Public Bucks for the Bucks
By Jackson WeberPublished November 11, 2015By Jackson Weber 11/11/2015
From the late nineteenth century to the present day, both sports and politics have been deeply intertwined into American life. Today, almost all major cities have professional sports teams, and the growth of the media has fueled constant political coverage. Politicians broadly promote the teams they support and championship teams are honored with presidential receptions. However, never is the link between sports and politics more clear than during the process of building new sports stadiums and arenas. One of the most recent examples of the controversial public-private efforts to construct said venues took place in Wisconsin as the Milwaukee Bucks owners attempted to obtain financial support from the state, county, and city to build a new arena amidst the threat of the team leaving the city.
Certainly no politician wants to be the one held responsible for a popular franchise packing up and leaving town, but our elected officials are also taking a significant risk by providing public funding to these private organizations. Although public-private stadium partnerships are sold to the public as investments for economic development and job growth, many times the anticipated economic benefits and jobs fail to come to fruition. In the case of the Milwaukee Bucks, both economic growth and job creation have been a part of the public pitch, but income tax revenue retention has also been one of the major positive points lauded by Governor Scott Walker.
This past April, the Bucks owners first presented the idea of a "game-changing $1 billion arena package". Within that plan, $500 million is to be used to construct the new arena and the other half is projected additional spending that would develop part of the surrounding area sold by Milwaukee County to a group headed by the Bucks' main owners for $1. As the designs were already in the works, financing would of course be the politically difficult task. At the beginning of the project, Bucks owners announced a $150 million commitment and former Bucks owner and U.S. Senator Herb Kohl pledged an additional $100 million. The city, county, and state will provide the remaining $250 million. For the city's portion, they plan on providing a parking structure and utilizing tax incremental financing worth a combined $47 million. Milwaukee County would support the project by having their state aid reduced by $4 million annually for 20 years. Finally, the state would finance the remaining approximately $200 million by issuing bonds through the arena and entertainment district to be paid off by statewide taxpayers, increasing a ticket surcharge, and extending existing local hotel room, rental car, and food and beverage taxes. Annually, the state is expected to pay $4 million, approximately $500,000 of which would come from part of the ticket surcharge. For all intents and purposes, the levels of public and private involvement come out to 50-50 split. But with interest, state and local commitments will push public investment closer to $400 million.
Even though local leaders such as Mayor Tom Barrett has been able to sell the project's economic development and job creation potential, Governor Scott Walker has taken a different approach and instead only focused on the loss in state income taxes that would occur if the Bucks were to leave. That pitch allowed Governor Walker to make the deal much more palatable to state representatives not from the greater Milwaukee area. According to state revenue records, the Bucks and their opponents pay $6.5 million per year in state income taxes at minimum. Over the next 20 years, the loss of that revenue stream would amount to $130 million. Without retaining the Bucks, all of that state income tax revenue would be gone. With the state only contributing a max of $80 million to the project, the retained state income tax revenues clearly more than cover the cost of the state's investment. At the local level, property tax revenue would increase as a result of new development on previously unused land. Estimates from Milwaukee County show that by 2027 benefits would be $5 million in new property taxes and over 3,700 jobs in construction, office, and retail among others.\
While the retained income tax benefits seem solid, the benefits purported by the county are optimistic and could also potentially have occurred without the arena. The county could have still sold the land for development at a higher price due to decreased public pressure. Upon development, property tax revenue would have still increased. Construction jobs are only temporary and some would argue that the additional jobs being created are not the kind of high quality jobs the city needs.
In a perfect world, private businesses would not need public subsidies to spur investment and fund their entire operations by themselves. Franchises would completely pay for their own stadiums and arenas. But in a world where there is constant competition for economic and job growth, states and localities are pushed to offer financial support to businesses in order to encourage investment. Governments around the country face budgetary challenges and must do everything in their power to retain the revenue necessary to provide services for their citizens. When evaluating future stadium subsidies, we must not allow our elected officials to fall victim to the leverage team owners possess as a result of their ability to relocate. Yet, we also must understand that public-private investment partnerships can be done well. In the case of the Milwaukee Bucks, could the elected officials have negotiated a deal where the public spends less? Maybe, but at the risk of losing valuable revenue and an important feature of a first class city, it looks like it's not that bad of a deal after all.