Scott Walker and the Terrible, Horrible, No Good, Very Bad Stadium Deal

Two days ago, I praised Gov. Scott Walker’s quiet conservatism. Today, I’ll criticize his inconsistency. The Milwaukee Bucks decided they needed a new basketball arena and they told the government to pay for it. If politicos didn’t cough up $250 million, the NBA warned that the Bucks might leave Wisconsin. Nice team you have here, Milwaukee. It’d be a shame if something happened to it…

Taxpayers would rightly be furious if a private business demanded they fund a supermarket, an office building, or a strip mall — why on earth should they send their hard-earned money to millionaire athletes and billionaire owners? But, like most politicians of both parties, Walker quickly knuckled under to a threat from a major sports league:

Wisconsin Gov. Scott Walker (R) signed legislation Wednesday to spend $250 million from taxpayers on a new arena for the Milwaukee Bucks basketball team — a deal he has championed for months despite fierce opposition from fiscal conservatives who usually agree with him.

The team’s ownership group — which includes one of Walker’s top campaign fundraisers — had threatened to move the Bucks to another state if the taxpayer financing did not come through. Walker said he did not want Wisconsin to lose the millions of dollars in taxes it collects on player and staff salaries, along with the other perks that come with having a professional basketball team in the state.

“The return on investment is 3 to 1 on this, so we think this is a good, solid move as a good steward of the taxpayers’ money here in Wisconsin,” Walker said Wednesday morning after he signed the legislation. “This is just simple mathematics.”

…The team’s investors pitched building a new arena in downtown Milwaukee that would anchor a new entertainment district, revitalizing that part of the city and creating more jobs. The total cost has been pegged at $500 million. Kohl agreed to chip in $100 million, with the new owners paying at least $150 million and Wisconsin taxpayers picking up the remaining $250 million.

Walker’s math is based on the team actually leaving Milwaukee, which isn’t close to a sure thing. The San Francisco Giants threatened to leave if the city didn’t build them a new stadium. The famously profligate city called their bluff and the Giants found a way to build it without tax funds. The same is happening in Los Angeles for an insanely expensive football stadium. If these extremely liberal cities won’t bow to the cronies, why should Walker?

In addition, study after study has shown that sports owners’ promises of “economic impact” rarely if ever pan out.

Economists have long known stadiums to be poor public investments. Most of the jobs created by stadium-building projects are either temporary, low-paying, or out-of-state contracting jobs—none of which contribute greatly to the local economy. (Athletes can easily circumvent most taxes in the state in which they play.) Most fans do not spend additional money as a result of a new stadium; they re-direct money they would have spent elsewhere on movies, dining, bowling, tarot-card reading, or other businesses. And for every out-of-state fan who comes into the city on game day and buys a bucket of Bud Light Platinum, another non-fan decides not to visit and purchases his latte at the coffee shop next door. All in all, building a stadium is a poor use of a few hundred million dollars.

This isn’t news, by any stretch, but it turns out we’re spending even more money on stadiums than we originally thought. In her new book Public/Private Partnerships for Major League Sports Facilities, Judith Grant Long, associate professor of Urban Planning at the Harvard University Graduate School of Design, shatters previous conceptions of just how much money the public has poured into these deals. By the late ’90s, the first wave of damning economic studies conducted by Robert Baade and Richard Dye, James Quirk and Rodney Fort, and Roger Noll and Andrew Zimbalist came to light, but well afterwards, from 2001 to 2010, 50 new sports facilities were opened, receiving $130 million more, on average, than those opened in the preceding decade. (All figures from Long’s book adjusted for 2010 dollars.) In the 1990s, the average public cost for a new facility was estimated at $142 million, but by the end of the 2000s, that figure jumped to $241 million: an increase of 70 percent.

Economists have also been, according to Long, drastically underestimating the true cost of these projects. They fail to consider public subsidies for land and infrastructure, the ongoing costs of operations, capital improvements (weneedanewscoreboard!), municipal services (all those traffic cops), and foregone property taxes (almost every major-league franchise located in the U.S. does not pay property taxes “due to a legal loophole with questionable rationale” as the normally value-neutral Long put it). Due to these oversights, Long calculates that economists have been underestimating public subsidies for sports facilities by 25 percent, raising the figure to $259 million per facility in operation during the 2010 season.

Sports fans and everyday citizens still cite anecdotal evidence as an argument for public financing. “That neighborhood was a dump; now it’s beautiful.” “No one used to go downtown at night; now it’s hopping!” Although the immediate area around the venue might look nicer, the areas further out look slightly worse. This is hard to visualize, so let me create a simplified example.

anytown-stadium-before-afterHere are maps showing the 13 neighborhoods of Anytown, U.S.A. The darker the green, the more economic activity that neighborhood has. Neighborhoods 3, 6, and 10, have the most economic activity, while 7, 8 and 13 have the least.

Neighborhood 13 is the worst of the worst. Abandoned factories, vacant warehouses, and graffiti-covered multi-unit housing. The area was first mapped out decades ago, so the streets, lampposts, sewer lines, and everything else need a major upgrade.

Wanting to revitalize the district, Anytown’s City Council named Neighborhood 13 as the site for a sparkling new, $500 million taxpayer-funded stadium. Urban planners can tear down the ugliest empty buildings and seize the rest using eminent domain. Once the stadium is built, private business will surround it with hip new restaurants, bars, and hotels, while the city improves the infrastructure all around. More economic activity in Neighborhood 13 means more tax revenue for the city. So naturally, the stadium will pay for itself over the long haul, right?

Not so much. Three years after the Anytown Stadium is built, Neighborhood 13 is doing pretty well. The city cut tax rates to lure investors, so hotels and restaurants popped up around it. Sure, some decrepit areas remain, but Neighborhood 13 hasn’t been this vital in years.

But look at the neighborhoods around it. Sure, they’re okay, but each one has a little less economic activity. Neighborhood 13 is more green, but several surrounding areas are a little bit less green. The guy who wanted to expand his restaurant chain built in 13 instead of 6. The woman who wanted to create a sports bar told her realtor to buy in 13 instead of 12. Neighborhood 13 is no longer the poorest in town, but now Neighborhood 7 is in even worse shape.

Anytown residents used to spend money at their local malls and movie theaters. Now the richies in Neighborhood 3 blow $250 at a game instead of buying that French coffee grinder at their local Williams-Sonoma. One neighborhood’s loss is Neighborhood 13′s gain. Notice how little new economic activity is being created; it’s merely shifting dollars from one part of Anytown to another. Worse still, Anytown created the Stadium District Enterprise Zone, lowering the taxes in 13. So the town is collecting less total revenue than they were before the stadium was built. And though the stadium area looks packed on game nights, it’s still pretty empty on the 325 days a year there isn’t an event.

Granted, Anytown is an intentionally simplified example. Urban areas are fluid, unique entities with their own layouts, suburbs, economic patterns, etc. And we shouldn’t forget that it’s nice to get the once-per-decade boost of an all-star game or championship game. But these brief booms slightly mitigate the initial outlay; they don’t come close to paying for it.

Many government revitalization schemes have the same negligible-to-negative impact. Phoenix had a economically depressed street, so they “improved” it with an insanely expensive light rail system. Now that street is much nicer but the streets north and south of it are in even worse shape. If the original street had 100 vacant storefronts, the streets around it now have 150.

Basically, city planners are pushing the air from one side of the half-filled balloon to the other. And each time they do, a little more air seeps out the end. It’s usually a net-negative impact. New wealth isn’t being created; old wealth is shifting around.

If Scott Walker or any other politician wants to argue for a taxpayer stadium, he can point to civic pride, prestige, or other non-tangible benefits. But if he reads the stack of studies from every side of the political spectrum, he cannot in good conscience argue that it will create an economic benefit.

It was cheaper to keep the Bucks. It was a good decision based on the real factors involved:

—10+ million per year in taxes from players... which will inevitably go up as player contract increase.
—Fixed 15 million per year in maintenance of an unused facility

====”We’re still working on this estimate. We believe that if nothing is done, let’s just say nothing is done, the Bucks leave, where are we here. We estimate to just to be able to maintain for safety issues and basic maintenance, it will cost $100 million over the next 10 to 12 years,” Marotta said.==

http://www.jsonline.com/news/milwaukee/official-cost-of-maintaining-current-arena-will-be-high-b99250425z1-255687561.html

state coffers would suffer the loss of an estimated $299 million in income tax collections over 20 years from the Bucks and visiting NBA players.

http://www.bizjournals.com/milwaukee/news/2015/06/04/arena-deal-announced-walker-says-its-cheaper-to.html

“Today, Wisconsin governor and presidential candidate Scott Walker signed a bill providing public financing for a new basketball arena in downtown Milwaukee. Walker has recently taken some heat on the campaign trail from fellow conservatives, who object to “taxpayer money” being used to finance arenas.

An ideological aversion to taxpayer money being used to finance sports arenas is fine, but the actual structure of the Milwaukee deal is far more complicated than its opponents are letting on. Just today, for instance, Michael Tanner writes that using “$250 million of Wisconsin taxpayers’ money” is “a quintessential example of crony capitalism,” citing the plan’s ties to a co-chair of Walker’s presidential campaign. I suppose six Democrats in the state senate and 17 in the state assembly who voted for the plan are concerned about rewarding Walker donors?

Rarely will one hear the actual details of the complicated plan, which have been woefully misrepresented in the national media so far. A large chunk of the arena will be paid for through a $2 per ticket user fee. Of the $2 per ticket fee, 50 cents will go to offset $80 million in bonds issued and paid for by the state. This portion of the fee is expected to provide around $500,000 per year toward paying off the bonds.

The rest of the bonds will be financed with state tax revenues, but there’s an important catch — the remaining $3.5 million per year the state will pay over the next two decades is more than offset by the annual income taxes the Milwaukee Bucks franchise pays the state. According to state records, the Bucks pay $6.5 million per year in state income taxes. Every NBA player who comes to Milwaukee to face the Bucks pays a portion of his income to Wisconsin. This isn’t expected revenue from future economic development — this is money already being paid to the state. Thus, “taxpayers” won’t be paying the state’s portion, the Bucks will be.

And with the NBA’s salary cap expected to explode next year, the Bucks’ contribution to the project will only increase. The Wisconsin Department of Revenue estimates conservatively that over the next 20 years, the Bucks franchise will add $300 million to the state’s coffers via income taxes. If the team were to leave the state — the threat that loomed over negotiations for a new arena — that money in the state budget would have to be made up somewhere. State taxpayers would likely feel the brunt of the shortfall in one way or another.

Another $80 million of the arena’s total costs will be financed by reducing the state’s annual aid to Milwaukee County. So rather than raising taxes to pay for the arena, the county’s contribution is being financed by a spending cut. And that cut will likely be offset by a plan to have the state take over the collection of funds owed by delinquent Milwaukee County taxpayers. Call it the “deadbeat tax.”

More aid will go to finance bonds issued by the local entertainment district, which will be partly paid for by a combination of the per ticket user fee and existing hotel-room, rental-car, and food-and-beverage taxes levied by the district.

The remaining $47 million will come from the creation of a “tax incremental financing district.” Such TIF districts are typically funded with revenues generated by the locality itself. In this case, the city’s contribution is a new parking structure.

It’s also worth pointing out that the Bucks’ current owners and their former owner are ponying up $250 million of their own money to pay for the arena — so it isn’t as if they aren’t also personally invested in the project. Scott Walker isn’t just handing them a gift.

If one is naturally inclined to oppose any kind of governmental involvement in the building of arenas, that’s fine, as long as equal scorn is heaped on less publicized building plans. Last year, the state approved an $82 million chemistry lab at the University of Wisconsin–La Crosse. That plan seems unlikely to make its way into any discussion of Scott Walker’s presidential campaign. Every politician who stays in office long enough will eventually vote for some sort of multi-million-dollar construction project. Many of those projects won’t have nearly the economic impact of a new downtown arena that keeps an NBA franchise in town.

It’s much easier to accuse Walker of spending “$250 million in taxpayer money” than it is to explain the plan’s complicated funding mechanisms. And those mechanisms are certainly fair game for people who object to any sort of governmental aid whatsoever for the construction of sports arenas. But the fact is that without the new arena, Wisconsin taxpayers would be far worse off — and the Bucks wouldn’t be around to pick up any part of the tab.”

http://www.nationalreview.com/article/422452/scott-walker-milwaukee-bucks-arena-deal

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