From Wednesday’s gubernatorial debate between Buffalo Bills-and-other-giant-corporation-subsidizing New York Gov. Kathy Hochul and her opponent, hoodie-crime-fearmongering Long Island congressmember Lee Zeldin:
Susan Arbetter (46:52):
I want to move on to economic development. The state, Mrs. Hochul, will pay $600 million toward the construction of a new $1.4 billion stadium for the Buffalo Bills. Most studies show that stadium subsidies don’t provide economic benefits to justify their costs. What evidence is there that this $600 million will deliver public benefits exceeding the state’s investment?
Kathy Hochul (47:20):
I’m happy to answer this question. You think about the identity of a community, like Broadway is to New York City, the Buffalo Bills are to Western New York. And our legislators, this is one of their top priorities in Albany. Every region has its own priorities, they have their own regional projects. This was important to make sure that the Buffalo Bills stayed in New York State. And they were looking elsewhere so we structured a plan. And if you look at just the salaries of the players, they do very well. The tax proceeds that we’ll receive from just the players alone after 20 years will more than pay for that investment.
Sorry, what, now?
First off it’s actually $760 million in state money, but let’s ignore the $160 million in future capital and maintenance funds that Hochul has agreed to provide to the Bills owners. (There’s also another $250 million in county money, but sure, let’s ignore that too.) Is there any possible way that state income taxes on Bills player salaries will pay off even $600 million in costs?
The Bills’ current payroll is about $270 million, and the top New York State income tax rate is 10.9%. That’s a marginal tax rate — what high earners pay on their last dollar earned — not an effective tax rate — what they pay on their entire income — but let’s ignore that as well for the moment and use the 10.9% figure. (Let’s also ignore that many Bills players probably live outside of New York state for much of the year.) That brings us to $29.4 million a year, which is significantly less than needed to pay off even $600 million in state costs.
Ah, but NFL salaries go up! If They rise by about 6% a year over the next 20 years, that would be enough — depending on things like interest rates — to pay off $600 million in up-front state borrowing.
That’s making one big assumption, though, which is that all those Bills player taxes are a windfall for the state treasury. The Buffalo Bills, stop me if this comes as a shock to you, currently play in Buffalo, so this is tax money the state is already receiving. Counting it as paying for a nine-figure gift to the team owners makes about as much sense as me going to the IRS and saying, “I paid $10,000 in taxes this year, how about buying me a speedboat?”
But what if the Bills moved? The math gets a little trickier there, but suffice to say that a large chunk of those player income taxes would get recycled into income taxes paid by somebody else. Economic studies have consistently found that per-capita income in cities that build new stadiums and arenas goes down, not up, which strongly implies that when people don’t spend money on football tickets, they spend it on something else, and the people employed wherever they’re spending that money then pay income taxes on it. (It’s not a perfect one-to-one replacement — part of NFL player salaries are paid by things like national TV money, which doesn’t solely come from New York residents — but it’s way more than zero.)
Needless to say, nobody, not even Zeldin, called a stop to the debate so an economist could be called in from offscreen to debunk Hochul’s numbers. This is why friends don’t let friends watch campaign debates.
Honestly, I think Hochul could’ve just stopped at “like Broadway is to New York City, the Buffalo Bills are to Western New York” and still made whatever her point was thoroughly enough. The people who make these kinds of deals know there’s no payoff whatsoever for them financially. In fact, I think they would all prefer to appeal exclusively to people’s emotions when it comes to these projects, if it weren’t for those pesky costs and public contributions.
This is something everyone who lives in a one-horse sports city (e.g. Orlando) — or any city where sports teams are basically its only selling point (e.g. Buffalo) — eventually comes to learn: the biggest reason why they agree to spend nine or ten-figure sums on these venues is vibes. That’s it.
Since she worked very hard to prevent her own lawmakers from even seeing the deal she had – more or less personally – crafted before they voted on it, I don’t think she even had to mention Broadway.
Kathy decided this was going to happen. And no-one else.
SPOT ON!
The pegulas have already built a building donating either $89 or $105 million (i’ve seen both figures) back in 2013 for a penn state ice hockey arena with their name on it. Maybe one is their limit? Maybe NY should get their name on the arena (transitive property) since they’re paying for the pegulas’ stadium?
Either way its outrageous that they get credit for donations with this much welfare handed out.
It’s an interesting point Tom.
On a similar note, if I get a company car/truck to travel in and help further the company’s business interests I have to claim that as a taxable benefit (at least a portion of it).
So… why is $600m/$760m/honestly who knows not considered a taxable benefit for the franchise or it’s owners?
I think the initial announcement was $89m and then they raised it to $105m.
The rumour around town is that the Pegulas were actually planning to give more but didn’t for various reasons depending on who you talk to.
As a season ticket holder for both PSU men’s and women’s hockey, I’m grateful for their gift, but I am well aware that people don’t usually get that rich by just risking their own money.
I don’t know how easily they could lay their hands on a $1bn in cash, but they certainly could come much much closer than they have here.
The new Bills stadium will not even generate enough legitimate “new” revenue for the state to pay for the capital and maintenance improvements Hochul has guaranteed.
Practically all of the Bills players (and lets not forget that the average NFL career excluding quarterbacks is down under 3 years in duration) will spend at least half the year living outside New York. Many may make their off season home their permanent residence for tax purposes (baseball players often do this). They only “have” to be resident in the state for 8-10 weeks a year, though most will probably stay 16-20wks.
Add to this the actual effective state tax rate for most Bills players (and staff, many of whom WILL probably live in state and most of whom will not pay anything close to the highest tax rate) will likely be closer to 2/3rds of the “highest” marginal rate in the state…
…and the $29m annual revenue drops to somewhere in the $10-13m range – always assuming that some of the higher paid players haven’t structured their long term deal in such a way that they receive a significant percentage of their avg annual pay after they are retired and living in Florida or some other state with no state income tax (Hi Tom. Tough week, I know. Hang in there).
What Hochul has done is give the Bills owners $600m up front to “save” the tax revenue from the players, then committed practically all of that future revenue stream to pay for capital and maintenance improvements.
I am tempted to ask if Cuomo would have done anything different… but “WWCD” is not really something any of us should be asking…
I, too, pay income taxes as a resident of New York state, and yet somehow the government has never offered to build me a facility for my business using 100% of my projected tax payments over the next 20 years.
Hey Neil,
Just want to point out a typo in the middle of the article:
“Sorry, what, now?
First off it’s actually $760 billion in state money…”
Thanks, fixed!