How many billions would St. Pete be throwing down a hole for a Rays stadium? An investimagation

After all the straight-up stupid arguments that are made for sinking public money into sports stadiums, it’s at least nice when someone makes a case based on real numbers about real things. So it’s been refreshing in a way to see the op-ed war going on between the folks at NoHomeRun.com and real estate developer Jay Miller over something as wonky as how to value the Rays’ land based on comparable sale prices.

Miller kicked things off last month with an op-ed in the Tampa Bay Times saying that while NoHomeRun’s estimate of $700 million in value for the land the Rays are getting would require a retail value of $8.14 million per acre, which was “in the ballpark” (groan), that’s only if all 84 acres of the site were available for development. And, says Miller, they wouldn’t be: Most of the site would be devoted to parks, streets, and affordable housing. He then subtracted out the stadium land itself as well — not entirely sure why — to come up with a new land value estimate of $174.2 million.

Tom Mullins and Peter Kent of NoHomeRun fired back with their own op-ed arguing that Miller’s argument leaves out the $142 million the city would be spending on infrastructure like roads and water and sewer hookups that developers typically pay for; they further cited three recent land sales suggesting values “more in the $12 million to $31 million per acre range.” Miller then published another op-ed this past Saturday in which he pointed out that all those land sales were for small properties that will be developed as high-rise housing, meaning “the Gas Plant District would [have to] become a sea of high-rise market-rate residential towers” to achieve this valuation.

Who’s right? I contacted the guy who literally wrote the book on stadium property tax valuation, University of Colorado-Denver economist Geoffrey Propheter, and asked him to look at all the op-eds and give his verdict. Propheter wrote back that while he could nitpick both sets of arguments, he had more problems with Miller’s, both for the way he calculates the land value and his insistence that getting things like parks and roads doesn’t add anything to the value of the land:

The entire development is to support the stadium. Hines-Rays aren’t just buying 21.4 acres; they are buying the rights to develop 21.4 acres PLUS the value of property tax breaks on the stadium PLUS the value of the property tax revenue from the entire Community Redevelopment Agency diverted from the general fund to pay for stadium and infrastructure debt service PLUS the city paying for $142 of million infrastructure and site preparation. … The tax expenditure for the property tax break on the stadium alone is $300 million (in present value at 3%). The market would incorporate both the acquisition and operating costs of land into prices, and property taxes are in the latter group. This tells me the lower bound estimate for the 86 acres is $450 million — $300 million in property taxes forgiven plus the $150 million the team agreed to.

Propheter goes on to say, “A second curiosity is that Miller states, ‘Obviously, parkland cannot be sold, so in calculations like these it has zero dollar value.’ Why is this obvious?” If adding parkland makes a development more attractive, he says, it has value even if it’s not directly generating revenue: “You surround any building with crap infrastructure and you get crap prices.” Propheter thinks the total land value is at least $300 million, but doesn’t rule out a value as high as $700 million, as No Home Run estimated.

All of which is very interesting if you’re one of the handful of people interested in the methodology of determining the true public cost of stadiums and other development deals, but what does it mean in terms of assessing whether the Rays’ deal is a good idea? Let’s return to the original public cost breakdown, based on NoHomeRun’s initial calculations, which went as follows:

The city of St. Petersburg would be putting up $704 million for the stadium and infrastructure, while Pinellas County would be kicking in $587 million. That’s “including interest,” so it appears we’re talking about adding up the nominal cost of payments over 30 years here; if we translate that back into present value dollars, we get more like $660 million, which is about what was estimated previously.

The Rays and their developer partners would be exempted from $411 million in city property taxes and $222 million in county property taxes over 30 years, which comes to around $320 million in present value.

That $545 million land price break is all real present-day money. So if Mullins and Diner’s estimate of the actual value of the land is correct — they didn’t show their math on that one — that’s an actual $545 million that the city is giving up by cutting the Rays a deal on the stadium land.

Add in that it turns out Rays owner Stu Sternberg would be paying for the land in installments over 30 years, and that $545 million land discount turns into a $620 million gift.

Even if Miller is right and the land is worth only $174 million, then Sternberg’s $80 million worth of land payments would still amount to a $94 million price break. That would bring the total public subsidy for stadium and infrastructure spending, tax kickbacks, and discounted land to $1.075 billion. Propheter’s $300 million land value baseline would make that $1.2 billion, and No Home Run’s math would put it at $1.6 billion.

Not that a half-billion-dollar error bar isn’t important, but by anyone’s calculations, this Rays stadium plan would come with a public price tag of over a billion dollars, threatening the record for the biggest MLB stadium subsidy of all time. Miller closes his latest op-ed by saying the Rays stadium “has the potential to be the real home run for the city of St Petersburg”; to do that, it would have to create more than a billion dollars in public value for St. Petersburg residents, and that’s one math question neither of his op-eds try to answer.