The Secret Tax Subsidy Society
Republicans and Democrats conspire to create stealth taxes to fund the NBA arena. Will they succeed?
Don’t tax you.
Don’t tax me.
Tax that fellow behind the tree.
-Old political adage.
Back in the mid-1990s, when politicians were scrambling for ways to finance a new stadium for the Milwaukee Brewers, Mayor John Norquist jumped on an obscure fee on petroleum in fuel storage facilities, proposing a two-cent-per-gallon increase in the tax to fund the stadium. He delighted in the idea, calling it “the ultimate tax the feller behind the tree tax.”
But Gov. Tommy Thompson loved it, too, and quickly grabbed it to beef up the state transportation budget. Yes, it was a cinch the petroleum companies would find a way to pass the costs onto the pump price for gas, but who would be the wiser? Thompson’s transportation secretary called the proposed fee “not a tax.”
Lesson learned. If you want to hand out subsidies to millionaire ballplayers and owners, you better find a stealth tax, something the voters can’t really see or feel. That goes double if the plutocrats in question, Bucks owners Marc Lasry, Wes Edens and Jamie Dinan, are among the wealthiest people on the planet. As Edens recently admitted, that “complicates the narrative,” an oh-so-delicate way of describing his demand that average and even poor folks donate taxes to line of the pockets of the filthy rich.
It was Rep. Dale Kooyenga (R-Brookfield) who came up with the idea of grabbing the state income taxes paid by NBA players, which was pretty creative, but Gov. Scott Walker did that one better, saying his proposed $220 million state handout would come from the increase in income taxes paid by ballplayers as a result of the lucrative new TV contract that the NBA signed. State Democratic legislators tell me this refinement was actually Mayor Tom Barrett’s idea (his spokesperson Jodie Tabak denies this, sort of, saying “I’m sure others had the idea as well.”).
Whoever had the neat idea, it’s been portrayed as not really a tax because this revenue would have been lost if the Bucks moved out of state. But you could make the same argument about any company that threatens to move out of state if it doesn’t get a subsidy. The only difference is the obscene size of the Bucks subsidy, which is likely to exceed $800 million when all the finagling is finished.
That still left the city and county searching for stealth taxes to underwrite their contribution. Barrett has repeatedly said no property taxes will go to the Bucks, but as with the state funding, it’s all semantics, the entire city contribution will eventually flow from property taxes. The mayor has promised to spend $17 million on infrastructure in and around the proposed new arena site; give the Bucks the city-owned parking ramp at N. 4th St. and W. Highland Ave., valued at $7.4 million (which generates a tidy $400,000 annually in net revenue); and a $1.1 million city-owned parcel once occupied by the Sydney Hih building in the Park East corridor, as the Milwaukee Journal has reported.
As for the county it has yet to come forward with its contribution, though the Journal Sentinel has reported that County Executive Chris Abele may try to get his hands on the Wisconsin Center District tax, which includes a car rental and hotel tax. Right now, Abele is running last in the stealth tax game, but he’s still relatively new to politics.
Meanwhile, there are all kind of subsidies the Bucks will gain that have gotten little or no discussion:
-The $220 million state contribution will probably be paid in bonds repaid over many years whose interest will drive that cost up to a total of $380 million. (If the state lowers the proposed contribution, as some Republican legislators are demanding, the city and county will be pushed to make up the difference.)
-The biggest stealth tax: the arena and land will be exempt from state taxes which adds a cost to taxpayers of as much as $450 million, as I’ve reported. If the city and county opposed making the arena a nonprofit, that huge added cost would kill the project.
-The state bonds will be exempt from federal taxes, which means money lost to the federal treasury. The lost taxes for Miller Park from $160 million in state bonds was $68 million, I’ve estimated; the price tag here could be as high.
-The state bonds will also be exempt from state taxes, which wouldn’t be the case for a private company buying bonds.
-Because the new arena will be classed as a non-profit, all the materials purchased to build it will be exempt from the state sales tax. (The sales tax would be higher in this metro area, by the way, because it includes the portion that still goes to paying for Miller Park and its continuing maintenance and improvements.)
-While it hasn’t been discussed, the Bucks will probably be given several tracts of land that were purchased by the non-profit Bradley Center, which has been buying up land around the Bradley Center, even as it got a $10 million subsidy from the state.
-To make room for the new arena, the Bradley Center (still working fine as a venue for the Marquette Golden Eagles, Milwaukee Admirals and concerts) will be torn down, at a cost of at least $5 million.
-We still don’t know who will pay for maintenance of the new arena. That’s cost at least $115 million for Miller Park.
Meanwhile, while the Bucks owners have promised to build $500 million worth of ancillary development, they aren’t signing any contract to do so. And we’ve yet to learn whether any of this will occur on land they are simply given, and how much the city will spend on Tax Incremental Financing to make it happen. Billionaire sports owners, as American taxpayers have learned, always have their hands out.
The state plan has been so cleverly conceived that it appears taxpayers aren’t angry about it. Which leads me to believe the plan will be passed, though perhaps at a lower level of funding than the plan Walker proposed. And as the details get ironed out, and the politicians grease the wheels with various other subsidies, don’t expect them to provide much detail. The example of the Petak is a warning to all — Republicans and Democrats, state, county and city officials — not to let the taxpayers know the full story.