Category: Pawtucket Red Sox

Earlier this summer, the state of Rhode Island rejected a request by the owners of the Pawtucket Red Sox to fund a new stadium in Pawtucket. On Friday, the team owners announced their decision: They will be moving the franchise to Worcester, which will build a new stadium with public funds that the team will be repaying with rent and other team-related revenues, in a major win for the Massachusetts city.

All of that previous paragraph was reported in various media over the weekend. Virtually none of it is 100% true.

Let’s start where we left off: With the June legislative vote of the Rhode Island legislature, which actually approved $38 million in state and city subsidies toward a new Pawtucket stadium. What it didn’t do was promise that the state would cover any shortfalls in tax revenues set to pay off the stadium bonds, which could have raised interest rates to the point that the PawSox owners got snippy about it.

At the time — really, at just about any time in the last three years — Worcester was out there as a potential relocation threat, but nothing more specific than that, as nobody had publicly talked about how to pay for building a stadium there. That’s what changed on Friday, as the PawSox owners and the city of Worcester signed a “letter of intent” to build a $90 million, 10,000-seat stadium as part of a $200 million mixed-use development with hotels, apartments, and retail.

As for how it would all be paid for, here’s what the news media — at least those not too busy declaring the deal an “economic grand slam” for Worcester — is reporting it:

• The city would borrow $100.8 million, while the team owners would kick in $6 million in cash. Of the city’s portion, rent payment from the team will pay for $30.2 million over 30 years — it’s not clear from the reporting if that’s $30.2 million in total rent payments, or enough rent payments to pay off $30.2 million in borrowing, which would be a whole lot more. (Just like $30.2 million in mortgage payments wouldn’t be enough to pay of a $30.2 million house, unless you got a no-interest loan.)
• Assuming it’s the latter, that still leaves $70.6 million to be repaid by new tax revenues from the development — in other words, our old friend tax increment financing. But this is a TIF with a twist: Instead of just kicking back tax revenue from the stadium itself, the project would come packaged with that pile of hotels and housing and retail space — all of which would pay property (and other? reporting is unclear) taxes not to the city treasury to pay for services for all this new development, but toward the stadium’s construction debt.
• The state would also kick in $35 million for a parking garage and “unspecified infrastructure improvements,” according to the Worcester Business Journal.

That brings the total public subsidy to at least $105.6 million, and possibly closer to $120 million if those rent payments are actual dollar amounts on the team owners’ checks. Either way, I’m pretty sure that this would be easily the largest public subsidy for any minor-league baseball team ever, and would blow away Rhode Island’s offer, even if that state hadn’t capped its debt responsibilities in the final bill.

So Worcester has just bought itself a really expensive Triple-A team, right? Not quite yet: The city council still needs to sign off on the whole mess, and while Massachusetts Gov. Charlie Baker is in favor of the state garage money, it may yet require state legislative approval as well. So notwithstanding all the talk about stadium construction starting next July, there may be some bothersome hearings and votes and such yet to go.

Officials in Rhode Island, and Pawtucket, meanwhile, are understandably steamed that after approving what they thought was a pretty good offer in June, the next thing they heard from PawSox officials was a letter on Friday saying, “Sorry, we found someone with more money.” PawSox CEO Larry Lucchino, meanwhile, put the blame squarely on Rhode Island for not scurrying to cough up more money more promptly, as it is the state’s job to do:

“As I said in our meeting on Monday, Aug. 6, ‘Where have you been?’ That’s not directed at your personally, but at all of those involved in the process.”

“The state’s delays cost Pawtucket dearly,” the baseball executive said.

In the end — if this is the end, which it probably isn’t yet — it’s an indication of how negotiating with minor-league team owners is exponentially harder than doing so with major-league ones, because there’s a near-infinite number of equally middling-sized cities to move to. Pawtucket’s best hope was that no cities within easy reach of Boston (where the Red Sox want their top minor-league teams close by) would take the bait and deliver a suitcase full of cash to Lucchino’s door; instead, Worcester came up with the fattest suitcase in history. Score one against Roger Noll’s theory that the tide is turning.

As the Pawtucket Red Sox owners continue to mull over whether $38 million in free money is enough not to throw back in the face of Rhode Island taxpayers, the state treasurer’s office has issued a report estimating that — you know what, let’s start with how WPRI is reporting it, then backtrack to explain what it actually means:

The new PawSox stadium and its surrounding area will need to generate about $5 million a year in state and city tax revenue to cover borrowing for the ballpark under newly enacted legislation, according to a revised analysis.

In a memo issued Monday, General Treasurer Seth Magaziner’s staff said their current forecast indicates about $3.2 million in tax revenue will be needed to make debt payments on the tax-backed borrowing for the project. In addition, bondholders will want to see about $2 million more in tax revenue generated on top of that to ensure some cushion.

So that’s not actually an annual cost of $5 million, mind you — that would be an insane interest rate on $38 million in public stadium debt. (12.8%, if this thing is working right.) Rather, it’s just Magaziner’s estimate of how much excess revenue the stadium would have to promise before bondholders would not get cold feet about buying something based entirely on future property tax revenues from development that hasn’t happened yet.

This is one of the big problems with tax increment financing projects, as the PawSox stadium would be: You’re basically drawing an arbitrary line around your development and declaring that any increase in property taxes within that zone will be siphoned off and used for paying for the development. Draw the line too large, and you end up including taxes from property that would have been developed anyway without the new project, and so cannibalizing money that the public treasury could otherwise keep; draw the line too narrowly, and you risk a shortfall in revenues. (Bondholders, being only concerned about getting a return on their investment and not on what’s good public policy, are naturally more alarmed about the latter prospect.)

So the good news is it wouldn’t really cost Rhode Island $5 million a year (which comes to a present value of almost $77 million, if this thing is working right) to pay off stadium bonds — any excess money could be kept by the Pawtucket Redevelopment Agency and used for something else. The bad news is that the size of the TIF district whose property taxes will be redirected to the PRA is probably going to have to be really freaking huge in order to placate bondholders — which means it’s extremely likely that taxes that have nothing to do with the stadium will be redirected to help pay for it. That’s exactly what Rhode Island House Speaker Nicholas Mattiello promised wouldn’t happen, but, well, “bait and switch” is such an ugly phrase.

The Rhode Island House Finance Committee met yesterday to discuss House Speaker Nicholas Mattiello’s bill to make the city instead of the state cover any funding shortfalls for a new Pawtucket Red Sox stadium, so what did they resolve about the undecided aspects of the bill? How much higher interest the state would have to pay on bonds without a state guarantee of repayment? Nope. How big a tax increment financing district would be needed to siphon off tax revenues to pay the public’s $38 million in costs? Nuh-uh. But we did get lots of Pawtucket Mayor Donald Grebien threatening that if Rhode Island didn’t approve the bill — whatever the bill is — the team would move to Worcester:

“They are still committed to listening and hearing what the bills are, but Worcester is on the table,” Grebien told reporters before the hearing on where the team stands. “We need to send them a clear signal … My instincts are: absolutely they want to be here.”

“I am trying to make sure we have a bill so we can have that conversation,” Grebien said. “I can tell you, if we don’t have a bill, they are gone.”

The PawSox owners have been very careful not to openly threaten to move to Worcester, though they did have one of their lobbyists declare sadly that without a new stadium in Pawtucket, Worcester might just make them an offer they couldn’t refuse. Worcester officials have not made any specific public offers at all so far, and PawSox officials didn’t show up at the hearing — they’ve been careful not to say anything at all about Mattiello’s plan, because playing hard to get is always just adorable — so it was left to Grebien to speculate wildly about what exactly was being threatened:

Rep. Antonio Giarrusso, R-East Greenwich, asked Grebien about reports that Worcester was asking the team to only pay $18 million of the stadium costs.

Grebien said the team was not trying to pit one city against the other and had not told him what Worcester’s offer was.

Ah, mayors willing and ready to blackmail themselves. Where would we be without them?

If you’re a close follower of Rhode Island state politics — we’ve gotta watch something now that Roseanne has been canceled, right? — you’ll recall House Speaker Nicholas Mattiello as the guy who keeps declaring Pawtucket Red Sox stadium plans dead because the people of Rhode Island hate it. Though he’s also the guy who kept holding hearings on a stadium proposal anyway, and now he’s the guy who decided that giving $38 million to a minor-league sports team is just peachy so long as the money is capped there:

Mattiello’s plan — its fine print is still being written — will follow the contours of ballpark legislation passed by the Senate earlier this year, he told reporters Tuesday, but remove state backing from more than $80 million in proposed borrowing.

“I think the most important thing that we can say about it is, once we set up the framework, that there is no state guarantee,” Mattiello said. “The state of Rhode Island taxpayers will not be responsible for any of the debt associated with that project.”

The new plan goes like this: The stadium would still cost $83 million to build, which would be paid back by a combination of the team, state, and city. But the state’s share would be limited to tax money from a tax increment financing district around the stadium — in other words, increased property taxes would be kicked back to pay for the stadium construction instead of going into the state’s coffers like it normally would.

This would indeed solve one of the big problems with TIFs — that sometimes they don’t actually generate any revenue and local governments are left holding the bag — but not the more fundamental problem, which is that they often just cannibalize money that the public would be getting anyway, if, say, a new stadium means that a bunch of development gets built there instead of across town.

Anyway, with the state limiting its exposure under Mattiello’s plan, any TIF-related shortfall would have to be covered by … who would it have to be covered by, exactly?

“If revenue comes up short, the Pawtucket Redevelopment Agency will have to figure out how to deal with it,” Mattiello said.

Oh, excellent, so if the state can’t find enough taxpayers to pay its stadium bills, then city taxpayers will have to pick up the slack. I’m so glad that Rhode Island’s elected officials are there to be watchdogs of the public interest, aren’t you?