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SPORTS STADIUMS.
Term Paper ID:30352
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Essay Subject:
Discusses move toward public funding for construction and or improvement of sports facilities for professional sports teams and franchises.... More...
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13 Pages / 2925 Words
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Paper Abstract:
Discusses move toward public funding for construction and or improvement of sports facilities for professional sports teams and franchises. Issue of who will pay for stadiums. Expanded business sales in stadium areas. Role of state governments. Pros and cons of taxpayer financing. Need for accountability and oversight to protect taxpayers.
Paper Introduction:
Sports Stadia: Taxpayer Funding Concerns
I. Identification of the Problem
Prior to 1953, only one major league baseball club played in a stadium funded by any government body and 75 percent of funding for all ballparks came from private sources. Excluding government-funded stadia built to attract the Olympics, American professional sports teams played in facilities that were funded with private investment capital (Public financing of…, 2001). Since then, bankers have come to estimate that about 20 percent of all professional American sports teams are somewhere in the process of building new stadiums, with franchises in all major sports leagues turning to government at the local and state level for a substantial portion of the costs associated with constructing these facilities (Garrity, 2000).
The pro
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The problem is particularly acute in that professional sports hasbecome very big business, with the costs of franchises increasing and acorresponding need to position a team in a stadium that is state-of-the-artin terms of size, amenities, and profit maximization via sky box sales andretail venue positioning. (1998). S., Gultry, J., & Gulibon, G. Shafroth (1996) points out that Congress rejected giving cities theauthority to use tax-exempt bonds to finance private facilities, includingstadiums, and wrote the law to state that where 9 percent of the debtservice on a bond came from local tax or rate payers, it was up to thestate or the city to determine its most important priorities. Because this is the case,these researchers recommend that when a jurisdiction is considering makingpublic funds available to private sector entrepreneurs, it do so withcaution and forethought. Congress on this issue,including Senate 94, authored by Senators Kay Bailey Hutchison and PaulCoverdell, which was designed to make retroactive increases more difficult. As noted earlier, former New York Senator Moynihan proposedlegislation to ban the use of tax-exempt municipal bonds to financerecreational facilities. Since then, bankers have come to estimate thatabout 2 percent of all professional American sports teams are somewhere inthe process of building new stadiums, with franchises in all major sportsleagues turning to government at the local and state level for asubstantial portion of the costs associated with constructing thesefacilities (Garrity, 2 ). Lever, R. Secondly, the question remains largely unanswered as to whether or notthe public, having financed in full or in part a massive constructionproject of this sort, realizes an acceptable level of return on itsinvestment. Detroit, using private funds, spent $235 million to keep theDetroit Tigers baseball team in the city. Additionally, Moynihan's legislation would have been retroactive.Cities would have paid a harsh financial penalty for having practiced thistype of TIF because Congress would have imposed tax penalties that usepublic funds for stadium construction. On balance, theauthors conclude that this project demonstrates that stadiums can be aviable spur to economic growth. R. According to Shafroth (1996), anumber of bills had been submitted to the U.S. On the one hand, franchise ownersmake the case that the presence of a sports team in a community benefitsall citizens, even the most poor. Nation'sCities Weekly, 21(2), 6-7. Local contracts, new jobs, and jobs specifically targeting minorityand women-owned businesses were generated by the project. On the opposite side of the issue, former Speakerof the House New Gingrich opposed Moynihan's legislation because of hiscontention that it surpasses city residents' ability to make their ownpriorities (Shafroth, 1996). (1995). This strategy is used to pay for public investments orimprovements needed to attract economic development or to retain businessesand has been adopted by 44 American states. Nation's Cities Weekly, 19(29), 1-3. As of 1995, at least 3 cities wereconsidering such a project, with American cities having spent over $1billion in the first half of the 199 s to either attract or keep sportsteams. Lever (1995) and Garrity (2 ) have commented that the individualsor consortia that own a major sports franchise have access to their owninvestment capital (which many such owners do spend freely on their sportscomplexes); it is these individuals or groups that are likely to make thegreatest profits from their investments, and not the public. Public financing of stadiums criticized. Building accountability and oversight into thecontract process is critically important to ensure that the interest of thevoters (and taxpayers) is protected. Noting that professional sports is an increasingly profitablebusiness, Randall Lane (1994) argues that the primary beneficiaries of suchfacilities are team owners, a selected group of merchants, and moreaffluent citizens who can afford the high cost of being a fan. ENR,243(3), 71-72. Tax increment financing:Municipal adoption and effects on property value growth. (2 ). Stadium mania puts cities over a barrel.Planning, 61(12), 22-23. ManyAmericans continue to resent this use of their taxpayer dollars.III. Forbes, 153(12), 62-65. Only San Francisco refused to use public money for this typeof activity. McGraw, D., & Bierck, R. According to Lever (1995), the Cleveland Browns were drawn toBaltimore when Baltimore built a 7 , seat, $2 million publicly fundedstadium. Analysis As Albright (1996) has indicated, the question of whether or notpublic (i.e., taxpayer) funds should be employed to construct facilitiesfor non-public and for-profit enterprises and institutions is one ofgrowing significance as resources available to cities and other units ofgovernance are strained by increased demand and lower revenue levels.Several key sub-issues can be identified, based on the foregoing review ofliterature and analysis of legislative efforts to inhibit such actions onthe part of local jurisdictions. The BondBuyer, 321(3 235), 6A-9A. Five stadium projects wereidentified by McGraw and Bierck (1996), including plans to build baseballparks in San Francisco and Phoenix, a multi-function complex in Cincinnati,and football stadiums in Charlotte and possibly, in Chicago. Teams extort public subsidies. Play ball! In some cases, suchas that of Baltimore's Miller Park, the conventional wisdom regarding thebenefits to be realized from public participation in sports facilityconstruction proved valid. Allen, M. In 1997, then-Senator Daniel P. McGraw and Bierck (1996) contended that many cities were willing tospend the lion's share of between $15 million and $1 billion to developthe kinds of stadia that would attract high profile major professionalsports teams. Worm turns on stadium rip-off. InvestmentDealers Digest, June 5, Item 157 D. Rosentraub, Gultry, and Gulibon (1999)examined the Miller Park project in Milwaukee, Wisconsin, which involvedthe creation of a $25 million baseball stadium for the Milwaukee Brewers.Though noting that the use of public funds for such projects is highlycontroversial, these researchers concluded that this particular project didgenerate measurable economic benefits for the region served by the stadium. (1996). (1999). Sports Stadia: Taxpayer Funding ConcernsI. There is also the issue of whether or not the public purse should bemade available to entrepreneurial (and generally quite wealthy) franchiseowners. Stadium deals come under scrutiny. Voters in SanDiego had earlier approved bonds of no more than $225 million for theproject, but the City Council voted to have a higher financing package.Henderson complained that the Council's approval of the increased bondamount is a blatant violation of the bond levying process. America's fascination with professionalsports shows little signs of abating, despite the fact that attendance at agame is a costly recreational event and most major league games are readilyavailable via cable and television networks. Rosentraub, M. Bread and circuses. In the context of sportsfacilities, such programs are seen as encouraging a franchise to remain ina community or locate there (Man & Rosentraub, 1998). Moynihanattempted to schedule a Congressional hearing to address a ban on using tax-exempt bonds to finance professional sports stadiums (Stanton, 1997). The theory behind such projectsis that they can revitalize downtown areas. As Allen (2 ) reported, there are many in and out ofgovernment who do not believe that such a return is generated; initial jobdevelopment due to increased construction is not permanent, and somelocales have lost money due to these projects. Since thepublic first became involved funding such activities, political leaders inthe Congress and in state legislatures have taken strong positions on theissue. The Masthead, 48(4), 3 -31. References Albright, S. (1999). (1996). Given that the profits of the "game" will enrich theteam or franchise owners, these individuals and groups should shoulder amajor portion (if not all) of the risks involved in any major constructionproject. Gingrich goes to bat for cities in stadiumfinance battle. The notion that a sports facility and team brings something unique and"special" to a city or locale is another issue that must be analyzed.Almost 1 years ago, Lane (1994) questioned whether or not the image of acity was so significantly enhanced by the presence of a sports franchisethat the citizens should "pony up" their tax and investment dollars to gainthis status symbol. Finally, in thisgeneral context, it is unknown at this juncture what the long-term economicbenefits of such projects are; if, as Albright (1996) and others havesuggested, franchise owners merely continue to ask for bigger and betterfacilities every decade or so, costs for development could be ongoing whilebenefits tangential at best. (2 ). Legislative History The economic rationale behind taxpayer funding of stadiums is that thepublic investment will spur economic growth and create jobs. Voters are more than capable of expressingtheir disapproval - or their approval - of expensive construction projectsthat they are asked to finance; as Albright (1996) commented, many suchprojects tend to die a slow death for precisely this reason. At issue is the question of who will pay forthese facilities and the equity that will accrue to local and stategovernments when they play a major role in stadium financing, and the prosand cons of taxpayer financing of such facilities (Garrity, 2 ).II. Unless thisprestige is translated into measurable income improvements (and filtereddown to the most poor citizens who probably cannot afford to attend a gameor event), the inherent value of such a project must be questioned.Man and Rosentraub (1998), in their discussion of various TIF strategies,do note that when accountability and transparency is built into the publicfinancing of such facilities, benefits can be acquired. Literature Review Any number of studies have addressed issues relevant to the use oftaxpayer funds for nonpublic construction projects, including those thatbenefit professional sports. Y., & Rosentraub, M. In selected areas such asDetroit, Chicago, and Washington, D.C., where stadium development has beenpositioned in blighted inner-city neighborhoods, these neighborhoods havebeen improved. and Detroit in which land is provided, infrastructureimprovements undertaken, and sports facilities built to attractprofessional sports teams in the hope that such teams will improve a city'simage and generate additional revenues. Peirce, N. Despite these efforts at the national level, local and state branchesof government have not gotten out of the stadium financing business.McGraw and Bierck (1996) reported that even as officials in Washington weredebating a national ban on public financing of sports facilities, a numberof new facilities (using public financing) for professional sports teamswere either being constructed or planned. Identification of the Problem Prior to 1953, only one major league baseball club played in a stadiumfunded by any government body and 75 percent of funding for all ballparkscame from private sources. However, Albright (1996) haspointed out that public financing of stadiums is under scrutiny astaxpayers begin to object to excessive bond issues or tax increases neededto fund these construction projects. Team ownersoften use the device of threatening to leave if taxpayers will not providethem with a new facility - as is currently the case in New Orleans, whereTom Benson, owner of the New Orleans Saints, is threatening to move histeam if the state of Louisiana does not provide his team with a newstadium.IV. When manymajor cities are facing the need for educational and public healthinfrastructure improvements, "selling" the public on the "need" for a newsports facility can be difficult at best. However, asMcGraw and Bierck (1996) note, this case is possibly and exception and notthe rule. Man, J. Thus, it can beargued that the federal government does not (and perhaps should not)involve itself in this issue. Garrity, B. Conflict in SanDiego over the issue has continued, with no resolution in sight.V. First, as Gingrich so ably demonstrated in his objection to thelegislation proposed by Senator Moynihan (Shafroth, 1996), there is thequestion of whether Congress has the constitutional right to limit citybond issues in any manner at all. Lastly, as Lever (1995) suggests, franchise owners who use the threatof leaving as a means of gaining public financing should be questioned asto their real motives. (1996). Playing the stadium game. In 1999, Senate Bill 952, the Stadium Financing and Relocation Act wasproposed. Robert Lever (1995) examined projects undertaken by cities such asWashington, D.C. In this instance, careful and ongoing scrutinyof the project, its budgetary performance, its use of minority set-asidecontracts, and its other elements ensured that the project was brought inon time and under budget - to the advantage of all concerned. Shafroth, F. (1997). Excluding government-funded stadia built toattract the Olympics, American professional sports teams played infacilities that were funded with private investment capital (Publicfinancing of..., 2 1). The problem is significant in that, as Peirce (1998) and others havecommented, taxpayers demanding improved educational, transportation, andother infrastructure services from their units of governance are beginningto resist (or at least view askance) the demands of franchise owners for"new, bigger, better" stadia. (1998). Financing for the new Pacific Bell Park for the SanFrancisco Giants came from the private sector. Stanton, M. Such a sharing of responsibility is ultimately equitable for boththe franchise owner(s) and the general public. TIF programs generally involvesubstantial freezes on the assessed valuation of property parcels in adesignated area. Henderson files new suit against ballpark. Pittsburgh Business Times,2 (38), 1 . This researcher maintains thatthese facilities are often located in blighted urban areas with theexpectation that ancillary businesses will also locate in such areas andimprove their safety and desirability. Warning: Moynihan isn't beaten yet. SanDiego Business Journal, 21(8), 1-4. Man and Rosentraub (1998) argued that one creative way of financingthe construction of nonpublic facilities for profit-oriented businesses isthe use of tax increment funding (TIF). U.S.News & World Report, 12 (22), 46-52. S. Such programs, thoughcontroversial, have had the effect of improving the overall economic statusof a particular locale while generating increased tax revenues fromexpanded business sales and other activities. A tax was placedon the citizens of the state to finance the project, but it was attached tostrict state oversight, budgetary and accountability standards and set-aside guarantees to benefit minority group businesses. Under thebalanced budget bill, Moynihan argued that excessive debt acquisition atthe local or state level was antithetical to the spirit and the letter ofthat initiative (Stanton, 1997). For most ordinary American families, a trip to see aprofessional sports team once (or possibly twice) a year is an expensiveouting. Significance of the Problem Recent polls show that as much as 71 percent of Americans living inregions where new stadiums are proposed, oppose the raising of taxes tobuild these stadiums (Peirce, 1998). Identification of a city with a winning or attractive franchiseoffers what can be an ephemeral sort of prestige at best. This Act required professional sports leagues to shoulder one-half of the expenses in building a new stadium (Rosentraub, 1999).However, Moynihan attempted to breathe new life into efforts to ban the useof tax-exempt bonds to finance professional sports stadiums. The conventional wisdom is thatlocating a new or improved stadium in a community will generate localeconomic gains, including a wealth of construction-stage and operationaljobs, increased tourism revenues, and retail sales. Recently, former San Diego city Councilman Bruce Henderson filed alawsuit challenging that city's approval of up to $299 million in bondfinancing for a new San Diego Padres ballpark (Allen, 2 ). Rosentraub, M. Where the financing is: Stadiums. Public FinanceReview, 26(6), 523-548. Government Finance Review, 15(2), 4 -48. Lane, R. However, the residents and small businesses that are oftendisplaced by such projects may be adversely affected. Cities have limited bond issuelevels, and hard choices must often be made between retaining or attractinga sports franchise and building better, safer and more effective schoolsfor inner-city students. Payback ofbond levies and issues is often accompanied by a reduced interest rate(needed to make the debt attractive and relatively easy to pay off); inother words, financing is made available to entrepreneurs at asubstantially lower rate than might otherwise be accessible. Those who support the right of a city (ora state, for that matter) to issue bonds or increase taxes to financeconstruction of facilities such as sports arenas and stadia make the pointthat financial management is, absent intolerable debt and bankruptcy bail-outs, the purview of the local or state government authority. In virtuallyall cases in which a jurisdiction has agreed to use either taxation orbonds as a source of financing for professional sports (or for-profithospitals and other non-public institutions), it has done so only aftervoters have registered their approval at the ballot box. At the same time, the Taxpayer Fairness Act of 1996, proposed byRepresentatives Gerald Kleczka and James Sensenbrenner, called for a ban onthe municipal tax-exempt financing for any nonprofit hospital financing ifany part of the bonds were to be used to provide for any recreationalfacility. S. (1994). Financingprofessional sports. Rosentraub, Gultry, and Gulibon (1999) make the point that it islikely that cities and states will continue to exhibit a willingness topay, in part or in full, for the construction and/or improvement of sportsfacilities, stadia, and arenas for major and minor league professionalsports teams and franchises alike. Others note however, that thelocation/presence of the stadium enhances other retail and business outletsin the area, while a third group objects to the use of public funds tosubsidize entrepreneurial private business activity. Studies havedemonstrated that most new stadiums and arenas fail to achieve anticipatedeconomic benefits while placing a tax burden or bond debt on the generalpublic; in some instances, research reveals that a community which heavilyinvests in such facilities may lose money in the long run (Peirce, 1998).Thus, the problem to be explored in this report is centered upon theadvantages and disadvantages of using taxpayer money for nonpublic purposessuch as the construction of sporting facilities that will be used by for-profit franchises and organizations.
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