Tuesday, July 12, 2011

Wall Street Journal Exposes Bad Sports Deal for Cincinnnati Taxpayers

The Wall Street Journal today published a lengthy expose of the new stadiums Cincinnati taxpayers built on behalf of their professional sports teams, the NFL's Bengals and MLB's Reds.  Turns out it was a really bad deal for taxpayers:
CINCINNATI—Here in Hamilton County, where one in seven people lives beneath the poverty line and budget cuts have left gaps in the schools and sheriffs department, residents are bracing for more belt-tightening: rollback of a property-tax break promised as part of a 1996 plan to entice voters to pay for two new stadiums.
The Bengals play at Paul Brown Stadium which opened in 2000.
The tax hit is just the latest in a string of unforeseen consequences from what has turned into one of the worst professional sports deals ever struck by a local government—soaking up unprecedented tax dollars and county resources while returning little economic benefit.
With a combined estimated cost of $540 million, the stadiums—one for football's Bengals, the other for baseball's Reds—were touted by the teams and county officials as a way to generate cash and jobs. The Bengals, who had threatened to relocate if they didn't secure a new home, drove negotiations. And it is that deal—the more lucrative arrangement struck with the teams—that has fanned the county's current struggles.
An analysis by The Wall Street Journal shows that of the 23 National Football League stadiums built or renovated between 1992 and 2010, only two involved a single county government willing to shoulder the debt burden necessary to build costly new facilities. Of those 23 deals, the Bengals pact was unusually lopsided in favor of the team and risky for taxpayers—the result of strained negotiations between a local government and the professional sports team it was anxious to keep.
At its completion in 2000, Paul Brown Stadium had soared over its $280 million budget—and the fiscal finger-pointing had already begun.

The county says the final cost was $454 million. The team's estimate, which doesn't include infrastructure work around the stadium, puts the tab at $350 million.

But according to research by Judith Grant Long, a Harvard University professor who studies stadium finance, the cost to the public was closer to $555 million once other expenditures, such as special elevated parking structures, are factored in. No other NFL stadium had ever received that much public financing.
On top of paying for the stadium, Hamilton County granted the Bengals generous lease terms. It agreed to pick up nearly all operating and capital improvement costs—and to foot the bill for high-tech bells and whistles that have yet to be invented, like a "holographic replay machine." No team had snared such concessions in addition to huge sums of public money, Journal research shows.

The Reds play at the Great American Ballpark which opened in 2003.
To help finance its stadiums, Hamilton County assumed more than $1 billion in debt by issuing its own bonds without any help from the surrounding counties or the state. As debt service ratchets up, officials expect debt payments to create a $30 million budget deficit by 2012.
The stadium's annual tab continues to escalate, according to the county's website. In 2008, the Bengals' stadium cost to taxpayers was $29.9 million, an amount equivalent to 11% of the county's general fund.  
Last year, it rose to $34.6 million—a sum equal to 16.4% of the county budget. That's a huge multiple compared to other football stadiums of the era that similarly relied on county bonds for financing. Those facilities have cost-to-budget ratios of less than 2%.
Cincinnati's deal, like many of similar vintage, was crafted as a way to keep sports franchises in place. In the 1990s, many pro teams threatened to relocate unless their local governments could offer subsidies.
Teams were given public land and rent abatements. Some received new stadiums worth upwards of half a billion dollars, paid for in large part with government bonds.
Negotiations between the Bengals and the county were ultimately handled by a three-person county board of commissioners. One of those commissioners, Bob Bedinghaus, joined the Bengals in 2001 and is now the team's director of business development.
Hamilton County voters overwhelmingly approved a half-percent sales tax increase in March 1996, paving the way for the pair of stadiums. In exchange, residents were promised a property-tax rollback and more funding for public schools.

After the vote, the Bengals haggled for roughly a year with the county over the construction and lease terms under a deadline imposed by the team, which refused to share its financial records, according to a county official present at the meetings.

Among the sticking points: who would pocket the millions in annual parking revenue (the Bengals now collect those funds) and who would pay for security costs (the county picks up the bills).

The Bengals say that the county had expert consultants during the negotiations and that NFL teams don't make financial information publicly available.
I would strongly encourage people to read the entire article which is presently available on-line.

As the article notes, one of the three commissioners negotiating the deal with the Bengals and Reds ended up with a cushy job from the Bengals just a year after it opened.  You see the same thing in Indianapolis as private businesses benefitting from the City's sweetheart deals often end up hiring the very people negotiating the deals.  The Indianapolis Star though says nothing about the local revolving door, while obsessing over a state legislator being taken out for a $20 meal by a lobbyist.  A perfect example of the local revolving door is former Deputy Mayor Paul Okeson going to work for Keystone Construction, a big contributor to Indianapolis Mayor Greg Ballard.  Keystone has received a number of lucrative contracts from the City.

The WSJ article doesn't mention Indianapolis, though I assume the Lucas Oil Stadium (LOS) deal was one of those deals that was reviewed.  What is not clear from the article is whether Cincinnati officials during negotiations gave away revenue from the taxpayer-owned buildings.  With the LOS deal, the Colts get to keep half of the non-Colts revenue from the building even though the City pays to operate it.  With regard to Conseco Fieldhouse, the Pacers get 100% of the non-Pacers revenue from the building while the taxpayers currently pay $10 million a year to operate the building, an amount which may or may not cover all the building's operating expenses.  I'd be curious as to whether Cincinnati gave away the buildings' revenue which would help offset operating costs taxpayers have to pay.

The practice of Indianapololis' negotiators giving away to private companies revenue from buildings paid for by taxpayers has shown up again in the proposed Broad Ripple Parking Garage (BRPG).  It appears that we taxpayers will be footing the entire cost of the parking garage, while the revenue from that garage goes to the private partners, chiefly Keystone Construction.  With Conseco Fieldhouse and LOS we taxpayers at least still own the buildings. The BRPG goes further - we are giving away the ownership of a building built with taxpayer dollars.  Yep, that's right. We taxpayers pay to build the garage, but we won't own it or get income from it.

Thanks to Aaron Renn of Urbanophile for passing along this story.


Nicolas Martin said...

Par for the course. A first class city has cronyism, graft, and stadium socialism.

Jeff Cox said...

I think it needs to be emphasized, and the article does mention, that the people of Hamilton County, Ohio, voted in a public referendum for these two stadiums. The voters of Cuyahoga County, Ohio (Cleveland) also voted in favor of three sports facilities for the Browns (1995 referendum), Indians (1990 referendum) and Cavaliers (same 1990 referendum). It wasn't cronyism or graft. The public was given a chance to vote and they did.

Ohio is very, very passionate about sports, especially football. (The NFL was born in Ohio.) Ohio is a completely different world from Indiana when it comes to sports. The voters there have said loudly that, to them, keeping their sports teams is worth the tax hit. You may question their priorities. They may not be the same as yours. But their teams are very, very important to them.

That said, the people of Hamilton and Cuyahoga counties in Ohio at least got to vote on the stadium funding. The referenda were required by law. That's the way it works in most places, with, you know, government that actually cares what the people think. That's how it's supposed to be.

That's also not the case in Indiana. If you recall, both Conseco Fieldhouse and, especially Lucas Oil Stadium were rammed through the General Assembly and the City-County Council with little if anything in the way of critical comment. This when most polls showed upwards of 60% of the voters here opposed any public funding for these facilities.

if the people here had the same chance to vote that the people in Ohio had, both facilities would likely have been voted down.

Which is why you will never see such referenda in Indiana.

THAT is the real problem.

Jon said...

Jeff Cox has hit the nail on the head, the team owners and the connected few have too much to lose by allowing the serfs a voice in their own lives.

Cato said...

"The public was given a chance to vote and they did."

Cox, that is really stupid.

You're proof that democracy is two wolves and a sheep voting on what to have for dinner.

So it's fine to expropriate people if a majority thinks it's a swell idea.

Lynch mobs also had a majority of opinion in favor of the rope.

Citizen Kane said...

I am not so sure referendums would be defeated here. Referendums would be conducted similar to the Wishard boondoggle. Meaningless words would be used to create meaningless sentences that seem innocuous to the average voter. Couple that with primary season referendums, get out the vote tactics and good bit of propaganda and disinformation (lying).

Paul K. Ogden said...

Jeff, you are exactly right about the referendum part. Of course, the referendum was also part of a bait and switch where people thought they would get more money for schools and lower property taxes.

We also got a referendum here on the Wishard issue...but then they wrote the wording so favorably to the project there was no way it would be defeated. But I digress.

I would note that the Cincy area is a heck of a lot more passionate about the Reds than the Bengals.

Paul K. Ogden said...

I didn't read CK's response before I wrote mine. CK made the point better than I did about how referenda can be rigged, like it was with the Wishard deal.

Still I bet if you put that $33.5 million deal for the Pacers up for a vote, there is no way it would have passed.