Thursday, June 4, 2015

Quick reaction on latest and greatest Bucks arena plan

A few initial reactions from the announcement of the "new and improved" Bucks financing plan. First off, I haven't seen a formal bill, just spin from politicians and reports from the media. But here is how the Journal-Sentinel described the package in their article this afternoon.
The current plan substantially modifies Walker's plan, dropping the jock tax and calling for a state bond issue of $55 million — at a total cost of $80 million to taxpayers when interest is factored in. (Editor's note: This source is really no different than before, it was always straight borrowing and use of General Fund money. It's just less of it.)

A recent report found the Bradley Center is in need of $100 million in work over the next 10 years — a finding that has been questioned by some skeptics like [State Rep. Dean] Knudson.

In its most recent financial report, the Bradley Center — a state-chartered institution that is also home to the Marquette University men's basketball team and the Milwaukee Admirals hockey team — reported $17.8 million in long-term liabilities, including $9.5 million owed to the Bucks.

Officials have said the state would pay off up to $20 million in unpaid debt owed by the Bradley Center under the plan.
That's the state side of the equation, which is significantly reduced from the $220 million in borrowing (and $488 million in overall costs to pay it off) to $55 million borrowed and $80 million.

The Bradley Center maintenance costs were a main part of Gov Walker's argument that the arena is a necessity, basically saying "Look, we gotta pay some costs on an arena anyway, so why not spend the money to build a new arena?" This is why today's press conference featured this look

THERE'S a vote of confidence in your arena plan. Was "Well, I guess so...." not available?

Here's more from Walker's statement on the arena, where makes the cost-benefit argument on shelling out taxpayer funds.
•[The Bucks arena plan] Protects state taxpayers from losses that would be at least $419 million over the next 20 years, including:
◦Base income tax revenue generated by the Milwaukee Bucks and from the visiting teams of $6.5 million per year in state income taxes, or $130 million over 20 years;
◦Income tax revenue growth estimated at $169 million over 20 years due to future contracts and estimated NBA pay increases;
◦Taxpayer liability for the Bradley Center estimated at $120 million in costs over the next ten years.
This $419 million is a very flawed number for a few reasons.

1. This implies that the income tax dollars lost from NBA players won't be made up at all with higher wages from other places that might see added business because consumers' dollars aren't going to Bucks games. In Andrew Zimbalist and Roger Noll's well-known 1997 study of the economic impact of new sports arenas and stadiums, he implied that the actual economic increase in activity from a new arena was very small, and that the new arena simply transfers spending from one business to another.
One promotional study estimated that the local annual economic impact of the Denver Broncos was nearly $120 million; another estimated that the combined annual economic benefit of Cincinnati's Bengals and Reds was $245 million. Such promotional studies overstate the economic impact of a facility because they confuse gross and net economic effects. Most spending inside a stadium is a substitute for other local recreational spending, such as movies and restaurants. Similarly, most tax collections inside a stadium are substitutes: as other entertainment businesses decline, tax collections from them fall.

Promotional studies also fail to take into account differences between sports and other industries in income distribution. Most sports revenue goes to a relatively few players, managers, coaches, and executives who earn extremely high salaries—all well above the earnings of people who work in the industries that are substitutes for sports. Most stadium employees work part time at very low wages and earn a small fraction of team revenues. Thus, substituting spending on sports for other recreational spending concentrates income, reduces the total number of jobs, and replaces full-time jobs with low-wage, part-time jobs.
Now perhaps the increased salary cap that's coming for the NBA in 2016-17 helps raise that income tax amount some, but a lot of the added TV funds that all teams share in will merely go into the pockets of the Bucks operating profits. And if the provision exempting the Bucks from corporate taxes is still in this bill (like it was in the original budget bill), then the state will see very little of that money.

In addition, if the Bucks left, it's not like the Bradley Center couldn't hold more concerts and other events, where the performers pay state income taxes for the number of nights they are playing in the state. To think the Bucks would be replaced by NOTHING in terms of economic activity seems to be 100% false.

2. The $120 million in maintenance figure seems to have come straight out of Walker's ass. The Journal-Sentinel article says the number is closer to $20 million, and reality indicates that would be less need to pay for maintenance in a Bradley Center facility which wouldn't have 45-50 Bucks games a year to host. It's a dishonest scare tactic that assumes the Bradley Center would stay a full-time facility....while not having the anchor tenant that makes it a full-time facility.

Apparently the plan also has the state taking on Milwaukee County's uncollected debt, a provision that Bruce Murphy at Urban Milwaukee says won't come up with nearly the amount of revenue Co Exec Chris Abele is promising, which means the County will be on the hook for the difference.
Most of it — some $76 million — is owed to the county courts but the vast majority of that is restitution money that must be repaid over time to victims of crimes, explains Dave Ehlinger, Fiscal Operations Administrator for the courts. In short, the state can’t get its hands on this debt to fund a new NBA arena.

Another big chunk of the $76 million is money the state already collects. (The county largely operates not as an independent government, but as the local administrator of state programs.) And by the way, when the state does collect debt, it finds that about 11 percent of debt is uncollectible, Ehlinger notes, because the party may not pay Wisconsin taxes, has moved out of state, can’t be traced because the Social Security number isn’t correct or for other reasons.

In response to a request from Milwaukee County Comptroller Scott Manske, Ehlinger prepared a huge, 13-page analysis of the courts’ out standing debts (going back 20 years) with colored charts by which he concludes that the amount of uncollected debt the state could likely collect is about $100,000 per year, or less than $2 million over 20 years.

The next biggest category is delinquent property taxpayers, but Kreklow told the JS the county already collects more than 90 percent of this, which leaves less than $2.5 million, which may simply represent the 10 percent (or less) that is uncollectible. Just how much more those tough state bill collectors could grab is open to question.
Murphy estimates that maybe $20 million of this might be able to be collected by the state as part of this deal, meaning the County would have to come up with $60 million some other way. And I'm guessing Abele figures he'll be cashing in before that bill comes due (not unlike Walker, come to think of it), so he's not caring about how to handle that shortfall. Without seeing the property tax write-offs in the bill, this is by far the most sketchy part of the deal, and would likely make me oppose it on the spot.

Of course, we don't know about the property tax write-offs, whether it's by TIF (which is the rumor, through the City of Milwaukee) or by a flat-out exemption to $0 (like we had in Walker's budget). That will obviously make the City and other local governments have to make up the difference for those lost property tax revenues, and make the locals who are already paying taxes have to shoulder more of the burden.

In all, while I'm certainly not in favor of it (especially in light of massive cuts to the UW and theft of dollars from K-12 public schools to pay for vouchers), it seems to be a better deal than the brutal giveaway we had before. But just like with that other bill, we need to see all of the goodies that are jammed in to get a full idea of how this will really work, and whose pockets the proceeds will go into. Given the small amount of state funding that would go into the arena in the next 2 years ($4 million a year at most), why not take the time to discuss this after the budget has been passed, and make sure no local or state government is getting overburdened through the tricks and fine print. Because leaving the locals to hold the bag seems to be the biggest risk in this Bucks issue, with added tax burdens and empty promises that could do much more fiscal and economic damage than the loss of the local NBA team.


  1. $250 million / (17,000 tickets/game x 41 home games/season x 20 seasons) = $18/ticket public subsidy (n.b. whether or not the ticket is actually sold).

  2. Don't forget about those zero-coupon bonds. Unlike the bonds the state is issuing, the zero-coupon bonds don't require annual interest payments to the holders. Apparently, no one thinks that the issuer is going to able to generate the cash flow to pay the annual interest, hence the choice of zero-coupon. At maturity, the bonds will be like a gigantic balloon payment on a sub-prime mortgage. Of course, by then all the principals will be out of office, so who cares? More Republican financial pixie dust to make it all look good.

  3. At least one Bucks owner (Marc Lasy) is a fierce high-rolling poker player (with ties to a Russian mafia ring that got busted). They have managed the "messaging" of all parts of this deal by playing close to the vest. The public has no idea what will really be in this deal, including Bucks' investments in "ancillary development." Skeptically assuming the worst seems wise, rather than accepting vague promises with blind faith.

    For example, the Bucks/NBA announced the $500M project will include 1. an arena, 2. an "entertainment" annex (a several floor mall with many bars and restaurants, 3. a new parking structure (to replace the city garage, given for free, with no credit) to be bulldozed for the bar mall. 4. a "public plaza" which will be created by closing off 4th Street between Highland & Juneau. The ball mall could be cut from the $500M, thus dramatically reducing the need for public funding. Or the Bucks could simply cut out the mall part, and keep the project total at $500M, pretending the mall was never really in the deal. That's one advantage of never putting an actual budget and business plan on the table for the public to review.

    The mayor has said mall businesses will pay rent, but it appears taxpayers will still pay to build it. Also no word on who will own it.

    The Bucks will reportedly maintain the arena and pay for upkeep, but it will still be under the umbrella of a state-chartered district. How will that work? The new "arena district" will also include the Wisconsin Center District's three venues, an perhaps the Marcus Center for the Performing Arts. Those entities reportedly pay their own way, while the Bradley Center does not. Will the Bucks be the tail that wags those dogs?

    Lasry & Edens have been called "Masters of the Universe," a term coined by Tom Wolfe about Wall Street sharks. Take-them-at-their word Wisconsinites may be completely hoodwinked. But they'll be able to brag about having an NBA team most will never be able to watch live...