Bruce Murphy
Murphy’s Law

Cost for Taxpayers In Latest Bucks Deal?

Bucks gave ground. But it’s still a huge bite for taxpayers.

By - Jul 23rd, 2015 12:39 pm
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$100 Arena Bill

$100 Arena Bill

It turns out Republicans and Democrats can agree on something: a bill charging taxpayers to subsidize billionaire sports owners and millionaire players. A bipartisan vote of the Wisconsin Senate approved a Bucks bailout and it remains only for the state Assembly to pass the bill as Gov. Scott Walker’s approval is expected.

So what will it mean for taxpayers? You’d think in the eight days since the senate approved the bill, the media would have provided a complete accounting of taxpayer costs. Nope.

First the good news. A key change in the bill added a surtax of $2 per Bucks’ ticket sold — a major concession by the team. Sports owners hate a ticket tax because it creates a constraint on how much they can raise ticket prices. The tax is expected to raise $2 million per year and really lowers the public’s contribution by that amount, but there is huge loophole in the bill (affecting all parties): it doesn’t spell out if the tax ever sunsets.

For now I’ll assume it extends for at least the likely 30-year-life of the arena. Three-fourths of that money will be kicked back to the Wisconsin Center District, to help pay off the $93 million in bonds it will issue, with an estimated total cost (with interest payments included) of $195 million. Minus $45 million from ticket tax, that’s a total cost of about $150 million.

The state’s estimated cost of $80 million in principal and interest on bonds it will issue goes down to $65 million, with its 25 percent take of the ticket tax or $15 million over 30 years. But the state has also agreed to pay off $20 million owed on the Bradley Center, a debt incurred because its management funneled every dollar it could to the Bucks. This raises the state’s total to $85 million.

The cost for Milwaukee County remains the same at $80 million, though the idea of using more aggressive debt collection to offset some of that was killed.

The city cost is $47 million plus $1.5 million (according to city officials) to tear down a parking garage to make room for planned development costs.

That brings us to a total public cost of $363.5 million, with the state paying $85 million or 23 percent. That’s way down from Walker’s original proposal, whereby the state would have paid 88 percent of the costs.

Given that local taxpayers are paying 77 percent of the costs, and that the new Wisconsin Center District will oversee the new arena, UWM Panther Arena, Milwaukee Theatre, convention center and Marcus Performing Arts Center, all local entities, it makes sense that its board will (eventually) have predominantly local representation. Until the arena is constructed the board will include three appointees by the governor, but after it is completed, those appointees are given to the Milwaukee County Executive. The board’s 17 members at that point will include the head of the state Department of Administration, the Senate Majority leader and Assembly Speaker and the minority leaders of these two houses, two appointments by Milwaukee’s mayor, three by the Common Council president and a position for the city comptroller, and five appointments by the Milwaukee County Executive and a position for the county comptroller. You’ll note the county board chair gets no appointees, a result I’m guessing both County Executive Chris Abele and Republican leaders favored.

In addition to all the publicly discussed costs, there all kinds of other costs the media ignores, namely:

-A property tax exemption will extend to nine acres of development by the Milwaukee Bucks, which the bill says “may include offices of the professional basketball team…, parking spaces and garages, storage or loading facilities, access ways, sidewalks, skywalks, plazas, transportation facilities, and sports team stores.” We will never learn the total value of this complex because its exempt and will never be appraised by the city, but even assuming a value of just the $500 million estimate for the arena, that’s nearly $15 million in property taxes lost annually or $450 million over 30 years. (For a real business the assessed value might be lower than this but over time the tax rate would rise and I’m applying current rate for all 30 years.)

-A federal tax exemption on interest on bonds issued Wisconsin Center District ($93 million in bonds) and state (originally $55 million but will probably be lowered a bit given ticket tax kickback). Miller Park’s $160 million in bonds generated a $68 million tax exemption, so this exemption is likely to be worth upwards of $50 million.

-A sales tax exemption on building materials, equipment and supplies used solely in the construction of the arena. Assuming the cost of materials, etc. for the arena is, say, $300 million, that exemption would be worth about $17 million to the team.

-A sales tax exemption on luxury boxes which will be carried over from current law, which makes luxury boxes for an NBA arena sales tax exempt. In the NBA the average luxury box cost about $206,000 annually. Assuming 30 boxes, that’s six million in income annually, which would have generated $336,000 per year, or about $10 million over 30 years.

-A sales tax exemptions on all retail within the arena, basically for concessions stands and other retail not normally open to the public. Any licensed bars or restaurants regularly open to the public will be subject to property and sales taxes.

-Additional city costs. We have yet to see the interest costs for city contributions. Ald. Bob Bauman predicts there will be interest costs and other additional costs yet to be tallied.

-Miscellaneous, including the state tax exemption on bonds (probably totaling less than $2 million) and administrative costs for Wisconsin Center District incurred for overseeing a for-profit company’s arena. As one veteran real estate business person noted to me, the Bucks will have some kind of lease with the Wisconsin Center, but it hasn’t been created yet, and that allows room for all kinds of mischief. The law does call for the Bucks to handle ongoing maintenance at the arena, but a normal lease would spell all this out in great detail.

-Existing state law exempts the Bucks from the 7.9 percent corporate income tax, and the new law does nothing to change this.  Sports teams are very good at writing off profits, but even assuming a modest $5 million annual profit over 30 years, that’s $150 million, meaning a tax write-off of nearly $12 million.

-In addition there will be a federal tax write-off of at least $20 million for treating Herb Kohl’s contractual pay-off of $100 million to a for-profit team as a charitable donation, as I’ve previously written. All told, that suggests the bite on taxpayers will be north of $900 million. These are all costs a for-profit business would normally pay.

There is still time for the law to be amended, still time to push for less contributions by taxpayers. State Sen. Tim Carpenter has called on the legislature to end the sales tax exemption on luxury boxes. As I’ve spelled out, there are many other tax exemptions and handouts that could be reconsidered.

As the real estate professionals who own the Bucks have made clear, with their rush to buy up land to develop near the arena, they see this as a golden opportunity to reap lots of profit. The negotiations here are simply about how huge the total profits will be for the team. Here’s hoping someone in the Assembly has the moxie to craft a fairer deal.

Short Takes

-These cost estimates are just that. I’m doing the best I can given the dearth of detail on the deal. Here’s hoping some elected official somewhere feels a duty to tabulate all costs for us, the taxpayers.

-The Bucks owners have also agreed to pay the $3 million cost of tearing down the Bradley Center.

-Yes, the Bucks already had a ticket tax but that money was retained internally, to benefit the Bucks and Bradley Center. The new law funnels the money back to the government entities to help them repay the bonds issued for the new arena.

Arena Renderings

16 thoughts on “Murphy’s Law: Cost for Taxpayers In Latest Bucks Deal?”

  1. DTY says:

    Good analysis.

    Any good explanation for why the ticket tax is a regressive per ticket fee rather than a percent of the ticket price? Since the Bucks freely admit that most of their revenue is generated by the first 10 rows (paraphrasing) why couldn’t a ticket tax be something like 5% of the ticket price and thus hit the high spenders? That would add only $1 to a $20 upper level corner ticket but $5.00 to the premium $100 ticket. Seems much more equitable to the proverbial family of four taking the kids to the game.

  2. M says:

    Here’s one more cost to the city. The Bucks will “loan” the city $8 million, in return for the city giving them the Sydney Hi lot appraised for $1 million (the city may have spent that much to condemn/raze it), plus the 4th St. garage built for $30 million. The city will then “repay” the Bucks $8 million plus 4.5 percent compounded interest for up to 25 years. Can somebody calculate that? Will the Bucks get to borrow $8 million with zero interest? At any rate, the city expects it will take 25 years to recoup those TIF dollars any pay back the Bucks.

    Why are the Bucks not outright paying even this nominal amount for city-owned property it’s being given to tear down and privately develop? It’s plan for that property is to create an NBA-mandated entertainment monopoly, which will inevitably overrun some businesses.

    The city will also forgo nearly $1 million in parking revenue from 4th St. Instead, it will get half of whatever is left after “expenses,” as determined by the Bucks who will manage the city’s facility.

    How has extortion become so normalized?

  3. Chris says:

    Are you certain about the surrounding land receiving property tax exemptions? I was under the impression that was changed and a TIF was being incorporated to help the City pay off its portion.

  4. M says:

    The bills to taxpayers for arena construction will be just the beginning. The yet-to-be-drawn lease will surely put taxpayers on the hook for long-term capital improvements, as they invariably do. Here’s what Cleveland’s having to shell out:

    http://www.nytimes.com/2015/07/22/sports/sports-owners-dip-into-the-publics-purse-despite-their-billions-in-the-bank.html?smid=nytcore-ipad-share&smprod=nytcore-ipad

    Sports-venue experts say the Bucks lease should be drawn before a bill is passed. Just another way non-negotiators are being conned and citizens fleeced. The Bucks will reportedly handle “routine maintenance,” which will likely exclude all the big-ticket repairs and upgrades.

    The Bucks as “master tenant” (probably with free rent) will get to write all the other leases and contracts, per JS reporting. MU is about to get its rent raised a heap to make up for Admirals being out and just because the Bucks can…

  5. jj says:

    Great analysis. This arena deal will bankrupt Milwaukee.

  6. Wisconsin Conservative Digest says:

    We are the wimpiest negotiators in history. throwing away money.

  7. wisconsin Conservative Digest says:

    Good article Bruce, we are getting screwed as usual. You are redeeming yourslef.

  8. DNelson says:

    Get the best bang for the Bucks! Move the Bucks back in NBA time, to Sheboygan!! More value, more history, more economic impact, more statewide team support (ala Green Bay!). Support the move to Sheboygan!! http://www.facebook.com/sheboyganbucks

  9. Marie says:

    This TruthDig report by two investigative reporters shows why taxpayers never had a chance in resisting the Bucks’ massive lobbying campaign by both Dems & GOP at the city, county and state levels. It was all orchestrated by big-time pols/players at the national level–helped by disinformation commissioned by the MMAC, including by several Marquette U. scholars/shills. (No UW folks appear to have lined up to pitch this deal.)

    At least we still have the Open Records Law, which made it possible to track how shady and incestuous it all has been. Cold comfort.

    http://www.truthdig.com/report/item/gov_scott_walker_and_the_democrats_big_dance_the_shady_politics_20150726

  10. Observer says:

    So does anyone know how long the contract is for the Bucks, and how ironclad it is if Hoboken comes calling with offers of dancing unicorns if only the Bucks will move there?

  11. Wisconsin Conservative Digest says:

    WE are the wimpiest negotiators in history. No access to the contract, not idea of the fact that these guys will lose their big toy if the govt. does not put up dough, so they have to ante up more. The development baloney, Bruce is right, it is big BS.

  12. Observer says:

    “WE are the wimpiest negotiators in history” Guess we should have used John Kerry, eh Bob?

  13. M says:

    Observer, the Bucks’ “contract” says they must pay off whatever debt/interest is still owed if they leave town before Year 30. State and county debt will be paid off in 20 years. WCD and city debt will probably be at least 25 years.

    It just means a sale price, or enticement to move, must cover that “claw-back” payment. Given how much franchise values are rising with the new TV deal, that may not be a major deterrent. And no one can do anything to make MKE a bigger market.

  14. wisconsin Conservative Digest says:

    Never use kerry fro deal really get screwed, Murdoch, Pickens Maybe, but the contract we did not see was what the Bucks/NBA had to say about new arena. Could they have fixed up Bradley center?
    Money in TV.
    We could fix the Milwaukee market to grow if we had some better leaders. The white, male, racist, liberals that have run all the businesses out of MIlw. cty. to Waukesha need to go.

  15. Observer says:

    I can’t help but notice that Republican legislators that screamed the loudest against “gay rights” often had homosexual skeletons in their closets. I wonder if that holds true for folks quick to label others as racists? I guess St. Louis is run by white, male, racists, liberals who run St. Louis business’s out to where, Ferguson? Hmm, that analogy doesn’t work. Well, anyway, a judge has ruled that taxpayer welfare payments to billionaires needn’t be voted on in St. Louis. http://fox2now.com/2015/08/03/judge-rules-no-public-vote-required-for-new-downtown-football-stadium/ For them it’s too late as the owners want to head out West for greener pastures. St. Louis taxpayers will be spending probably in excess of $860 million to build a stadium and then lure some team whose taxpayers balk at that sort of thing. The Edward Jones Dome provided multiple stadium configurations that can seat up to 70,000 people. Seating levels include: a private luxury suite level with 120 suites, a private club seat and luxury suite level with 6,400 club seats, a concourse level (lower bowl) and terrace level (upper bowl). The dome was completed in 1995. It no longer provides enough $ for team owner, Stan Kroenke who already purchased land in Inglewood California. Stan Kroenke married into that ultra liberal Walton family the owners of Wal-Marts who have been known to sock it to the taxpayers also.

  16. M says:

    Observer:

    Here’s commentary about that St. Louis ruling. That activist judge sounds like some Wisconsin Supreme Court justices (on the best court money can buy). Even when taxpayers get really organized and win a referendum, a judge can simply overrule it. Talk about a rigged system.

    St. Louis’ referendum requires “a public vote on any ‘financial assistance’ including tax breaks, tax-increment financing, free land, loans, or city or county bonds–all giveaways Bruce Murphy keeps trying to tally as part of the arena deal. The Bucks and our elected-official “negotiators” (yes-sayers) don’t even bother to credit most of those freebies, since it would reveal how lopsided the Bucks deal is for taxpayers. So count your blessings Lasry/Edens/Dinan et al! You did not even need to get a judge to help smooth the way for your super-sweet corporate-welfare deal.

    http://www.fieldofschemes.com/2015/08/04/9586/st-louis-judge-tosses-out-ballot-requirement-for-rams-stadium-says-voters-didnt-say-simon-says/

    BTW, St. Louis citizens passed their referendum after being fleeced in one of the worst stadium deals ever. Miller Park also has earned worst-deal fame, but that did little to tamp down the Bucks’ fleecing.

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