State Bucks Arena Plan Fleeces Milwaukee
Proposed sports district gives all legal protection to the state and sticks it to Milwaukee, both financially and politically.
Wow. If you read the actual language of the state’s proposal to create a new arena for the Milwaukee Bucks, you quickly realize the deal is fabulous for the Bucks, while giving the state total authority and legal protection and treating the city and county like vassals who provide a massive subsidy in return for no political power whatsoever.
Though the deal as revised by legislators calls for the state to provide $150 million in funding and the city and county to cough up as much as $100 million, in addition to providing a huge tax exemption to the Bucks, the “sports and entertainment district” spelled out by Gov. Scott Walker’s administration gives all control of the district to the state. It calls for 11 board members, with nine appointed by the governor, one by Milwaukee’s mayor and one by the Milwaukee County Executive. The language calls the sports district a “local government unit,” but the overwhelming majority of state appointed board members leaves no real power to local governments in Milwaukee. When asked, Walker’s spokesperson Laurel Patrick offered no answer as to why the board membership was structured this way.
The proposal also fully protects the state’s investment, noting that “if the team breaks or otherwise fails to fulfill its obligations under the lease, the professional basketball team would have to pay the state an amount sufficient to retire the state appropriation obligation issued for the sports and entertainment facility.” But there is no such protection for any investment provided by the city or county. Patrick offered no explanation for why the proposal offers protection only to the state.
Then there is the matter of the proposal’s lavish tax exemptions for the Bucks. The language of the proposal is quite sweeping, calling it not an NBA arena, but a “Sports and Entertainment District,” and specifying that a property tax exemption will be extended to “parking lots, garages, restaurants, parks, concession facilities, entertainment facilities, transportation facilities and other functionally related or auxiliary facilities or structures.” It would appear that nearly anything the Bucks owners develop in the area is going to be exempt from property taxes.
It was hardly coincidental that when the Bucks owners made their recent announcement of a $500 million, downtown development plan they called it a new “sports and entertainment district” and a “dynamic entertainment district (that) will serve as a destination that draws the people of the region together.” It suggests that the owners and Walker made sure each was using the same language. Indeed, the Bucks’ proposal for an entertainment district calls for building a separate “state of the art” practice facility, a 60,000 square foot public plaza and a new parking facility. By a neat coincidence, the state proposal for the district specifically awards an exemption for a practice facility and “parks” like the public plaza the Buck plan to build. Additionally, any “restaurants” or other “auxiliary facilities or structures” would be tax exempt.
What then is being developed by the Bucks that won’t be tax exempt? The team also suggested the plan “could” include both a hotel and office development of some kind, but it’s worth noting that the renderings provided by the team only showed the arena and “live entertainment” public plaza and a “beer garden” next to the arena that’s clearly an auxiliary facility that would be tax exempt.
In my email to Patrick I noted that the proposed sports district “would appear to exempt most of the $500 million in ancillary development the Bucks have promised to build downtown. Is that the intent, and if not, will the language be changed to make it clear that only the arena itself and anything contained within it is exempt?” Patrick offered no answer, saying only that “the bottom line is Governor Walker’s focus is on protecting taxpayers by maintaining the current revenue stream. Without progress on a new arena, the Bucks will leave Wisconsin in 2017, costing the state nearly $10 million a year in lost revenue collections.”
In short, Walker will assure the estimated $10 million in state income taxes on ballplayers isn’t lost, but has created legal language that allows the Bucks a massive property tax exemption. Not only will the $500 million arena be tax exempt, but so will the beer garden, practice facility, public plaza, probably any Bucks apparel and merchandise shops and who knows what else? Assuming everything within the entertainment district will cost at least $700 million (a very conservative estimate) and figuring that value times the current property tax rate of $29.97 per $1,000 of value, that would equal a property tax payment of nearly $21 million per year, meaning local taxpayers would lose far more in tax revenue than state taxpayers would gain. Over the likely 30-year life of the arena that’s a total property tax exemption of $629 million. (That might be a high estimate as property tax assessments for new buildings are often set below construction costs. On the other hand, I’m applying the current tax level for all 30 years of use, while the buildings’ value and taxes are likely to rise over time.)
But that’s not all the exemptions coming to the Bucks. The state proposal also awards a sales tax exemption on “building materials, equipment and supplies used solely in the construction, renovation, or development of a sports stadium.” Note that when it comes to the state sales tax, only the arena is exempt, but when it comes to the local property tax, nearly anything in the sports district is exempt. Assuming the cost of materials for the arena is, say, $300 million, that exemption would be worth about $17 million to the team.
The proposal’s language also specifies that the “income of a sport and entertainment district would be exempt from the state corporate income and franchise tax.” This language is very broad and would seem to include anything the Bucks develop under the banner of an entertainment district. Given the state corporate income tax of 7.9 percent, this exemption could be huge and wipe out most of the $10 million in annual income taxes Walker says he wants to protect.
It’s almost comic to hear state legislators repeat the mantra that the city and county must contribute to the Bucks because they will benefit from this huge development coming downtown. In fact, they are getting nothing but a massive non-profit eating up acres of developable land that will now be stricken from the tax base, and at a time when Downtown has become a magnet to new businesses. For the city, county, Milwaukee Public Schools, Milwaukee Area Technical College and Milwaukee sewerage district, this will represent a huge loss of property taxes that could have been paid by business, residential and retail development. This tax exemption is so far-reaching it leaves no way for the city to create a Tax Incremental District to finance a contribution to the proposed arena because no taxes will be collected in the district.
Perhaps the richest part of this ongoing black comedy is that the politicians are all squeezing each other to pony up more money while the Bucks are not even being asked to donate the naming rights to the arena. Even in the case of Miller Park, which at that time was the most lucrative subsidy every given to a Major League Baseball team, the $50 million in naming rights for the park helped pay for its construction.
The deal for naming rights was struck nearly 20 years ago. Today, recent naming rights deals for NBA arenas range from $20 million per year for the Brooklyn Nets (signed in 2012) to $2 million annually for the Indiana Pacers (2011) and $3.7 million per year for the Oklahoma City Thunder (2010). At a minimum, you’d expect the Bucks might get $2 million a year or $60 million over 30 years. It’s almost unheard for an NBA arena not to sell naming rights and the Bucks have been coy about this, merely saying “we haven’t talked about that.” And why would they want to? Better to wait until after the deal with the state and all its endless subsidies is secured.
So why aren’t Walker or legislators demanding the naming rights be used to help pay for the arena? Because they are doing everything they can to increase the team’s profits, at the expense of taxpayers statewide, but especially in Milwaukee.