Virginia Gov. Glenn Youngkin has released some financial details of his proposed $2 billion Alexandria arena complex for the Washington Capitals and Wizards:
- A new Virginia Sports and Entertainment Authority will issue $1.6 billion in bonds to build the arena, an accompanying mixed-use district, and infrastructure. Team owner Ted Leonsis will put in $403 million.
- The public bonds will be repaid by “annual rent paid by MSE, arena parking revenues, District naming rights, and incremental taxes generated by the Arena and Phase 1 development.”
- Alexandria will kick in $106 million toward a performing arts venue and underground parking.
And that’s it for details. The project has a website, but unless you want crazy economic impact numbers ($12 billion in economic impact, LOLstudies) and word salad about “transformational investments,” there’s nothing solid there on the money, though there is a clearer version of that awesome vaportecture featuring the world’s least popular band playing before an audience of maybe 30 people all sitting in Adirondack chairs:
Okay, so back to the funding plan: Rent, parking, and naming rights are all real things that recoup real money for the state, though naming rights for an entire district have to be seen as a bit speculative depending on whether Leonsis gets to keep naming rights money for the arena itself. “Incremental taxes,” meanwhile, means a TIF of some kind, which is not new state revenue at all but rather kicked-back taxes that otherwise would go to the state, though the substitution effect would be somewhat reduced by stealing teams from a neighboring jurisdiction. Youngkin gave no indication of what percentage of the state money would come from TIFs, so it could be anywhere from $1 up to $1,999,999,999.
Meanwhile, the arena district would be owned by the state, meaning none of it would pay any property taxes. The property tax rate in Alexandria is 1.11 cents per dollar in assessed value, so if the whole project is worth $2 billion, then we’re talking $22.2 million a year in forgone tax money, which comes to around $380 million in present value over 40 years.
The only other clue we have about the project cost is that Youngkin compared it to the Amazon HQ2 project in Arlington, and that was to involve as much as $750 million in subsidies, though so far Amazon hasn’t collected any money because it hasn’t actually built much because nobody works in offices anymore. Maybe the governor means that he expects another pandemic to lead to people only watch sporting events remotely, so the arena will never get built?
Lots of questions, but in the end, kicked-back and forgone taxes could easily end up costing Virginia and Alexandria more than $1 billion, and possibly even more than $2 billion, depending on those rent and parking numbers. More research required, obviously, but in the meantime who can put a price on the economic impact of four guys playing through the world’s tiniest stage amplifiers?
An outdoor concert venue just down the road from National Airport? What a great idea!
Airport proximity seems like a limiting factor for height of any buildings as well. Not to even delve into how National operates with heightened security measures already. Large scale events in close proximity to that particular airport seem problematic
The airport is a couple of miles away. I’m not an expert on jet engines, but It seems to me modern airliners have the engine power to gain sufficient altitude in that space. Similarly, the Yards development is separated from the airport by shopping, roads, and Four Mile Run. It seems unlikely that 17,000 people going to a game are going to be parking on airport grounds.
Their own renderings have it at the approach end of RWY 4.
The terminals are, the arena is like 500 meters off the end of the runway.
I have no idea how you can have a concert venue with jets screaming overhead till 10pm.
Just curious does assessed value mirror the costs? I do property tax policy for a living and its rarely the case that the assessment value for tax purposes is a real reflection of market value or costs.
Secondly, when it comes to the substitution effect, are we sure given the dynamics of the DMV region, that the substitution would occur within Virginia. People could otherwise go to DC for dinner and other entertainment events.
According to the Alexandria property tax website, “Residential and commercial property is assessed at 100% of the estimated fair market value as of January 1 of each year.” Not sure how exactly that plays out in real life, but that’s the claim:
https://www.alexandriava.gov/RealEstateTax
And right, some spending in VA would substitute for spending in DC, so that would be a net gain. But some would not, as more people from Virginia would go to games and concerts, and fewer from DC and Maryland. So it’s better than a TIF to move a team from one part of a city to another, but we can’t know how much better without more detailed projections.
If the people in Virginia would normally go to DC for concerts and games and now would go to the new arena, that would be a net gain. Also, Virginia has a 5.75% income tax rate on incomes over $17K so that would mean millions of dollars from each team.
I don’t know how much player income tax would move the needle. The average NBA payroll is something like $130 million and the NHL salary cap is around $85 million. Half of a season is played at any team’s location, so the state would get about 6% of ~$110 million per season, or a bit over $6 million. That’s not a great stream of income on a loan cost of $1,000 million or more net of the TIF doing anything through beneficial shifts in the location of spending. That is especially weak if the process would just repeat when the place approaches DiCaprio-break-up age. (Apologies if I butchered the arithmetic or missed another source of player income.)
Income taxes are paid to a persons state of domicile. Not where earned. Nothing about this move would increase income tax revenues to Virginia.
So how does this plan to bolt a downtown DC arena with several subway stops after about 30 years fare for the fate of the Philadelphia 76ers proposal to build a basketball only arena in downtown Center City Philadelphia?
The only requirement for consistency in arena deals is that the team owners need to consistently make money.
The problem is that once they leave they’re not coming back. There is limited space for an arena in DC and it sounds like if the Wizards and Capitals leave that Georgetown will take over the stadium as a the primary tenant and then reduce the capacity to like 10,000 as they don’t have the same level of need.
Tax payers on the hook for 2 billion dollars , player making millions a year. I expect we can see a tax increase from this. Any other example of looking after the rich.
No, they’ll just cut something else like education, public housing, etc, and then move further out into the suburbs when people complain that there are too many poor people hanging around near the arena.
On the public bond repayment, certainly rent from MSE is a critical component. Pro sports teams have proven, however, to be a bit flighty, and it seems unlikely the stadium would be occupied throughout the life of the bond term, at least not without another huge public cash infusion. Is there any experience about, say, expected mean time between team owner “renovation” requests? I much enjoy your work, BTW!
It depends on how long the lease runs and whether there are any out clauses for if the arena doesn’t remain “state of the art” and such. So we have no idea really until we see more than a press release from the governor.
How about having the owner putting up HALF , I’ll get on board after that
I’d prefer they put up all. They’re billionaires and hundred millionaires. If they cannot get a loan to pay off because it makes no economic sense, why should the locality bail them out?
Some additional information was provided last night at the Del Ray Citizens Association meeting by the Mayor of Alexandria: https://delraycitizens.org/potomac-yard-arena/
I read about this a bit elsewhere and wanted to see what FieldofSchemes coverage of this was.
Wonderment I have regards this is “How does a region diplomatically let a major team(s) go?” If months ago D.C. had just said “Fine, go take your giant sucking sound somewhere else!” – It would have looked bad, but this outcome is basically the same thing? What happens in Three(?) years if D.C. doesn’t implode? Inquiring minds want to know!
Implode how?
I don’t feel alone in the speculation that the “Stay in D.C.” proponents are likely painting a team loss as an invitation to some sort of Kevin Costner’s “WaterWorld” apocalypse for any municipality/state that fails to pay up?
What happens to the whole discussion of “Sports Financial Hostage Crises” in three years if D.C. looks back and says “Gosh, glad we let them go”?
It comes down from the Mayor and her coalition. She’s big on building and development because her core support is developers. She bends over backwards and feeds that line to the press that eats it up. If they leave the District, the development work leaves and different parties are in the pole position to get that profit with it even though it’s just going across the river.
I don’t know how the area will survive the teams moving about 5 miles, from access to multiple metro lines, to access to two. Perhaps it will work similarly to how the area survived when they played in Landover for decades.
Downtown DC is definitely more developed and pleasant to visit than it was before the MCI Center was built, but it’s not the only development that caused that change and that doesn’t mean there weren’t better ways to develop it.
Alexandria is a better location for these teams than Landover – for a lot of reasons – but not as good as being right in the center of the Metro system.
As far as I can tell, they’re making it a lot harder for fans from Montgomery County, PG, and DC to get there and not really making it all that much easier for fans from NoVa to get there.
This plan has little merit whatsoever except that it can create a bidding war for public subsidies.
I’m new to sports/arena jargon. Can you please tell us what a TIF is, rather than assume we know it?
Click on the word “TIF,” there’s a link to an explainer.