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.

They wouldn’t if they understood the economics of it.

However, unless Federal money is involved in the stadium or things related to the stadium, then it is the choice of the people of the State (or city whatever the case may be) to decide what they want to fund.

I personally think they are making a bad business decision, but this is up to the people of the State. There is no law that States cannot make stupid economic decisions.

It’s when they do that and then come begging for Federal help that I have a problem with it. It is implicitly understood that no State is too big to fail ... and will be bailed out. Major cities as well. This should be the line in the sand were conservatives fight. Why, for example, should the entire country have to pay for the mistakes of say, Detroit, or that place in Alabama that got rooked on a sewer treatment plant deal?

States should have the say, but they should also have to pay for their mistakes.

That’s fine. I would vote against them too.

But your fellow citizens voted differently.
So you have to accept that as part of the deal of living in State as part of a Federation of States. States waste their money on a lot of stupid stuff. Voters are responsible for what they vote for.

Oh Poof ! Walker declared the state of Wisconsin pay for a NBA stadium ?

What seems to be missing in this anti-Walker diatribe is that this issue was debated on and passed on by both legislative houses in the state of Wisconsin with bi-partisan dupport..If the majority didn’t want it and the “deal” wasn’t right. It would never would have passed.

Good question...

Players pay each state income taxes that they play in during the season.

http://www.nytimes.com/2013/12/13/sports/athletes-question-fairness-of-tennessees-jock-tax.html?_r=0

“NFL players typically file in 10 to 12 jurisdictions. NBA is somewhere between 16 and 20. MLB is somewhere between 20 and 26, and the NHL is between 14 and 16,” says Losi.

Read more: http://www.bankrate.com/finance/taxes/taxes-cost-professional-athlete.aspx#ixzz3iuJHZUIj
Follow us: @Bankrate on Twitter | Bankrate on Facebook

It doesn’t matter if it had bipartisan support or that the majority of the residents agree with the deal! The relevant theme on this thread is “Walker Is Bad! Look How Bad!”.

conservativejoy is happy to pick up where John & Colleen Chisholm left off. Demonize at every opportunity.

So who gets their income tax?

As a general rule, the state in which the income is earned has the priority. The player's state of residency will tax the income, too. When filing the tax return in the state of residency, the player can claim a credit for taxes paid to other states, which limits double taxation of the income. The state (and in some cases, the city) in which the sporting event is played is going to get income tax from players on BOTH teams.

Thanks. Very interesting.

So Wisconsin will not be getting the full income tax off these guy’s entire salaries, but instead only a portion. So supporters who imply they are getting the whole thing for the State are being less than honest.

I wonder about the team owners, coaches, etc too. They rake in huge salaries. They don’t necessarily live in the State where their team is headquartered. So who do they pay State income tax to. If I were them I’d move to a State w/o State income tax.

I don’t know who you are referring to regarding the income taxes being all the player’s salaries. Its been very clear in all the discussions of this deal that the ‘Player’s Tax’ is collected from visiting players (which would include non-resident Bucks Players. That actually would include coaches and staff at least in the states that collect it as income taxes.

Thus, Wisconsin collects some pretty good taxes from multi-million dollar players as they come and play night by night. Per all the discussions,

Had the Bucks left, Walker said, the state would be out at least $6.5 million a year in income taxes that NBA players and staff currently pay. Over 20 years, Walker said that would have grown by another $169 million (because of player’s salaries rising).

http://sports.yahoo.com/news/walker-signs-bill-fund-milwaukee-bucks-arena-135350038—nba.html

I am a traveling consultant and I have to file income tax returns in States in which I travel to week by week for projects.

So who gets their income tax?

It is based on where that game is played. Using the NFL as an example, players get their pay via 16 game checks, one for each game played. If you play for the Green Bay Packers, your pay from your 8 home games are subject to Wisconsin state income tax. Your 8 road games are subject to that state's income tax, unless you home if record for tax purposes is also in Wisconsin. Then you pay state income taxes to both Wisconsin and the state where the road game is played.

If you play a road game in Minnesota against the Vikings, your pay for that game (1/16th of your total pay) is subject to Minnesota state income tax. For many years now, states that have a state income tax have subjected visiting players to state income taxes for the portion of their salaries that was played within their state. If you play a game in a state that doesn't have a state income tax, you only pay state income taxes for that game if your home of record for tax purposes is in a state that has an income tax.

If an athlete was smart, he would make his off season home in one of the state's that doesn't have a state income tax and declare that home their home of record for tax purposes. That way, for any games played in a state with no income tax, you only pay federal taxes for that portion of your salary. For games played in a state with an income tax, only that portion of your pay is subject to state income tax of the state where it was played.

My point was, in the reporting I’ve seen on this issue, supporters make out that the State gets the tax from the players ENTIRE income, which as many here have pointed out, is not true.

I’m sure the State will make a lot of money, but not what is implied in the articles I’ve read supporting building sports stadiums

It’s a pesky thing that I notice when people imply something is true, when it is only partially true. It is a form of lying by omission.

I used google’s ‘incoherent ranter’ to ‘English’ translator as you recommended, but it didn’t really grasp your meaning either.

I think what you are saying is that I should post specifics. However if you review the thread, I have posted 4 links to specific aspects of this question:

The fixed costs of maintaining the State owned Bradley Center
The loss of tax revenues from visiting players
The unique state ownership of the Bradley Center
The clear legal right of the NBA to move the franchise without a new arena.

so I am clearly not avoiding a discussion but am contributing quite specifically and clearly. Your contributions do not...

like this gem...

Yet Milwaukee taxpayers also pay Milwaukee County taxes as well as Wisconsin state taxes. Milwaukee County taxpayers also pay Wisconsin state taxes.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.