The Cleveland city council voted 13-3 last night to provide $20 million in extra funding to the Gateway Economic Development Corporation for upgrades to the Guardians stadium and Cavaliers arena. Council president Blaine Griffin said that the cash will come from projects “in which we have already borrowed and do not need the money this year” — and if your ears perked up at that “this year,” you’re not alone. The money, which will be used for such things as upgrading elevators and broadcast equipment, replacing seats, and upgrading HVAC and video systems, will come from three sources:
- $5 million in federal American Rescue Plan Act funding that was slated for a minority business program but not allocated yet.
- $10 million from other bond proceeds that was intended for other projects that the council didn’t specify.
- $5 million from Cleveland’s general fund, which one would think the city could have found something to spend it on.
The new spending is needed because the city of Cleveland and Cuyahoga County agreed in 2017 to give Cavs owner Dan Gilbert $70 million for arena upgrades and in 2021 to give Guardians owners Larry and Paul Dolan $285 million for stadium upgrades, both in exchange for lease extensions. While the money is coming from a ton of different sources, one slice is from the extension of cigarette and alcohol taxes (aka “sin taxes”) that were used to build the venues in the first place, and sin tax revenues are falling while construction costs are rising, resulting in a budget gap for Gateway that the city and county are left to fill.
Going by news coverage, it’s been unclear for some time now what exactly the team leases require the public to pay for — I’m digging around for the exact language and will report back here once I’ve located it. Crain’s Cleveland Business previously reported that if Gateway runs out of money and stops paying for required upgrades, however those are defined, “the teams could stop paying the $2 million in annual rent to Gateway or sue the city for breach of contract,” according to Gateway’s lawyer. (Again, it would help to see the actual lease language.) Griffin called the added $20 million in city spending approved last night “responsible” in order to avoid “having to pony up for expensive litigation” and ending up “with a stadium and trying to figure out an end user,” implying that the teams could leave if Gateway defaulted — though given the current Oakland A’s and Tampa Bay Rays situations, “leave for where?” is a worthy question.
The Cuyahoga County Council is set to vote today on more than $17 million of new spending of its own on Guardians and Cavs capital expenses. And this isn’t likely to be the end of it: There’s another ask for another $30 million in potential Gateway spending around the corner, and unless construction costs come down (ha!) or Clevelanders start smoking more, likely more budget gaps to fill beyond that.
City councilmember Jenny Spencer, one of the three “no” votes last night, put it this way at the council’s previous meeting last week:
“From the residents’ perspective, it always seems that when it comes to stadium funding, money just comes like a magic rabbit out of a hat. It just appears magically. Magically, we have $20 million in general funds available. But when it comes to other things the residents need, we don’t have the money.”
To which Griffin replied:
“Somehow, several years ago, this city made a commitment that they wanted teams as part of the economic engine in the central business district. There are some legal obligations that this city has with this lease.”
That “somehow” is doing a lot of work, huh? Griffin has been on the council since 2017, so presumably he knows at least a little something about how this sausage got made; instead, he’s staying focused on how Cleveland taxpayers will have to choke it down.
The excise tax was passed in 1990, and is a fixed cents per can/pack. The population was higher in 1990 than today. And it smoked more. The tax is not indexed.
Only the state legislature can allow the tax to be indexed to inflation. But lots of people in the legislature like to drink, and so the lobbyists will convince them otherwise.