Gov. JB Pritzker’s hurry-up offense notwithstanding, Illinois state senate leaders appear to be in no rush to act on the megaprojects tax break bill that Chicago Bears execs say they need by the end of May in order not to follow through on threats to move to Indiana. Even the bill’s lead senate sponsor, Bill Cunningham, said yesterday that “we’re going to take our time with this” and “getting it right is more important than getting it done quickly.” Cunningham didn’t specify what “getting it right” would look like, but he did say he’ll look at the 9% amusement tax surcharge that Bears officials say needs to be removed before they’ll accept an Arlington Heights stadium plan.
A bit about that amusement tax: When I first reported on it Monday, I assumed that it would be a tax on tickets to stadium events, something I noted that economists say would “almost entirely end up coming out of team owners’ pockets.” Further reporting, however, indicates that it would actually be a sales tax surcharge on restaurants, bars, and venues in the surrounding stadium district, not on anything at the stadium itself. (The bill itself describes a “visitor investment surcharge upon all admission and charges from transactions at places of business located within the STAR bond district,” which is actually a different thing from a megaprojects district, but Bears execs are still acting like it would apply to them.)
Why does it matter which particular fan spending gets taxed? As economist J.C. Bradbury explains in his upcoming book on sports subsidy deals “This One Will Be Different,” taxing tickets is effectively the same as raising ticket prices, something that largely ends up coming out of team owners’ pockets because it prevents them from keeping as much of the proceeds for themselves as they would otherwise. Taxing sales in the surrounding area, though, captures lots of spending that may have nothing to do with the stadium itself, and so risks siphoning off tax revenue that could otherwise go to pay for government services.
And at the risk of getting out over my economic skis — this part isn’t from Bradbury — there’s also a significant difference in the way ticket price setting works from how local sports bars choose what to charge for drinks. Ticket sales have virtually no marginal cost: If you sell an extra 10,000 seats, you don’t have to produce more football for those additional fans. (Though you may end up hiring a few more game-day ushers and concession workers.) This means that team owners already set prices at whatever will maximize their ticket revenue, and since the addition of a ticket tax won’t change that price point, they’ll have to eat the ticket tax in order to keep the overall price the same.
Sales of things like meals in a stadium district, meanwhile, do have marginal costs, since you have to pay for ingredients, chefs, servers, and so on. This makes the economic calculus different, since dining establishments might be willing to charge more in total to cover a tax surcharge, even if it means driving away some customers, to keep their margins intact. So unlike a ticket tax, a stadium district sales tax surcharge— though it’s still arguably better than siphoning off revenue from existing taxes, as in a tax increment district — is far less of a soak-the-owners measure.
Anyway, all this may be moot, as it looks like the senate may just strip the amusement tax provision. Cunningham even suggested that it could all be a sort of typo, and that it was really “intended for a downstate STAR bonds project” elsewhere in the bill — which would be a major oopsie by the state house if true, but legislators have done dumber things.
Bears leadership, meanwhile, has remained unspecific about exactly what it wants to see (and not see) in a bill, releasing a statement that said only that “additional amendments are necessary to make the Arlington Heights site feasible for our stadium project.” This almost certainly means removing the amusement tax, and likely adding in state infrastructure spending as well, something that could add close to $1 billion more to a potential $2 billion in “megaproject” property tax breaks. Plus it would make all development projects valued at more than $100 million eligible for tax breaks, potentially costing local Illinois governments billions more in the future. At least the senate is going to take its time figuring this out — though if “take our time” turns out to mostly mean figuring out how to strip any state house amendments that the Bears owners don’t like and adding in new ones that they do, it might not end up being such a good thing for Illinois taxpayers.
If the team (or a related but yet completely unrelated company owned and controlled by the team, thank you Bill Wirtz…) planned to own those bars and restaurants surrounding the stadium, though, doesn’t it amount to the same thing?
One of the “newer” taxpayer funded sports venues near where I live included so much commercial development within the stadium district itself that it has cannibalized sales from bars and restaurants in the entire region.
This would be bad enough on it’s own, but it’s made worse by the fact that many of the entertainment options that have been negatively affected by the new development are STILL within the redrawn TIF zone (read: Enlarged multiple times) that funded the construction of the restaurants that compete with them.
Pretty sure this is not what Adam Smith had in mind when he mentioned and invisible hand…
No, the ticket vs sales tax distinction has nothing to do with who owns the bars and restaurants. (If the team just rents space to the bars and restaurants, it can charge more if they make more money.) It’s about how pricing works differently for products with sunk vs. marginal costs.
Cannibalization is a separate issue, but more of a problem if you’re counting on TIFs (existing taxes) rather than a special tax surcharge. Though even in the latter case you run into the problem that you’re giving up tax money that you could have raised for something more useful.
It might not have been clear, but I meant the sales tax on the bars/restaurants specifically… given that most of the new mallparks include the bars and restaurants on team controlled (and sometimes owned and operated) commercial space.
I agree the ticket tax is a completely different thing. My point was that they will push back on taxes on commercial development if they own/control that space as well. It’s still money they “can’t” charge fans for crappy burgers or roast beef sandwiches masquerading as prime rib etc.
The sales tax in Arlington Heights is already 10%, and 12% at bars and restaurants. If I were a resident of that village, I’d revolt at the thought of a 19-21% sales tax rate to support a bunch of millionaires.
9% is the maximum in the bill, not required. But yeah, you have to think at a certain point people would learn to just go for lunch in the next town over.
Doesn’t anyone realize the cost of a stadium in Hammond, IN? If you do your research the area where they are proposing in a toxic waste dump. Just south of the site is a chemical plant that used to be called Keil Chemical, that company was accused of high cancer rates in the neighborhood there. The entire area is filled with waste from the nearby oil refineries and steel plants. If you dig in that area you need a safety person with “sniffers” because of the benzene in the soil. Don’t believe me, do some research!