The Brookings Institution think tank in Washington, D.C., last month published a groundbreaking study on federal subsidies within tax-exempt municipal bonds used to finance sports venues.
Inside sports business
Recently, it was revealed entrepreneur Chris Hansen had paid $32 million for land in the Sodo District to house a parking garage for his proposed arena project.
While providing a long-awaited signal Hansen hasn’t given up, those following the process quickly noted his options to purchase the property soon would expire. Had that happened, his project likely would die, so he had little choice.
Still, it is hope for long-suffering NBA fans. And it sparked discussion of how Hansen might convince the Seattle City Council to reverse its vote in May denying him part of Occidental Avenue South for the arena.
One suggestion has been that Hansen drop his pursuit of public funding. This isn’t new, as Mayor Ed Murray strongly suggested in May 2015 that Hansen’s best hope might be a private-arena plan targeting an NHL team ahead of an NBA squad.
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On that public-funding front, the Brookings Institution think tank in Washington, D.C., last month published a groundbreaking study on federal subsidies within tax-exempt municipal bonds used to finance sports venues. Hansen, of course, has a Memorandum of Understanding (MOU) with the City of Seattle and King County providing up to $200 million in public-bond funding for his arena.
Though Hansen’s supporters often compare that bond money to a loan he would fully repay, chiefly, independent economists realize there’s more to it.
Brookings researchers have put dollar figures to these hidden taxpayer costs.
They reviewed 45 bond-funded sports venues built or renovated since 2000 and concluded, factoring for inflation, they cost the federal government $3.7 billion in lost tax revenues with little economic gain. Locally, they calculated the Seahawks and owner Paul Allen received $94 million in federal-bond subsidies while building CenturyLink Field.
Economists already agree there are minimal net economic gains for local governments subsidizing sports facilities in their backyards. But the new study by Brookings vice president Ted Gayer and researchers Austin J. Drukker and Alexander K. Gold concludes there is zero benefit in using money from federal taxpayers for sports venues in places most of them don’t even live.
They recommend eliminating such subsidies, a proposal floated in the past two federal budgets.
“One could argue whether or not Seattle having a basketball team is worth a local subsidy,’’ Gayer said in an interview. “But there’s no reason somebody in Maine should care whether or not a stadium is in Seattle, or Oklahoma City or anywhere else. There’s no justification for federal money.”
These subsidies rarely get mentioned when sports proponents seek public money. Hence, the “It’s only a loan!” claims about bond financing from Sodo arena backers who are either trying to mislead or who don’t know what they’re talking about.
The study notes the federal government does not collect its usual taxes on interest accrued by such bonds. The bonds get offered at lower rates of return — because gains won’t be taxed — and stadium builders have less to repay in “servicing” the debt.
But the cost to federal taxpayers goes beyond that immediate subsidy. The study says investors in higher tax brackets buying such bonds receive a disproportionate “windfall” of tax breaks, making for a bigger federal-revenue loss.
So, while the Seahawks received a $94 million subsidy for CenturyLink Field, the Brookings study calculated the federal government’s total revenue loss on that at $108 million.
The Mariners benefited from similar subsidies in building Safeco Field. But the study considered only venues built since 2000, so that benefit wasn’t calculated.
As for Hansen, the exact federal subsidy he would receive isn’t known because it has yet to be determined what type of bonds would be used or the term lengths they’d carry. But make no mistake: They would cost federal taxpayers millions.
The public-subsidy argument got lost amid the outcry from Sonics fans after the council’s vote in May. They groused mainly about the city caving to a Port of Seattle lobbying effort — an argument with some merit — but ignored Hansen’s opponents frequently questioned his project’s public funding.
Questions were raised after Hansen’s former arena partner, billionaire Steve Ballmer, bought the Los Angeles Clippers for $2 billion in 2014. Some wondered why Hansen’s group needed public money when Ballmer had enough private funds to outbid rivals by $500 million for the Clippers.
Hansen hasn’t announced new partners to replace Ballmer.
Council members complained Hansen was pressuring them into giving up Occidental prematurely, given it’s doubtful he will land an NBA team by the November 2017 expiration of his MOU. That deal provides $120 million in bond funding if Hansen lands an NBA team, another $80 million if the NHL comes.
But Hansen forgoing public funds would ease many concerns.
It would signal he has sufficient means, that his attempts at arena approval before any teams become available isn’t just to acquire bait to lure new investors.
The ticking clock of the MOU deadline would be eliminated and buy time to secure teams.
Moreover, it would be an easier sell to council members such as Kshama Sawant, who otherwise must explain to left-leaning supporters why millions in taxpayer subsidies are going to a hedge-fund manager worth nearly $1 billion.
Hansen’s supporters have long ignored that such subsidies are even in play.
But as the Brookings Institution suggests, they are quite real and likely tens of millions of dollars beyond the $200 million “loan” Hansen stands to receive.