have to share revenue with the city government since they’re privately owned. The landmark roof will severely limit the ability to add seating, particularly luxury box seating, which is so crucial to the revenue streams of NHL teams since they don’t receive the broadcasting dollars of the NBA and MLB. This limitation of the Key may only allow for a short shelf life for big professional sports since you are very limited in the ability to add seating on the inside and expand acreage on the exterior.
The developers have done well with the limitations, but will they stand the test of 20-30 years when you also factor in the lack of ancillary development opportunities at the Key Arena given the evolving revenue needs of big professional sports? I tend to doubt it.
Tax credits are sold for about .90 cents on the dollar and you have to service the credits similar to a loan. There is a very complicated procedure involved and it’s by no means a subsidy. The “economist” from W.V. doesn’t understand what the credits are and how they work. If you qualify for the National Registered of Historic Places,,then you quality for the credits. The sports facilities that have used the credits are Fenway, Wrigley and Jackie Robinson Ballpark in Daytona Beach.
You don’t understand them if you think they “are in no means a subsidy”. That is literally their exact function.
Don’t want to get into semantics here but they are an investment by a tax credit investor. I have successfully developed over 100M in tax credit projects in several different states. I was the developer on Jackie Robinson Ballpark,,which was the template for Fenway,The Rose Bowl and Wrigley Field. That same template will be used here, if it moves further. I re-read your earlier comments and I don’t think you and I are completely off the same sheet. However, Tax Increment Financing is a subsidy. Tax credit financing is an investment that requires the investors to become a business partner with definite risks and a potential return on their investment.
What are you talking about? It’s arguable whether they’re a special subsidy because they’re available to anyone in a historic building — which is why Matheson and Humphreys are arguing about it. But just because you can sell the value of tax credits to a third party once you have them doesn’t mean that the government granting the tax credits in exchange for nothing (other than the preservation of a historic building) isn’t a subsidy, or a gift, or a tax expenditure.
Okay,,you got me with the word subsidy. I was reacting,,somewhat emotionally,, to an economist that clearly doesn’t know how the tax credit works. Good ol Google made it clear with the debate that the pro tax credit lobby does not consider it a cut and dry subsidy because of the work created with labor from the building process and the jobs created from the finished product. However,,it’s a subsidy in the raw sense of the definition considering that it is potential government revenue used for private industry. Considering this project,,it will be difficult without a matching state tax credit to make the numbers work. The proposed tax reform in D.C. is dancing around this issue for the exact reasons that we are discussing here. I Google it every day. The arguments for both sides will be front and center soon. You are right,,I surrender my sword.
When you only became a state in 1889, your perspective on “historic” is a bit different from the east coast. Out here, people consider Frank Lloyd Wright homes something worth preserving the appearance of too.