Category: Tennessee Smokies

The Knoxville City Council voted 8-1 last night to approve rezonings for Tennessee Smokies owner Randy Boyd’s new up-to-$90-million downtown stadium, which would be funded in part by $74.5 million in public spending. (About $19 million of that would eventually be repaid via rent payments; the rest will come largely from a mess of tax kickbacks.) And what did they have to say for themselves?

“I think it’s going to bring in tourism,” [councilmember Seema] Singh said. “It gives us a city identity, something to unify around.”

“I absolutely would like for the stadium, if it were to move forward, to move forward without public funding,” [councilmember Amelia] Parker said. “There have been numerous studies produced and shared with members of city council members and county commission members that clearly outline how other cities and their investments have not resulted in the return that they had hoped.”

Three guesses who the one “no” vote was!

This was the first council vote on the stadium plan, but by no means the last: Knoxville’s brand-new sports authority that was created for the purpose of building this stadium is “still negotiating” a final development agreement with Boyd — who, as a reminder, is not just the local rich sports team owner but also the president of the University of Tennessee and a former Republican gubernatorial candidate — according to TV station WBIR, which doesn’t say much else about the state of the funding talks, because that’s not how WBIR rolls. We could turn to WVLT, but its article on the vote was only five sentences; the Knoxville News Sentinel doesn’t appear to have reported on it at all, though it is all over the vote on the state’s new license plate design. If anyone would like the job of Field of Schemes Knoxville council hearing correspondent, please apply in comments.

While I was spending yesterday morning fiddling with Patreon — big thanks to everyone who signed up for that already, btw, it was a big enough success that I had to reorder more fridge magnets — the Knoxville News Sentinel did what I am constantly clamoring for news outlets to do, which is to ask the tough questions about a stadium deal and consult with some experts to provide context and analysis. And the News Sentinel brought in two excellent ones, asking University of Colorado economist Geoffrey Propheter and University of Chicago public finance professor Justin Marlowe to vet the projections that a new $74.5 million Tennessee Smokies stadium would actually cost the state and city less than $5 million total, thanks to rising sales tax revenues that would lift all boats by the 10th year of the project.

Unfortunately, the math is pretty involved here, and the News Sentinel’s report isn’t entirely clear about mixing fiscal apples and oranges. So here’s my best attempt at an explainer of their explainer, with an assist from Propheter (who is not responsible for what I am writing below, I just checked in with him on some of the underlying numbers):

How is that $74.5 million stadium price tag supposed to be paid off? As discussed here previously, Tennessee Gov. Mike Lee has allocated $13.5 million in state funds, leaving a $61 million gap. The News Sentinel says that this will cost $3.2 million a year for the city and county to pay off, which would be about a 3.25% interest rate, which, sure, that’s conceivable in this day and age, though not worth betting the farm on.

To make those annual payments, the city and county would get to use $1 million a year in rent payments from Smokies owner Randy Boyd, plus an estimated (more on this in a minute) annual payment in lieu of property taxes of $750,000. That gets us down to about $1.5 million a year remaining. But more than $1 million a year is expected to be paid off by kickbacks of city and county sales taxes from both the stadium itself and a stadium district around it, bringing the total remaining cost to about $480,000 a year. And as sales tax receipts rise, Boyd’s numbers project, that figure will dwindle away to nothing by year 10 of the project.

What do the economics experts say about this? There are a bunch of problems. First off, Boyd’s projected 3% annual rise in sales tax receipts is just a guess — Propheter says a 2.1% annual increase is more reasonable (and even then would require a sizable hike in ticket prices, since the stadium itself isn’t going to grow to include more seats). Marlowe says he’d be more comfortable not assuming any increase in future sales at all.

The bigger issue, though, is that “We won’t have to use tax dollars to pay off the stadium because we can pay it off using sales tax revenues” is, um, kind of insane. Boyd’s argument, no doubt, would be that nobody would be spending money in and around the stadium if the stadium isn’t built, so it’s all free money; both Propheter and Marlowe warn that if Smokies-district spending just ends up substituting for (or “displacing,” as Marlowe calls it) other money that people would have spent elsewhere in the absence of a new stadium, then you just end up cannibalizing sales-tax revenue that the city would otherwise have in its pockets to spend on other things.

Then, there’s that $750,000 annual PILOT payment: Propheter noted (to me, it doesn’t seem to have made it into the News Sentinel article) that since nothing has been built yet on the site let alone assessed, the PILOT could end up being less than what’s projected, leaving a bigger bill for the city and county to pay off.

So what’s the total public cost? Pffft, damned if I can say. If the only guaranteed payment from Boyd is $1 million a year in rent, then that leaves the city and county potentially on the hook for about $2.2 million a year in bond payments, whether that’s from new taxes or old taxes or what. That would come to about $42 million worth of bonds being paid off by the city and county, which is a lot more than less than $5 million. Add in the $13.5 million from the state, and you have as much as $55.5 million in public costs, though the possibility of getting some sales tax money that isn’t cannibalized, plus some PILOT money, should bring it down somewhat below that.

Is that a terrible deal? It all depends on what you mean by “terrible.” It’s less than, say, spending $700 million on an NFL stadium, but on the other hand you’re getting a minor-league baseball team, which isn’t quite as exciting to most sports fans as an NFL franchise. Plus you’re not actually “getting” anything: Knoxville would just be building a stadium so Boyd could move the Smokies a few miles from the next town over, so it’s not like local baseball fans would be getting a new team, or would be missing out if the team didn’t move.

But the point of all the numbers, really, beyond clear plastic binderism, is to cast a haze over the project: If you’re a sports team owner, the next best thing to convincing people that a stadium is a good deal is confusing them about what “a good deal” actually is by making their eyes glaze over at all the math. In that light, I’m not so sure how productive articles like the News Sentinel’s really are — or how productive this post is, even. Maybe I should just stick with a meme of a guy labeled “Knoxville officials” eyeing a woman labeled “stadium spending,” with another woman labeled “other public needs” looking at him in outrage?

The Tennessee state legislature passed a bill yesterday allowing the city of Knoxville to siphon off local and state sales taxes from a swath of downtown and give them to the Tennessee Smokies owner for a new stadium, otherwise known as tax increment financing, or a TIF. (Actually a STIF in this case, since it involves sales taxes and not just the more usual property-tax siphoning.) This answers our question from a month ago as to what the bill’s chances were in the state senate. (The Senate vote was 27-0 in favor; in the House it was 71-10.)

I’d been referring to the STIF as a $65 million subsidy, but now city and county officials say it would cover “up to 30%” of the estimated $65 million in construction costs, so that’s more like $22 million, tops. There would also be sales tax kickbacks from the stadium itself, which don’t require new legislation, and Tennessee Gov. Mike Lee has allocated $13.5 million in his state budget, while the rest would be paid for by $1 million a year in rent from the team, property-tax kickbacks (i.e., a regular TIF), and the ever-popular “non-property tax revenues of city and county,” which appears to just mean “other public funds, we’ll find it somewhere.”

The run-up to the legislative vote provided lots of opportunities for those stumping for a yes vote — lord knows why they felt the need to with margins like those, but I guess you can never have too big a lead — to present some creative arguments for why spending public money on a minor-league baseball stadium to get a team to move a few miles over would be terrific for Tennessee:

• State Rep. Jason Zachary, who just happens to be co-sponsor of the STIF bill, was given op-ed space in the Knox News to argue that “there is no development, no jobs and no tax base at the vacant site today” so getting anything would be a plus, something both I and State Sen. Bo Watson debunked earlier this month. (Watson apparently ended up voting for the bill anyway.)
• Theotis Robinson Jr., who as a student in 1960 integrated the University of Tennessee and later served on the Knoxville city council, said the stadium could help “increase the Black middle class” by … something about promising to use Black-owned contractors, which seems more likely to increase the wealth of certain Black business owners, but okay.

Uncertainties over exactly how the last sliver of stadium costs will be paid for aside, this project definitely appears to be all over but the shouting, especially with all levels of government strongly behind it. That’s kind of disappointing given how just four months ago Knox County’s mayor was saying he would only approve it if it “will not put any additional tax burdens on Knox Countians,” but between the pressure of MLB’s minor-league contraction scheme and the Smokies being owned by the local rich guy who is also president of the local state university, this one was probably in the bag from the start.

 

The Tennessee Smokies stadium sales tax increment financing bill, which would siphon off $65 million in future sales taxes to build a new stadium in downtown Knoxville for a minor-league baseball team to local rich guy Randy Boyd, took another step forward last night, passing the state house’s finance committee. The night before that, though, the bill got a hearing in the state senate ways and means committee, and there was a bit of a dust-up over exactly how tax increment financing works:

[State Senator Bo] Watson expressed concerns the develop would encourage local people, those who already shop and dine in the region, to go to the new site instead, and bring less revenue to the state.

“Minor league baseball is more regional. So people who are coming to the games now, they’re eating at restaurants that the state is now collecting sales tax on. You’re going to simply transfer them to one area to another area, so at the end of the day the state loses tax dollars because we’re collecting even less in this zone than we would be collecting if they were in the other part of the city,” Watson said.

That’s the substitution effect, even if Watson didn’t quite explain it as clearly as he might have. (The idea in a nutshell: If you just substitute sales tax collections in one place for collections in another place, that doesn’t actually leave you with extra money to hand out to the Invisible Fence guy.) It too often gets overlooked in development deals, so it’s nice to see someone raising it as an issue here.

Knox County Mayor Glenn “Kane” Jacobs, though, had an answer for Watson’s argument:

“It’s one of the most prime locations in Knox County. It produces no money in sales tax. No money whatsoever. So whatever that it does produce will be an increase,” Mayor Jacobs said.

Um, no. I mean, yes, the stadium site itself would produce more tax revenue, but that’s not the same as saying the state would get more tax revenue overall — especially when the Smokies would just be moving from the suburbs to the city. The only way it would increase state tax revenue would be if more people came to visit from out of state, which is certainly possible, but $65 million worth of people? That would require a study, but admittedly it’s far easier just to point at a plot of land and say, “Empty! Let’s make it not-empty!” and leave it at that.

I wish I could tell you more about the bill’s chances in the state senate, but aside from a quote from the TIF district bill’s sponsor, Sen. Becky Duncan Massey, that the stadium would be a “transformational economic development project,” the local news outlets don’t have much on what the other 36 senators think. (Republicans hold a 30-8 advantage in the chamber, but Watson, Jacobs, and Massey are all Republicans, so this clearly isn’t breaking down along partisan lines.) I’ll see what I can do to find out more; in the meantime, if anyone wants to be Field of Schemes’ Tennessee legislative correspondent, let me know.

The Knoxville city council voted 8-1 last night to ask the state legislature to create a sales tax increment financing district to siphon off state and local sales taxes from a swath of downtown and put them toward paying off a $65 million Tennessee Smokies stadium.

And … really, that’s about all I’ve got on this one, given that the only news outlet that seems to have reported on the council vote seems to be the dreaded WBIR. How big a swath of downtown? Has anyone done a study to confirm that the sales-tax money would actually be new revenue, and not just taxes on spending relocated from elsewhere in the city or state? (Moving baseball spending from the Knoxville suburbs to downtown Knoxville seems an especially zero-sum prospect for state legislators, whose approval is required for this plan.) What are the plan’s prospects in the legislature? And so on.

I’m getting tired of posts here that just complain about how bad local news reporting has gotten, as I’m sure you have too, but sometimes that’s the only option — I don’t have the resources to independently research every sports subsidy deal ongoing right now, though I’ll see what more I can find out about this one. I’m deeply concerned about how the gutting of journalism is making it impossible for democracy to function, because it’s increasingly hard for anyone to tell what even to call their elected representatives to yell at them about. And no, the rise of a few Substack celebrity pundits isn’t going to help much with getting city council hearings covered properly.

Anyway, tl;dr: Handing over $65 million in tax money to the University of Tennessee’s president/invisible dog fence plutocrat took another step closer to reality last night. All else is ¯_(ツ)_/¯.