Category: Arizona Diamondbacks

Arizona Gov. Katie Hobbs signed the bill on Friday providing state funding for renovations for the Arizona Diamondbacks‘ stadium, after it passed the state senate the previous week, and then celebrated by hugging the team mascot, as one does. Which makes it a good time to ask the question: Exactly how much money are Arizona taxpayers on the hook for under the deal, anyway?

Throughout the process, the public subsidy has mostly been described as capped at $500 million, to be collected from state, county, and city sales taxes on purchases at Chase Field as well as part of the state income taxes paid by D-backs and visiting players. (The Arizona Republic, in a rare moment of candor for a major newspaper, noted that “Right now, those sales and income tax dollars fund government services, everything from road construction to operating K-12 schools.”) But it’s a fuzzy cap — there’s an “inflation adjustment” that allows the $500 million figure to grow over time, potentially to as high as $1 billion:

Caps the total TPT and income tax diversions at $500,000,000 and requires the Maricopa
County Stadium District Treasurer to annually increase the cap by 3 percent beginning in 2027
and until December 31, 2055.

That is a super-weird way of defining a “cap”: Since the tax revenues aren’t all going to pour in at once, it’s entirely possible for the Diamondbacks to stay under the limit until 2055, at which point it will hit $1.143 billion. If we divide that figure up evenly over the 28-year term, that would be $40.8 million a year, for a present value (at a 5% discount rate) of $627 million — meaning if Diamondbacks owner Ken Kendrick took out a stadium renovation loan at 5%, he could afford to borrow $627 million and the public would pay it off.

That’s not the only way Kendrick could hit the cap, though. Let’s say sales and income tax revenues come in faster than that, at $60 million a year. It would then reach the cap at $692 million in 2038, which would only be about $530 million in present value. Or let’s say tax revenues start at $30 million a year, then rise by 3% a year after that — in that case, they would hit the cap at $958 million in 2049, with the payments over time amounting to a present value of around $566 million.

Or, let’s take the Arizona legislature’s fiscal analysis of the bill, which projects that sales and income tax revenue would amount to just $15.7 million in the first year. If that number only rises by 3% a year, then Arizona gets a bargain: The tax revenue never reaches the cap, and only amounts to $340 million in value. If hot dog prices and player salaries rise faster than that, though, then the public cost goes up again: A 6% a year increase in tax receipts would almost fill the entire cap by 2055, making the public cost in present value again over $600 million.

That’s a whole lot of maybes, and how on earth Kendrick will determine how much money he has available to spend on stadium upgrades is a great question, though he doesn’t really have to decide now: The tax money will be placed in a stadium district fund, which the team will be able to draw on for stadium costs over time. So if Kendrick wants to, say, spend $300 million now on new video boards or food preparation facilities or a retractable roof that reliably retracts, then more later once he sees how much public money can draw on, he can easily do that. (Kendrick has promised to put in $250 million of his own money, too, though he hasn’t promised it in any legally binding way.)

And this, dear readers, is one reason why there’s no central database of stadium subsidies: Figuring out how much public money is actually going to go to sports team owners over the course of a deal can be really, really hard, and may not be clear until several decades down the road. If anyone wants a number to use going forward, it’s probably fair to say that the D-backs subsidy will cost Arizona taxpayers “as much as $600 million” — that’s good enough for government work, no pun intended.

It’s been a few weeks since we’ve heard much about the proposed Arizona Diamondbacks stadium renovation subsidy bill, and apparently that’s because it’s been spinning its wheels a bit. Earlier this month, Phoenix Mayor Kate Gallego declared the original plan — which would redirect between $400 million and $500 million in sales in income taxes to team owner Ken Kendrick — “deeply troubling” but said she hoped “we are close to a more fiscally responsible bill”; the legislation is currently stuck in the state senate appropriations committee, which met last week but didn’t discuss it. Now, with the state legislative session winding down, team officials have apparently turned up the heat by trying to get D-backs fans to lobby the senate on their behalf:

Friday morning, Diamondbacks season ticket holders received an email from team president and CEO Derrick Hall with the subject line: “Help Us Keep the D-backs in Arizona.” In it, Hall thanked fans who have reached out about how to support House Bill 2704, which would capture some sales and income tax revenue to pay for major stadium upgrades. Noting there “is absolutely no pressure,” he also gently nudged other fans to take up the cause.

Hall’s email directed season ticket holders to a site called Keep Arizona Major League, which doesn’t exactly threaten that the team will move without stadium subsidies, but doesn’t exactly not threaten that either. “Arizona is a world class state with a world class sports culture. We have to keep it that way,” it declares in large all-caps letters, before insisting, “The Arizona Diamondbacks have consistently said that they don’t plan to leave Arizona and that they would prefer to stay at an upgraded Chase Field. However, we know from experience, seeing the Coyotes moving to Utah, that these things can happen.” The site also argues in not-at-all-ChatGPT-written prose that “even if you’re not a baseball fan, everyone benefits from the Diamondbacks’ location at Chase Field in downtown Phoenix,” asserting that the stadium has generated $5.4 billion in GDP for Arizona over 25 years. (Citation very much needed; all sources for this figure online appear to originate with D-backs officials themselves.)

KeepAZmajorleague.com was created in March by someone who doesn’t want their identity known; listed sponsors include a bunch of local chambers of commerce. The Phoenix New Times article that revealed the email campaign deadpans, “a Diamondbacks spokesperson told Phoenix New Times he would look into the question of the team’s involvement but has not yet provided an answer.”

New Times further reports that while Hall’s email told fans that “the legislature” would be voting on the stadium funding bill “in the next 10 days,” it’s not at all clear that any vote is actually pending. The legislative session is set to wrap up on June 30, and with a whole lot of budget negotiations still to be hashed out, writes news editor Zach Buchanan, “the bill would appear to be trailing in the ninth inning” — oh man, and just when we were so close to getting out of this without a sports metaphor.

One recent development in the bill is that it would set penalties if the Diamondbacks moved out before 2035 — though the penalty is only $10 million, or as Buchanan describes it, “roughly the salary of two mid-tier free-agent relief pitchers.” That does seem deeply troubling; hopefully Arizona residents and Diamondbacks fans can get some more clarity soon on what the legislature is considering, so they can tell their elected representatives what they actually think of it.

And speaking of people who will be speaking at this week’s sports economics conference and the Casino Night Fallacy, J.C. Bradbury had an op-ed in the Arizona Mirror yesterday on the proposed Arizona Diamondbacks tax-redirection bill, and didn’t mince words, as he never does:

The funding mechanism being proposed to benefit the Diamondbacks relies upon what public finance economists call “fiscal illusion.” The tax mechanism was selected to understate the public cost. By drawing funds from the district around the stadium, it gives the appearance of a use tax, being paid for only by customers.

This is not correct. What it is doing is taking tax dollars that are scheduled to be allocated to other public purposes and instead redirecting them to underwrite this special-interest project. Even though the hundreds-of-millions of dollars figures being discussed would be collected from the geographic area, the revenue has the opportunity cost of funding other public projects or simply cutting taxes to put the money back in taxpayers’ pockets.

If the government is devoting public dollars to a stadium project, then the public must be out that same amount of money. You cannot pull this money out of thin air; otherwise, we would fund all public projects like this. It’s important to remember: THERE IS NO SUCH THING AS A FREE STADIUM.

Siphoning off $500 million worth of future tax revenues and delivering them to the Diamondbacks’ billionaire owner, concludes Bradbury, “is a wealth transfer from general taxpayers, many of whom can’t afford to go to a game, to the most well-to-do members of the community. Democrats and Republicans should be joining hands in opposition to this indefensible subsidy rather than making bipartisan toasts over cocktails in the owner’s suite.”

The D-Backs stadium subsidy bill was set to hit the Arizona senate appropriations committee today, but was removed from the agenda at the last minute. We’ll have to see whether this was because it didn’t have the votes to pass, and if so what the bill’s proponents do next; we should find out soon enough what state legislators plan on doing with their hands.

The bill to funnel about $400 million worth of future taxes to Arizona Diamondbacks owner Ken Kendrick for stadium renovations took another step forward yesterday, passing the state senate finance committee by a 4-3 vote. (It’s already been approved by the state house.) The senate version, however, is what KJZZ-FM called, in a language almost but not exactly like English, “a paired down version” of the bill; what’s changed?

• Removed: A provision to redirect Diamondbacks player state income taxes to pay for renovation costs. That was set to provide about 12.7% of the tax money, meaning the projected public cost would now be around $350 million.
• Added: A provision that Maricopa County put in as much as the city of Phoenix does — something it wasn’t previously going to, because the county has no general sales tax. If the city cost remains $6.4 million a year, that would mean the county contribution would have to quadruple to keep pace, meaning we’d be back up to around $420 million in taxpayer costs.
• Unchanged: Phoenix Mayor Kate Gallego’s request for a $15 million a year cap on public expenditures — which would keep the total subsidy value at around $220 million — was rejected, though the new bill does include an overall cap of $500 million “plus inflation,” which is to say not actually a cap of $500 million.

The bill still needs to get through the appropriations committee, then on to a full vote of the senate, then back to the house for a re-vote on the amended version. Then it would be up to Gov. Katie Hobbs, who has said she’ll sign the bill if it is “acceptable to all the parties,” which right now it is not if Mayor Gallego and Maricopa County leaders count. This one could go down to the wire — not that stadium deals don’t usually get hashed out at the wire, if necessary by a few concessions to key opponents, but “usually” isn’t “always,” so we’ll have to wait and see.

You may recall that at the end of January, a group of Arizona state legislators proposed siphoning off all the sales and income taxes collected around the Diamondbacks‘ stadium and kicking it back to team owner Ken Kendrick so he could make upgrades to the stadium. Estimated cost at the time: $230-300 million in present value.

Phoenix Mayor Kate Gallego has now done her own assessment of the value of the proposed tax kickback — or kickover, since it’s not really tax money the D-Backs ever paid, that’s the Casino Night Fallacy talking — and come up with a much higher number:

Gallego said Phoenix’s analysis showed a $720 million loss in tax revenue to the state. Phoenix specifically would miss out on $6.4 million in tax revenue each year under the bill, penciling out to $192 million over the 30-year term.

Factoring in income tax from MLB players, not including staff and spouses, would cost another $105 million, according to the state analysis, Gallego noted.

“After accounting for lost construction sales tax revenue, additional revenues that can follow a significant renovation to a major league sports facility, and inflation over 30 years, the bill in its current form will certainly cost more than $1 billion in public funds,” Gallego wrote.

As regular readers of this site know, one of the big headaches of figuring out the costs of benefits of stadium projects, or any kind of spending projects really, is the difference between nominal cost (all the payments made over time, added up) and present value (how much you could afford to buy now with all those future payments. It’s the difference between adding up all your future mortgage payments and how much you paid for your house — the first number is a lot bigger, but isn’t the “real” cost to you since a lot of those payments don’t have to be made for years down the road, meaning you can make it up by earning interest on the money until you have to write the checks.

Gallego’s letter to Arizona Gov. Katie Hobbs estimates the cost to Phoenix, Maricopa County, and the state of four different tax revenue streams that would be handed over to the Diamondbacks owner:

• City sales taxes: $6.4 million/year
• County sales taxes: $1.6 million/year
• State sales taxes $16 million/year
• State income taxes: $3.5 million/year

That comes to $27.5 million a year, which Gallego multiplies by a 30-year agreement to come up with $825 million. But that’s nominal cost — all the payments added up over time. How much is that actually worth to Arizona taxpayers right now?

There are lots of ways to estimate that, but plugging the numbers into a present value calculator at a reasonable discount rate (say, 5%, which is usually in the ballpark for how much interest you can earn on money over time) is usually a good start. We have one right here, and the answer is: $423 million.

That’s a fair bit less than $825 million, but also a fair bit more than $230-300 million. And either way, it is, to coin a phrase, starting to add up to real money.

The Diamondbacks tax subsidy bill passed the Arizona house last month, and is now slated to be voted on by the state senate, after which it would move on to Gov. Hobbs, who has expressed support for it. It would be nice if Arizona officials established first how much money they would be sending the D-Backs owner’s way, but no time for that when a team owner says he needs a new stadium because reasons.

Arizona officials are starting to take sides on the proposed $300 milliion-ish tax fund for Diamondbacks stadium renovations, and it comes down to: Gov. Katie Hobbs is for it so long as city and county leaders are, and city and county leaders are all hell nah.

Hobbs first:

“If they can reach an agreement that is acceptable to all the parties, then yes,” Hobbs said when asked if she supported the plan. “I want to keep the Diamondbacks here in Arizona.”

Nice job, governor, both ducking the specifics of the public spending (don’t look at me, I’m just the governor, I’ll do whatever everyone else wants!) and reframing this as keeping the Diamondbacks in Arizona when the team hasn’t threatened to leave. (The closest D-Backs owner Ken Kendrick has come to a move threat is declaring that unnamed “cities” would be happy to have a team, without mentioning that none of the cities currently without a team is anywhere close to the market size of Phoenix.) Now what about Phoenix and Maricopa County officials?