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Sports Palaces and Municipal Debt

2010 June 14
by Skip Sauer

Sports facilities play a prominent role in Steven Malanga’s article in today’s WSJ, “America’s Municipal Debt Racket.”  Neither Malanga nor I make the claim that spending on sports facilities is the major cause of problems in state and local budgets.  But in this case, as in many others, examples from sport help illustrate forces operating on a broader scale, and Malanga’s piece makes good use of them.  I recommend the entire article, but the following is one of the sports-centric highlights:

State and local borrowing as a percentage of the country’s GDP has risen to an all-time high of 22% in 2010 from 15%, with projections that it will reach 24% by 2012.

Even more disconcerting is what the borrowing now often finances. One favorite scheme for muni debt is giant and
risky development projects.

California’s redevelopment regime is an object lesson. Starting in the 1950s, the state gave localities the right to create public agencies, funded by increases in property taxes, which can issue debt to finance redevelopment. A whopping 380 such entities now exist. They collect 10% of all property taxes—nearly $6 billion annually—and they have amassed $29 billion in debt never approved by voters for projects ranging from sports facilities to concert venues to retail malls, museums and convention centers.

Critics, including taxpayer groups, say most such agency projects add little economic value. Sometimes the outcome is much worse. In 1999, Fresno conceived plans to revive its downtown area with various projects, including a baseball stadium for the minor-league Grizzlies, which it had lured from Phoenix. The city’s redevelopment agency floated some $46 million in bonds to build the stadium. But the Grizzlies fizzled in their new home, demanded a break on rent, threatening to skip town and stick taxpayers with the entire $3.4 million annual bond payment on the facility. The team is now receiving $700,000 in annual subsidies to stay in the city.

Adding to the city’s woes: Last June, another development project, the Fresno Metropolitan Museum, went bust, leaving the city’s taxpayers on the hook for three-quarters of a million dollars in annual debt payments.

Cities now also use taxpayer-financed debt to engage in fierce bidding wars that benefit private enterprises. Charlotte, N.C., for instance, won the bidding for the new Nascar all of Fame with a $154 million offer, funded by a new hotel tax dedicated to servicing bonds for constructing the hall. But the venue employs only about 115 people—and an economic development study estimated the increased annual tourism from the venture won’t even equal what a single Nascar race generates.

Why did politicians offer the deal? For the dubious and hard-to-quantify purpose of “branding” the city with a major attraction, according to the Charlotte Observer.

Spending on “dubious, hard to quantify” benefits should raise a red flag, don’t you think?  And what’s up with the Fresno Grizzlies?

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