Category: Cincinnati Reds

The Hamilton County Commission has finally agreed on a plan that would allow them to keep paying off the Cincinnati Reds and Bengals stadiums while still handing out the property tax break that was agreed to as part of the stadium deal (and which is so important to county taxpayers, especially if they’re really rich). Under the new plan, the county will sell Drake Hospital to a private corporation for $15 million, helping to close next year’s $14 million stadium budget gap.

It’s still not clear whether the gambit would be legal — earlier reports suggested that any proceeds from hospital sales are legally required to go to health care — but that’s the kind of thing that can be worried about later. Sort of like how the county is going to pay the following year’s stadium budget gap, assuming the economy doesn’t pick up by then and start generating bucketloads of sales taxes. But surely we don’t have to worry about that, right?

The long-simmering Cincinnati Bengals and Reds lease controversies could be about to boil over, as the Hamilton County Commission appears set to approve a property-tax cut that was promised as part of the stadium deals, but which there’s now no money for:

If Republican Chris Monzel and Democrat Todd Portune do that — and both of their plans have been deemed not practical by the county administrator — the stadium fund will be bankrupt by March.

That will leave Hamilton County Auditor Dusty Rhodes without the cash to meet all the obligations in the sales tax fund.

“It would be the height of irresponsibly to commit funds they knew were not there,” Rhodes said. “I’ve long criticized various governments for living in dream world.

“This takes it to a whole new level,” Rhodes said.

Backing up a bit: What happened here is that when Hamilton County raised sales taxes by 0.5% in 1996 to pay for new stadiums, it designated 30% of the proceeds to rolling back property taxes. Unfortunately, this happened, which meant that sales tax proceeds fell short of what was needed to pay off both the stadiums and the property tax cut.

Monzel and Portune have different ideas about what to do next: The Republican wants to sell a hospital to raise $13 million, but any proceeds there might need to be reserved for medical care. Portune, meanwhile, wants to raise money by hosting more events at the stadiums, getting the teams to pay up-front costs of repairs, and other lease concessions, something he’s tried before to no avail. More likely is that the county has to dip into its general fund reserve, which could affect the city’s bond rating or even, according to Hamilton County Administrator Christian Sigman, prompt a state takeover of the county’s finances.

It seems clear that somebody is going to have to blink — just don’t bet on it being the Reds or the Bengals, since neither of them has any incentive to, thanks to having those sweetheart lease deals in their back pockets.

The Cincinnati Enquirer ran a long article on Sunday looking at Hamilton County’s lease woes with the Cincinnati Reds and Bengals, and looking at how other cities solved similar revenue shortfalls. The findings:

• Indianapolis raised sales and hotel taxes, plus redirected tax revenue from the stadium area to pay off construction bonds on the Colts‘ stadium.
• Cleveland sold off naming rights to Jacobs Field (now Progressive Field) and Gund Arena (now Quicken Arena), which had formerly been named for the Indians‘ and Cavaliers‘ owners.
• Orlando has scrapped a planned performing arts center* and cut back on police, fire, and road services to fill funding shortfalls on the Magic‘s new arena.

In other words, options for Hamilton County include raising taxes, cutting spending, or selling off anything that isn’t nailed down — sound familiar? Other already rejected options include declaring bankruptcy (would destroy the county’s reputation), selling the stadiums (no one will buy them), raising ticket taxes (the leases prohibit it, though it’s possible a voter referendum could get around this), default on the agreement to pay into Cincinnati’s public schools fund to make up for lost property taxes on the stadiums (school bondholders could sue), refinance the bonds (won’t save much money), buy the Bengals (too expensive), or end a riverfront development project (very little of that funding comes from the stadium tax fund).

The problem is that the damage was done when Hamilton County agreed to build the stadiums and agreed to those godawful leases; now, as I told the Enquirer, “The teams say, ‘You made a deal and if you got the short end of the stick, that’s not our problem.” At this point, barring a ticket-tax end run, the county seems like it’s going to have to pay off its stadium debt out of taxpayer pockets one way or another — unless they can find a way to retroactively revise the leases using time-traveling neutrinos.

*UPDATE: The Orlando performing arts center informs me that construction is underway for phase one of the project, with a groundbreaking having taken place in June. It’s phase two that’s currently not scheduled, according to the center, “due to construction timing.”

Good, long article in yesterday’s Wall Street Journal on the financial woes of the Cincinnati Bengals‘ Paul Brown Stadium — or rather, the financial woes of Hamilton County, which built the place in 2000 and within four years was suing on the grounds it had been hoodwinked into a sweetheart deal. Among the article’s highlights:

• The initial $280 million price tag ultimately swelled to $350 million (if you believe the Bengals), or $454 million (according to the county), or $555 million (according to Harvard stadium expert Judith Grant Long, whose long-awaited book Full Count, I am assured, really is due out any month now). This last figure would set a record for public subsidies for an NFL stadium.
• As a result, the county has been facing steep debt payments: $34.6 million in 2010, equal to 16.4% of the county budget. As a result, the county has been slashing funding for things like schools, the sheriff’s department, and youth programs, and is now set to repeal the property tax reduction that was the carrot to get county residents to approve the Bengals stadium (and an accompanying Reds stadium) in the first place.
• Hamilton County hamstrung its own finances by agreeing to let the Bengals collect all parking revenues at the new stadium, while the public picked up all security costs. The team put pressure on the county by saying it would move to Baltimore without a sweetheart deal — but documents from the time indicate that Baltimore’s offer was capped at $200 million in public funds, and would not cover operating costs.
• Even on the field, the new stadium has underperformed: “The Bengals had said that with a new stadium, the team’s revenue would increase, allowing it to sign better players, win more games and attract more fans to the area. In 2000, the new stadium’s first year, the Bengals had the same record they’d had the previous year, 4-12. Since then, the team has managed just two winning seasons in the new facility. Its attendance levels have actually dropped.”

The problem, it seems, is that unlike in other municipalities, Hamilton County footed the entire stadium bill itself — and counted on a 0.5% sales tax hike to make the bond payments. When sales tax revenues didn’t grow at the rate the county had hoped, it was left with a budget hole that’s grown progressively larger.

(The Bengals have since responded with a two-page letter that asserts that it’s the county’s fault for making a lousy deal, and anyway the real problem is the county took part of the sales-tax proceeds and wasted it on things like roads and public schools.)

One hopes this will be a cautionary tale for other local governments negotiating leases, but it probably won’t be, for reasons already discussed here. In case any local elected officials with lease talks on their agenda are reading this, though, here’s a handy crib sheet of quotes from the WSJ report on the Bengals fiasco to reference in your hearing testimony:

“The Cincinnati deal combined taking on a gargantuan responsibility with setting new records for optimistic forecasting,” says Roger Noll, a professor of economics at Stanford University who has written about the deal. “It takes both to put you in a deep hole, and that’s a pretty deep hole.”

“It’s the monster that ate the public sector,” says Mark Reed, Hamilton County’s juvenile court administrator.

Tom Luken, a former Cincinnati mayor and councilman, actively campaigned against the deal. “Anybody with half a brain can figure that this is a bad deal,” he says. “As it turned out, it was even worse than they painted it.”

And finally, the punchline: Hamilton County commissioners are set to vote today on spending another $307,000 on the stadium, to upgrade its instant-replay system from analog to digital — stadium upgrades being the county’s responsibility as part of that lease that taxpayers arm-twisted the Bengals into accepting. Next step: holography!

Stop the presses! Hamilton County has actually gotten the Cincinnati Bengals and Reds to agree to kick in some money to help fill the county stadium fund’s $130 million gap:

The Bengals agree to pay additional rent of $8.1 million and to pay for a new field if needed within five years. In return, the team gets a $750,000 credit from the county, and the county gives up long-term naming rights.

The Reds will pay additional rent of $2.2 million and, in return, will get more from the county surtax of 25 cents per ticket once 2 million tickets are sold.

Okay, so it’s not exactly a lot of money. And if the Reds do well and sell more tickets, or the value of the Bengals stadium naming rights soars, then the county could actually be worse off under the new deal. And the county will still need to eliminate three-quarters of the countywide property-tax reduction that it handed out in 1996, in exchange for voters approving the sales tax hike that funded the teams’ new stadiums. Still, it’s a concession by the teams. Kinda. Sorta. Yay?

The never-ending quest to bail out the Hamilton County stadium fund has circled back around to ticket surcharges again: Hamilton County Administrator Patrick Thompson has proposed an additional ticket tax of between 1.8 percent and 3.9 percent on Bengals and Reds tickets, plus property tax hikes to help fill an expected $130 million shortfall over the next five years.

Only one problem: The Bengals say they won’t go along with a ticket tax, rightly understanding that it would cut into their ability to jack up ticket prices as high as the market would otherwise bear. And both teams have the right to veto any ticket surcharges under their godawful stadium leases, so don’t hold your breath waiting for this one to happen.

Public stadium spending always has a cost — public anything spending always has a cost, as it’s money that can’t be used elsewhere — but it’s seldom made as explicit as in last week’s proposal by Hamilton County commissioner Greg Hartmann to pay for shortfalls in Cincinnati’s stadium funds by cutting health care spending on the poor.

Hartmann’s plan has drawn tons of criticism since, with his fellow commissioner (and longtime stadium critic) Todd Portune saying it proposed paying for ‚Äúsports palaces on the backs of the sick, the injured, the destitute and the poor,” while the Cincinnati Enquirer called it “outrageous” and “simply wrong on several levels.” The Cincinnati city council chimed in on Monday, passing a resolution to oppose the plan, with the resolution’s sponsor saying Hartmann’s scheme “basically takes from the poor, you might say, basically to give to the rich.”

All of which is true, but it’s worth noting that the original stadium-funding plan — a half-cent sales tax hike, which is currently running shortfalls thanks to the broken economy — was no less so: Not only do sales taxes hit the poor much harder than the rich, but that’s a revenue stream that now can’t be used for other public benefits (including hospital funding for the poor).

The real problem was giving to the rich in the first place — the only thing left to battle over now is whether to take from the poor (via health care cuts) or the middle class (via property tax hikes, the elephant in the room that the county commission is desperately trying to avoid). Nobody’s proposing trying to get the money back from the teams themselves — though I guess Portune tried that with his antitrust suit, only to be tripped up by that pesky statute of limitations.

Hamilton County, Ohio, is now projecting that its stadium fund will run a $13.2 million deficit for the year 2010 if tax revenues dip by a mere two percent, an amount that might be conservative in light of hard times. Commissioners are hoping to get concessions from the Cincinnati Reds and Bengals [ed. note: Good luck with that], and/or cuts from the Cincinnati Public Schools to close the gap.

Long before Bernie Madoff, Hamilton County Commissioners and insiders in the Cincinnati area knew that a day of reckoning would come as bills for the two stadiums came due. In 2004, County Commissioner Phil Heimlich called the stadium debt a “fiscal time bomb,” suggesting service cuts may be needed in the future.

Since schools have a tougher time threatening to relocate, the smart money on who will make the most concessions might be placed on education. The county could roll back property tax relief, but the commissioners argue that would be “the last option they will consider.”

One possible way to close the gap might be to offer naming rights to someone for the Bengals’ stadium, something that Bengals owner Mike Brown bypassed so that he could put his Dad’s name on the new facility. Betting that the taxpayers of Hamilton County will be able to benefit from naming rights revenue might be as unwise as betting on Cincinnati Reds games if you were a local legend.