Cost for Taxpayers In Latest Bucks Deal?
Bucks gave ground. But it’s still a huge bite for taxpayers.
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 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.
-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.