SUBSIDIES ARE NOT INVESTMENTS.

By Tab Berg

When considering subsidizing professional sports arenas with hundreds of millions of public dollars, there are three primary concerns: the right of voters to approve debt, return on investment, and viability of the financing.

Voter Rights

Sacramento plans to raise $220 million by “monetizing” city-owned parking facilities, that currently generate $10 million a year for the General Fund, to pay for bonds to build a $448 million arena. By any credible definition this deal obligates taxpayers to a huge debt, backed by city revenues already being used for current services. Drawing artful distinctions between “tax money” and “taxpayer assets” is legal quibbling at its worst.

Perhaps more troubling are efforts by wealthy developers joined by a group of fanatic Kings fans in a blatant effort to fabricate incidents and intimidate workers and volunteers trying to protect voters’ right to vote. You have to ask – why are they so afraid of voters?

ROI: Economic Engine – or Public Drain?

Use of taxpayer funds for subsidies should be able stand the same test each of us would demand of our own investments – does the return justify the cost?

The former Chair of the California State University, Sacramento Economics Department calculates the return on investment (ROI) for this project is under 1%. Local watchdog group Eye On Sacramento (EOS) concluded that: “Constructing a new arena at Downtown Plaza is not likely to lead to broad-based urban redevelopment in downtown Sacramento.” So much for ROI.

Claims that sports arenas are economic engines is just not supported by facts. EOS states “there is near universal judgment of academics is that the arena will have negligible impact on economic growth and job formation.” Studies by the University of Maryland, The Federal Bank, CATO, The Economics Resources Center, Heritage Foundation, Heartland Institute, and Brookings Institute (to name a few) came to similar conclusions.

And the appetite for public money rarely ends with the first subsidy. Virtually every arena has required subsequent public subsidies – like the Target Center, where the NBA Timberwolves demanded renovations costing millions in ‘04 and just five years later insisted on $155 million more to renovate the renovations.

Fuzzy Math

Each deal is unique, and Sacramento’s subsidy plan raises particular concerns about the city’s overblown claims, rosy projections, and hazy details. The Term Sheet is light on specifics, and received only 3-days of public scrutiny over a holiday weekend before the City approved it in a flush of purple pride.

The architect of the deal is City Manager John Shirey, who also put together the stadium deal in Cincinnati that nearly crippled that city’s finances. The similarities are haunting – deals patched together under the duress of an impending move, single-city financing with little support from other municipalities, and both setting what Stanford economist Roger Noll calls “new records in optimistic forecasting.”

Arena subsidy advocates call the “parking financing scheme” innovative, but it’s been done before – with disastrous results for taxpayers in Chicago and New York (where drivers are used to paying huge parking fees).

Even the debts service numbers don’t add up; the parking finance scheme claims it will generate $10 million per year, but they have gifted one-third of the parking spaces to new Kings owners. So they have 30% fewer spaces to generate even more revenue. And experts say service on the $220+ million bond will cost $14-16 million a year. Even with this fuzzy math, the city is $24 million short in the first 8 years, which they paper-over by borrowing an extra $80 million – so they are borrowing money to make payments on the loan.

Jeffrey Michaels, head of the Business Forecasting Center at UOP’s Eberhardt School of Business, estimates the city has underestimated general fund obligations by $8-$12 million per year. The city is already experiencing deficits of $10 million or more for over seven years and anticipates further shortfalls through 2017.

The rest of deal is equally shaky. Developers will be gifted public land the city values at $38 million. But it has not been appraised, and could be worth significantly more. For example, the city is paying $102 million for the Arena property developers (and arena partners) paid just $20 million for just a few years ago. And city has thrown in even more uncounted bonuses to developers and team owners: billboards that generate $600,000 annually and revenue from 2700 parking spaces.

An earlier study by the city concluded that the downtown site was the most expensive option, and presented huge infrastructure challenges costing another $108 million to resolve. More recently, however, they announced that an Arena that is supposed to bring 31 million more visitors a year will have no impact on local roads.

Even those with rudimentary math skills can see taxpayers are subsidizing a lot more than the city claims and the cost to taxpayers far exceeds what is being disclosed. The city claims the subsidy accounts for only 55 percent of the cost, but it is obviously closer to 75-90 percent. That’s a pretty good deal – for team owners and developers, not taxpayers.

The flood of rosy (and sometimes conflicting) projections and bloated claims, combined with outright fabrications from subsidy advocates, make the case for public disclosure, transparency and a public vote not just a good idea – but an imperative.

If the city would allow voters to participate, the fuzzy math would have be cleared up and the plan would treat taxpayers as partners, rather than voiceless donors.