Saturday, March 28, 2015

Bucks arena would be straight taxpayer cash, homey

It was hidden through a number of other headlines in the week, but the Wisconsin Legislative Fiscal Bureau released their rundown of how the state's part of funding for a new Bucks arena would work. And some of the answers the LFB gave is quite different than what we've been told.

First of all, there is no specific "jock tax" designated for the arena, as had been characterized by most people previously (including me). Instead, the money borrowed for the arena will simply be paid back through regular General Fund taxes, with the assumption that there will be more of those taxes because the Bucks are still paying big money to its personnel.
No, the proposal would not create a new tax. The "jock tax" refers to the state individual income taxes paid by professional athletes who perform in Wisconsin under current law. Nonresident professional athletes pay taxes on a portion of their compensation for services rendered to the team, based on the share of the individual's "duty days" in Wisconsin relative to his or her total duty days. However, Wisconsin does not tax the wages of individuals who are residents of states with which Wisconsin has an income tax reciprocity agreement (Illinois, Indiana, Kentucky, and Michigan). The state also taxes income earned in Wisconsin by professional entertainers who perform in this state. All income taxes are deposited into the state general fund. None of these provisions would be affected by the budget bill. There would be no specific set-aside of either existing or future taxes from the Milwaukee Bucks or other National Basketball Association (NBA) teams for any purpose.
In fact, the LFB goes on to say that the package is a lot more like the incentives done by local governments to encourage businesses to build or stay in their community, with the Walker Administration arguing that the damage from the potential loss of the Bucks in 2017 is worth the investment of taxpayer dollars.
The rationale advanced by the administration is similar to the arguments used at the local government level in support of using tax incremental financing to pay for infrastructure improvements to support private development. Some have raised a concern that the proposed financing may set a precedent at the state level in that other businesses wishing to improve their facilities or operations may ask the state to subsidize their infrastructure needs using the income tax revenues from their employees to pay for cost of those improvements in exchange for them either retaining or expanding their operations in the state.
Another question that comes up in the LFB's analysis has to do with the Walker Administration's plans to backload much of the payments on the arena's debt, which the LFB says will more than double the ultimate bill that taxpayers shell out.
The bonding scenario outlined...demonstrates that, due to the negative amortization associated with the deferred interest, the total interest costs associated with financing the $220 million would be $268.4 million, including $53.1 million in deferred interest. As a result, under this scenario, the total fiscal effect to the state associated with financing a $220 million grant would be an estimated $488.4 million. The administration's policy decision to structure the proposed bond issue so that the amount of debt service due each year on the bonds would be notionally tied to, or mirror, the additional income taxes results in an amortization schedule that cannot meet the interest due on the bonds in the early years of the transaction and back-end loads the repayment of principal to the later years of the transaction. This results in the bonding transaction having higher overall costs than if the amortization schedule had more uniform annual debt service payments.
There are a couple of alternative schedules floated by the LFB in this paper which includes level payments of $12.7 million over 30 years, which would cost nearly $107 million less in the long run, and a 20-year repayment plan that costs $16.2 million a year, but ultimately saves $167 million over the Walker proposal.

But there's a catch with not going to the Walker plan for borrowing with the arena. The Administration's plan only spends $900,000 in the 2015-17 budget toward the arena, compared to those annual payments of $12.7 million and $16.2 million, respectively. Going with the cheaper long-term plans for the arena will drive up costs in the short term, and as I've mentioned, there are already huge budget constraints and unmet needs- adding these costs would limit things even further.

And if you're thinking that choosing not to pay for the Bucks arena is going to lead to massive savings for the upcoming state budget, that's not quite right. The LFB notes that the Walker budget sets aside over $25 million for debt payments for the arena in 2016-17, but at the same time it expects to give most of that back at the end of the year.
Because there could be principal and interest payments scheduled in 2017-18, the GPR appropriation in 2016-17 ($25,234,500) would be set at a higher level than expected debt service in that year ($2,800,000). Therefore, an estimated $22,434,500 of the appropriated funds would not actually be expended in 2016-17 and would lapse (revert) to the general fund.
So if there was no money sent aside for the Bucks arena in this budget, all that would be saved from the state side is $2.8 million. The real savings comes in the later years (up to $37 million in 2045-46), but the theory is that NBA salaries will keep going up, going beyond the huge ballooning of the salary cap that will hit in the 2016-17 season.

This LFB paper would seem to indicate there is a whole lot of discussion on this issue to come, with financing details to be hammered out, and it may not be able to be resolved by the time the final budget is voted on in May or June. The Bucks still don't have a site and total plan in place as of this time, although the area just north of the arena near the old Park East freeway seems to be the likely spot, with more development associated with it than just the arena. It's at least a step in the right direction so we can see what the whole development is, but these things need to be nailed down fast, because with a tight (okay, deficit-ridden) state budget filled with potential deficits and public unhappiness, using even a few million of regular tax dollars on the Bucks arena project at the expense of needed services is not likely to be looked on favorably.

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