Bruce Murphy
Murphy’s Law

Should City/County Donate More to NBA Arena?

Actually, local taxpayers will be donating $450 million. But the press won’t report the details.

By - Mar 24th, 2015 10:17 am
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San Francisco Arena - Southeastern Entrance. Rendering by MANICA Architecture.

The new arena in San Francisco is being built without taxpayer subsidy. San Francisco Arena – Southeastern Entrance. Rendering by MANICA Architecture.

Milwaukee taxpayers, get ready to open your wallets.

Republican Assembly Speaker Robin Vos has laid down the gauntlet, saying there is “zero chance” of the legislature approving a plan to help finance a new arena for the Milwaukee Bucks without a greater city and county contribution. Gov. Scott Walker’s plan had called for a $50 million contribution by the city and county and $220 million by the legislature, to supplement $150 million of financing by Bucks‘ owners Wes Edens and Marc Lasry and $100 million by former owner Herb Kohl. But Vos has suggested the legislature could lower the state’s contribution to $150 or even $120 million, which would leave the city and county having to contribute as much as $150 million.

But this entire discussion leaves out a huge contribution the city and county must make to the new arena. Sources close to the Bucks say the team expects the arena to be legally structured as a non-profit, meaning it will be exempt from property taxes. That means this private, for-profit business will pay not a dollar in property taxes for its money-making arena, and will get all the city services other businesses pay for — police and fire protection, garbage pickup, street maintenance, snow removal, etc. — for nothing.

The estimated cost of the arena has now risen to $500 million. It will also use several acres of downtown land for the facility and parking that might be worth an estimated $25 per square foot. Based on the current, combined Milwaukee property tax rate of $29.97 per $1,000 value, , the Milwaukee Bucks would pay in the neighborhood of $15 million annually in property taxes on the building and land, or $450 million over 30 years (which is about how long the Bradley Center will last, as it’s likely to be torn down once the new arena is built.)

That might be a high estimate as property tax assessments for new buildings are often set below their construction costs. On the other hand, I’m simply applying the current tax level for all 30 years of use, while building’s value and taxes are likely to rise over time. (The value may rise tremendously if the arena and surrounding development have the positive impact on downtown development that Bucks owners repeatedly tout.) These taxes not paid by the Bucks will be lost to the city, county, Milwaukee Public Schools, Milwaukee Area Technical College and the Milwaukee sewerage district, but not really: they will simply charge city and county taxpayers more, to make up the difference.

The full state contribution of $220 million, if Walker’s plan is passed as is, actually amounts to $380 million when interest on the bonds is included.  And, yes, the interest counts: unlike a home owner who gets a fully paid up home after the mortgage is retired, state taxpayers get nothing but a facility that needs replacing by the time it’s paid off, judging by how quickly pro sports venues get rebuilt these days.

But even at a $380 million state contribution, the city and county taxpayers will match that just through the property tax exemption. And Mayor Tom Barrett has already hinted that a TIF district will be created to help fund the arena, which will increase the city contribution. Meanwhile, we have yet to hear if the adjoining development to be built by the Bucks — bars, restaurants, maybe offices and residential — will be exempt from property taxes. Yes that would be outrageous, but the subsidies for sports team have been getting ever more high-handed.

Curiously not a word has been written by the Milwaukee Journal Sentinel about the value of the likely property tax exemption for the Bucks, though this beat is covered by Don Walker, who is “on a Marquette University Law School fellowship established through the Sheldon B. Lubar Fund for Public Policy Research.” That sounds so august and academic I’m sure that Walker will be analyzing those tax exemption numbers soon and reporting back to his readers.

Elsewhere, the huge value of tax breaks to pro sports teams was recognized by Bloomberg.com, which reported that tax exemptions on municipal bonds issued for sports structures “cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show.”

Remarkable how a little old tax exemption could cost taxpayers so much. But reporters have typically looked only at the stated cost of sports facilities without looking at the impact of all the stealthy tax exemptions. For instance, the $160 million in bonds the state issued to pay for Miller Park were exempt from federal taxes and thus lost the U.S. Treasury $68 million on the interest earned, as I reported years ago.

Similarly, the $120 to $220 million in state bonds proposed for the new Bucks arena, will, like all state bonds, be exempt from federal taxes. I don’t at this point know the exact amount that will be lost to the U.S. Treasury as a result, but this sounds like the kind of thing that someone on a Sheldon B. Lubar Fund for Public Policy Research fellowship could probably research.

As with the property tax exemptions, the federal tax exemptions mean less revenue flowing into the federal treasury, so we taxpayers must make up the difference. With that in mind, President Barack Obama has included a provision in his new budget that would “put an end to the long-standing practice of states and cities using tax-exempt bonds to finance professional sports arenas.”

That is a smart way to constrain the ability of pro sports teams from getting huge subsidies by blackmailing cities and states, playing them against each other. But it’s only a beginning step: A more encompassing federal law would be needed to eliminate all the ways sports teams are subsidized, though it might raise constitutional issues regarding states’ rights.

Meanwhile, Laurel Patrick, Walker’s spokeswoman, told USA Today that until Congress acts, the issue is irrelevant. “If the president’s proposal is approved by Congress, we will review the proposal to determine if there is any impact” on the plan, Patrick said. Meaning full speed ahead.

Short Takes

-The property tax exemption and TIF funding will not be the only costs for the city. Jodie Tabak, spokesperson for Mayor Barrett, says that “a major portion of the site acquisition costs have already been borne in large part by City of Milwaukee taxpayers.” This cost “tens of millions of dollars,” she says, which “are costs that nobody, including the team and the state, will have to pay at the proposed site because Milwaukee taxpayers have already paid.”

-Have you noticed all the glowing generalities from County Executive Chris Abele as to what the county’s contribution might be? His most recent bit of banality was: “I believe it is crucially important that the public discussion of this opportunity focuses not on what could go wrong but how to make it go right.” Abele, I’m told, is laying in the weeds, because anything he publicly favors will likely be opposed by the county board because it comes from him. That adds another layer of complication to the already messy arena deal.

-And the proposal to subsidize the Bucks is drawing criticism from the Wisconsin chapter of the Koch Brothers-financed Americans for Prosperity. “Any time the government gets involved in a deal, taxpayers are at risk in some way,” David Fladeboe, AFP’s Wisconsin director, told The Huffington Post. “There are still a lot of questions to be had. From our perspective, this just isn’t the role of government and we should be using our resources elsewhere.”

David Koch ran for vice-president on the Libertarian Party ticket in 1980, and this stance on the Bucks arena is consistent philosophically with the party’s opposition to government handouts to selected industries or businesses.

36 thoughts on “Murphy’s Law: Should City/County Donate More to NBA Arena?”

  1. PMD says:

    At one time didn’t the new Bucks owners claim they wanted to announce the new location in December or January? It’s almost April now. What’s taking so long?

  2. AG says:

    Bruce, you’re creating a false comparison. If the bucks leave town we’re not going to see $450 million dollar reduction in the costs of services in the city. Besides, the arena, although being replaced at the behest of the NBA, serves more than just the Bucks. It is a cultural and entertainment institution that provides substantial benefits (more than monetary) to the city and SE Wisconsin. Hence the BC is the tax exempt entity, not the bucks.

    This does not mean I’d support the ancillary development being tax exempt, although I’ve seen no indication it would be.

    Two final notes… How much tax is being generated by the wasteland called the park east currently and for how long will it remain that way? Should we start looking at all tax exempt organizations that utilize city services? Last I checked, unions are tax exempt and while considered non-profit they clearly work for the personal profit of it’s members. How much of my tax money is supporting these groups through their tax exemptions?

  3. Beer Baron says:

    I still say the downtown post office location would be the best place for a new arena. Why isn’t anyone talking about that location, Bruce?

  4. TM says:

    There is no way Milwaukee residents should be funding an arena for two billionaires listed on the 50 richest in America. It is just obscene to even consider this scenario. Take all the dollars we’d be handing over to support the new arena and use it support our schools, infrastructure, transportation, and parks and our city will be far better off in the long run. We don’t need the Bucks. BC is just fine for Marquette, hockey, soccer and performing artists.

  5. TM says:

    Addendum to earlier post:
    The combined wealth of the five primary owners of the Bucks is greater than the combined wealth of the entire adult population of the city of Milwaukee. Assuming there are 400,000 adults in the city and their average current wealth is $50,000 each (which may be high) the total wealth of all adult residents is $20B. The owners combined wealth is greater than that. Let them pay!

  6. Marie says:

    Thanks for laying out another piece of the puzzle, based on facts and not just vague assertions.

    AG, yes, many nonprofits do not pay taxes, but as the term suggests, they are not private ventures that churn money for private investors. Pabst Theater Foundation is a nonprofit, employs many people at three or more venues, and brings many people downtown on a nightly basis and spend ancillary dollars. Some even travel from a distance and stay overnight to see shows. Taxpayers helped pay for the Pabst Theater restoration and the deal is that the theater can never be sold for profit. It will return to city if the foundation ever bows out. That’s a good investment for taxpayers.

    Bruce, could you do some analysis on what it would mean if the arena did truly function as a nonprofit? I know that might take some digging to crunch numbers, but that’s a discussion worth having. Are other sports venues run this way? For the Packers, I believe the whole operation is a nonprofit, or maybe more than one.

    In the case of Miller Park, I believe your reporting (and Milwaukee mag’s) shows that taxpayers foot much of the maintenance but Brewers owners scoot off with the profits. Why do public officials keep making horrible deals for taxpayers just so area residents can get pumped up with bragging rights? Yes, lets keep sports teams, but insist that the public gets a true cut of the wealth they generate.

  7. Bruce Murphy says:

    To AG, I’m not saying $450 million in city services will be lost, I’m saying the taxes will be lost and we taxpayers will make up the difference. As for other non-profits, yes unions are tax exempt as are business groups and a wide range of groups. The question of how other non-profits are treated is worthy of discussion but irrelevant in this case as we are talking about a for-profit, the Milwaukee Bucks, whose facility will be treated as tax exempt.

  8. AG says:

    Bruce, it’s all relevant information. It’s not like this is happening in a bubble… there’s tax benefits that are to the advantage of for-profit companies all the time. Even our water incubator got federal and state tax credits which helped make rents lower and thus benefited for profit companies.

    The arena itself is a public institution with public benefits… so I don’t think it’s outside of the city or state’s perview to consider it tax exempt. The Bucks are certainly the largest user of that building, but the arena and Bucks are two separate entities. If the bucks leave, the arena is still an asset that remains.

    Regardless, if we miss out on $15 million a year in property taxes but gain $30 million from ancillary development (not to mention the other benefits of having an NBA team and a new arena) then I’m ok with that. It’s not like we’ve gotten that property tax from the park east in the last 15 years anyway.

  9. Wisconsin Conservative Digest says:

    If the legislature votes fro this turkey without county and city picking up more than half the legislators outstate will go down in defeat by the droves, especially if the cut school aids again.. If the dems do not back it no GOP will vote for it.
    The total cost with interest is 380 million, that is lots of school aids and don’t try to peddle that crap about salaries every proposed auditorium, building in state will want to use that. it is coming from general fund. teh city would have been far better off to cure its problems in crime, education then waste money on trolleys and turkeys like this arena.
    Finally, no one has seen the contract between the Bucks and the NBA, all you have is someone’s word that they cannot stay at the Bradley. Don Walker, in Journal, yesterday, hedged the bet when he said tha tunless we build arena we “MAY___lose the Bucks”. Show me the money”.

  10. PMD says:

    WCD, I agree with you on the importance of reducing crime and improving education in Milwaukee. When people consider moving to or staying in a city, they consider the prevalence of crime and the quality of the schools. But those are not the only two things they consider. People worry about and are interested in more than two issues. So in terms of attracting people to Milwaukee and/or keeping them here, including the thousands of young people attending Marquette, UWM, MSOE, Alverno, MIAD, etc., what efforts do you support? You are adamantly opposed to a new arena and the streetcar. We all get that. But I wonder what you do support, or if you truly believe the city should focus on two things and ignore basically everything else.

  11. Rich says:

    Who the hell is Robin Vos and why does he get to decide how much the city pays? Walker signaled the state would pony up $220 and if some outstate (Republican) legislators have to lose their jobs keeping their ideology straight, so be it. If the state comes up short, Lasry and Edens are on the hook, not the city, and I’ll do what I can to vote out any fool who thinks otherwise. I’m not saying the city pays zero (apparently we’ve been signed up for $50, but just because this turkey has public benefits, doesn’t mean the city is the financier of last resort.

  12. Kathleen Miller says:

    The empty seats at the current Bucks’ games, despite the excitement of new investors, are a strong indicator that the huge public investment being sought would not serve to excite area sports lovers and increase revenue to surrounding businesses at the astronomical level it would take to justify this plan. Rather, it means more public dollars being spent and more of our city being taken off the tax base for the personal profit of a few. I would hope that Wisconsinites cannot be sold out so readily.
    KOM

  13. wisconsin Conservative Digest says:

    Who is Robin Vos?? You really aren’t that stupid are you? He is the guy that decides if and how much the state will put towards the Arena, I think nothing is best. Play at Bradley and fix it up. The bucks sell tons of tickets for $5 and still cannot fill it up. when they fill that up, make enuf money to build a new one like they are doing in other places than build it. do not ask people in Cashton to pay for it.
    With this city you must start with something that can be fixed and then go from there. It does not have the leadership to take on multiple projects and get anything done. Save the neighborhoods form crime and then save the kids by educating them. After that we can move on support Kooyenga and Darling plan.

  14. Wisconsin Conservative Digest says:

    Journal today sez that the total could be 490 million from the state. I want to hear the legislators sell this to Crandon and Cashton. Want to see 20 legislators go down in flames??

  15. Rich says:

    WCD, I’m so glad you were able to bring this back to a banal, personal level and toss an insult. In case it was not clear through the sarcasm, I am well aware of who Robin Vos is and his position in State Government, I just don’t give two shits about what he thinks about what Milwaukee should do in this case. I elected Tom Barrett (whether you like it or not) to make that decision.

  16. wisconsin Conservative Digest says:

    Good Rich I will pass that along to him and the other legislators that you want to pony up 490 million over the next 30 years for this turkey. Figures out tonite.
    Rich, go to Tom Barrett and ask for that 1/2 billion.
    Great way to get votes with stupid GD insults to everyone.

  17. tim haering says:

    Wanna revive rail? Let the Bucks and Brewers go begging elsewhere for corporate welfare. Milwaukeeans can take Amtrak to Chicago for ball games.

  18. 2fs says:

    TM: Where are you getting your numbers on the combined wealth of the Bucks’ owners? The numbers I’ve been able to find don’t come close to yours. I’m finding figures of $1.7B for Lasry, $2.5B for Edens, $1.8B for Dinan…we’re nowhere near $20B with the 3 main owners.

    Regardless: Your $50k number is surely on the high side for average income given the city’s poverty. So even if you said “The Bucks’ owners’ aggregate wealth is greater than half the entire city of Milwaukee,” that’s still a strong point in favor of letting these billionaires pay for their own investment.

    Which is what it is: if indeed a pro basketball team is such a good investment, they’ll make back that money, and more.

  19. Danny says:

    Hell no! Sports arenas NEVER work out financially for the public, it is well-documented. Build your own place of business fat cats, I did.

  20. Bob Harklau says:

    It appears to me that you are not including all the factors involved in this Arena discussion:
    1.) The Milwaukee Bucks and the Arena are separate entities as someone else has pointed out. The ownership structure of the new Arena has not been established, and you’re jumping to conclusions inferring there will be totally private ownership. With State, County and City financial support, you can’t think for one minute that this will be totally private ownership, therefore your entire premise is incorrect.
    2.) I agree that the interest on the bonds has to be considered, but how about the money coming from the player’s increased salaries used to help defray this expense?
    3.) What about the money the Bucks create, a new report states the Bucks bring 600,000 people downtown every year.
    4.) What about the money the State loses from taxing player’s salaries if the Bucks move?
    5.) What about the $100 Million the State will have to pay for deferred expenses on the BC every year? We end up with an aging facility and no team. Like it or not major league sports teams are a tremendous asset to a community.
    6.) What about the ancillary development and the huge amounts of taxes derived from this?

    When you write an article such as this, you should really evaluate all the factors and so state them, this type article plays into the minds of the many small minded people in who are intent in making Milwaukee an even more backward city than it already is. Would appreciate your comments!!

    Bob H.

  21. Greg Carman says:

    Bruce and AG:

    In my past life as a municipal lawyer, I negotiated many PILOTS (payment in lieu of taxes) with tax exempt entities, which helped defray annual operational costs (police, fire, garage pickup) for my city. The City of Milwaukee should make this part of any agreement they enter into with the Bucks owners. Let the other taxing entities fend for themselves.

  22. Rich says:

    I didn’t say I wanted every community but Milwaukee to contribute, I said I don’t want Milwaukee to be assumed by anyone else to be committing any more than the city wants to for the value it thinks it receives. The city can’t put up dollars for the the stadium anyway, so $50mil is about all they’re going to put into surrounding streets and sewers and maybe a parking garage.

    This arena thing is (should be?) no different than the Kohl’s deal. The city and county worked together to create a package to support the relocation, but the deal fell through. The city should do the same for the Bucks, but stop their investment at the level that makes sense for them, not for what makes sense in Robin Vos’ head. If that leaves him or Walker with less options and they — as you desire — also won’t ask Crandon or Cashton or, heavens, Rochester for more, then, oops, too bad, we lose out on the deal.

    Will some be sad, yeah, probably. But let me reiterate: just because this thing is in Milwaukee does not make us the fiancier of last resort. If the municipalities only assemble X and 3X more is needed, Lasry and Edens pay the bill. And they will in the end because the sustaining value of the franchise is worth the near-term cost…but…they won’t if they can sucker a state (already done) and a city (not completely yet) into paying for it for them.

    Robin is playing the same game Lasry and Edens are (IMO, they should pay for the whole damn thing themselves), only he’s picking which part of the state to blackmail and guilt into this. That’s the issue, you don’t get to protect Cashton and Crandon and Rochester at the expense of Milwaukee.

  23. Bruce Murphy says:

    To Bob Harklau: The Bucks and the new arena are likely to be as intertwined as the Brewers and Miller Park. The Bucks have already made clear they intend to book concerts at the arena as well as have the team play games there, and its quite likely any tenants, like Marquette or Admirals, will subsidize the Bucks as they now do at Bradley Center. In short all of the new arena’s revenue will flow to a for-profit company, yet the Bucks want it to be legally structured as a non-profit.

  24. TM says:

    Bob Harklau:
    I do not think you should consider Milwaukee residents who disagree with your point of view “simple-minded” and “backward.” You are naïve to think that the Bucks franchise causes individuals to increase incrementally their spending on entertainment. If the Bucks are not here individuals will find other forms of recreation. They will not hide their entertainment dollars under their pillows. Get serious. You are exaggerating the value of professional sports teams. Studies do not support your claim that professional sports teams generate significant incremental revenue. Do your homework before calling others names. I would love to see the Bucks stay in Milwaukee, but I don’t want Milwaukee citizens saddled with a tax burden so an investment group of billionaires can have a new toy. Let them pay!

  25. Matt S. says:

    @ Bruce, what’s the latest from Common Ground on all of this? It seems like they have been quiet lately. Is there a deal in the works around supporting school athletic facilities?

    Thanks for your reporting.

  26. David says:

    TM…. downtown will certainly take a hit if the Bucks leave. I happen to believe that a strong downtown Milwaukee pays dividends for the region. People may spend their money elsewhere, but there will not be as much spent downtown. Also, arenas are built differently today. The BC was not built to spur any ancillary development and was a bland building even for the time. I remember walking into the BC for the first time and thinking…. meh. And that’s after watching games at the MECCA. An arena done right can completely change our downtown west of the river. I believe that it will not only drive increased convention, hotel, entertainment and housing development, but it will entice more companies HQs to relocate in downtown. Also, without the Bucks in winter, I may watch a lot more tv.

  27. Wisconsin Conservative Digest says:

    What David is saying is 99% BS. After Braves left there were several studies that showed nothing happened. People went on there way spending their money elsewhere. The Bucks following is small and their economic impact is negligible. Do people like David really believe that the state taxpayers should take their hard earned money and fork over 490 million? No way. If someone wants the money show us not just shoveling BS.
    When I built apts. I had to sit down with bankers and lay out the P&L to show how it will be paid. let us see that happen.

  28. Bob Harklau says:

    I want to choose my words very carefully so that TM, members of The Wisconsin Conservative Digest, and for that matter, Bruce Murphy are not offended. Take a look at my analysis under (20) above, and to expand on this, several things should be noted. Study after study show the economic impact of the Bucks, specifically the MAC Report, and the State report this week that indicates the Bucks alone are responsible for bringing 600,000 people downtown and the Bucks are only bringing in one third, so in one year the Arena would bring 1,800,000 people downtown. This is hardly BS, as David points out, this money will be spent in downtown Milwaukee and not in other portions of the State. Secondly, the estimated annual income taxes paid by the NBA players is 8 million per year, and this comes directly from the State report that Gov. Walker used. Based on the projected salary increase, this could easily reach 12 million per year or 360 million in thirty years. Beyond this, are you good taxpayers willing to pay 100 million per year to pay for BC upkeep? What are the alternatives? Rip it down and we will have an Arena built in 1950 used for all events. Finally, how about the ancillary development that is being proposed? Why do you think Barrett is pushing for the The Couture, The new NML building, 833 East, 700 E, Kilbourn, and possibly the JCI building? The answer is pretty simple, Milwaukee needs to expand it’s tax base, and this new ancillary development is a step in this direction.

    So, I’ve tried to keep this as specific as possible, someone has to counter the claim that taxpayers will be on the hook for 490 Million ( the figure itself is open to question) without pointing out the other factors. This is “The other side of the story” as Paul Harvey used to say.

    Bob H.

  29. TM says:

    Bob Harklau:
    Subsidizing billionaires is not a good idea. It just doesn’t pass the reasonability test. Here’s some input from economic scholars. Take a look at the conclusion. http://news.illinois.edu/news/04/1117stadiums.html

  30. David says:

    Downtown Mpls and Indy are seeing a great deal of investment as a result of stadium investments.

  31. wisconsin Conservative Digest says:

    First why would out state want to pay money to see their people leave their area to go downtown Milwaukee. Every legit study has shown that Arenas do not do much of anything for economy. Look how much the BC has helped the area??
    Bob h, the other buildings are hardly ancillary development from the Arena. At present there is nothing on table for development, that means anything and the TIF will steal money from every part of city and school budgets.
    Finally the 490 mil come from Leg Ref. Bureau, the most legit operation in state.

  32. David says:

    I think you’re on the wrong side of history WCD. A new arena that is designed right will have a huge impact on downtown Milwaukee and a positive for the region. Once the arena is announced we’ll hear about additional, related developments. We need additional development to generate property tax revenue. Our bloated state government is insatiable.

  33. Wisconsin Conservative Digest says:

    Baloney not on ounce of proof that will convince anyone in this state to spend 1/2 billion for a bunch of dribblers.

  34. David says:

    WCD….. they are some of the best athletes in the world….. you’re the dribbler.

  35. wisconsin Conservative Digest says:

    Except for few, Kareem, Sydney, Junior, Brian winters they were a bunch of oversexed, of questionable character, that I would not want my kids to emulate. I see little big deal to have them around certainly not as examples for or youth. The Warriors, Badgers, Panthers etc, those are athletes to emulate.
    I never heard one of those claim to make 20,000 women or half that for Magic. Most of them get penicillin shots regulalry.

  36. M says:

    Bob H., how could the state (or city), possibly have to pay $100 million EVERY YEAR for deferred Bradley Center maintenance? Where did you get that outrageous number? The BC cost only $90 million to build. Even a total of $100 million in repairs sounds very inflated.

    But the real issue is how much will taxpayers be snookered into paying for new-arena maintenance?

    And how will a new arena, with its own in-house restaurants, bars. etc. jump-start more development in that area, when many businesses near BC have come and gone, and some, like Turner Hall restaurant, only open when there’s a BC event?

    Also, as economists keep noting, an arena is a depreciating asset and the Bucks franchise is a fast-appreciating asset. So the public will lose out with any investment in the building that does not involve an ownership stake in the franchise. Heck, the public got a terrible deal, even when the entire BC was donated.

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