Monday, April 28, 2014

Sin tax extension would push public funding of stadiums past $1 billion

Two generations of Cleveland leaders have overspent on public stadiums, our columnist Michael D. Roberts argues in Cleveland Magazine’s May issue. “The vexing sin tax that we are being asked to extend for 20 years to support Cleveland’s professional sports facilities is the price of incompetence by public officials,” he writes. “Their lack of diligence and vision may cost the community more than $1 billion in the name of sport.”

Mike’s opinions are his own, but I helped him confirm the big numbers in his story. If Cuyahoga County voters extend the alcohol and cigarettes tax May 6, the public’s spending on Progressive Field, FirstEnergy Stadium and Quicken Loans Arena will jump past $1 billion.

One complaint I’ve seen in the sin tax debate is that good numbers on our public stadium spending are hard to find. So I’m publishing our numbers here.

But first, here is my stab at explaining the total costs of the sports facilities in five easy points:

• 1st and 2nd sin tax. The first sin tax, approved in May 1990, lasted 15 years and paid for much of the construction of Progressive Field and Quicken Loans Arena. The second sin tax, approved in November 1995, went into effect in mid-2005 and helped pay for FirstEnergy Stadium. It expires in mid-2015.

• 3rd sin tax. Issue 7, on the ballot May 6, would extend the sin tax again, from 2015 to 2035, to pay for renovations to all three facilities.

• Cost overruns. The construction of Progressive Field and Quicken Loans Arena in the 1990s went over budget and added up to more than the first sin tax could pay for. So Cuyahoga County borrowed money and spread the payments all the way to 2023. We’re still paying the construction debt.

• Other city taxes. Although county voters extended the sin tax in 1995 to help build the football stadium, Cleveland needed more sources of money for the project. So the city council raised three taxes: an 8 percent parking tax, a 2 percent hike in the entertainment admissions tax, and a $2 tax on car rentals. Those taxes have brought in about $243 million since 1995.

But they aren’t earmarked for the stadium -- they go into the general fund. So you can’t count them all as stadium spending. For about seven years (roughly 2006 to 2013), the sin tax covered the city’s payments on the stadium construction debt. Cash from the other three taxes was spent on other needs. Now that the sin tax isn’t earmarked for debt service anymore, the other taxes’ $15 million a year roughly cover the $13 million the city pays in stadium debt service.

• The cost of debt. Much like a mortgage on a $100,000 home will probably cost you more than $200,000 over 30 years, the interest on stadium and arena construction debt has added up over the decades.

Here’s what taxpayers have spent, or committed to spending, on construction and renovations at Progressive Field, Quicken Loans Arena and FirstEnergy Stadium, since 1990:

Sin Tax:

Sin tax 1990-2005, for Progressive Field and The Q:       $238 million

Sin tax 2005-2013, for FirstEnergy Stadium:                      $113 million
       ($87m for construction debt, $26m for repairs)

Sin tax 2014-mid 2015                                                     about $23 million
      ($3m for repairs, $20m to county)

Gateway cost overruns, not paid by sin tax:

Admissions tax from Q, hotel tax, etc. to pay off Gateway bonds:
        2002-2014:                                                                            $54 million
              ($62m, but $8m paid by leftover sin tax)
        2015-2023:                                                                            $37 million

(Total doesn’t include about $17 million more in reported ‘90s overruns; couldn’t acquire a public record on how they were paid)

County general fund $ to pay off Gateway bonds:
             1992-1999:                                                                         $47 million
             2000-2014:                                                                       $83 million
             2015-2023:                                                                        $39 million
                (-$20m in 2014-2015 sin tax, could help pay this)

FirstEnergy Stadium construction costs:

local taxes other than sin tax, for construction:                    $16 million

other public sources for construction:                                      $47 million
   city electric, water     $6 million
   RTA, sewer district   $5 million
   state                         $36 million

Construction debt service, 1997-2013:
   $75 million principal paid
   + $120 million interest paid
   = $195 million paid so far
   - $87 million sin tax paid to debt service
   = debt service paid with general fund*                                $108 million
         (*new taxes were raised to cover this)

Construction debt service still to pay, now until 2028:      $162 million

Total paid + debt obligations:                                         $947 million

Sin tax 2015-2035 if passed, for renovations:                   $260 million+

Total with sin tax extension:                                        $1,207 million

My sources are documents from Mayor Frank Jackson’s office and county executive Ed FitzGerald’s office. You can download the original documents by clicking these links: sin tax revenue, county debt service, Browns stadium presentation, city tax revenues (not all of this went to the stadium), cost of Browns stadium, city debt service.


Our calculation of $1.2 billion in public stadium costs if the sin tax passes -- not reported elsewhere in town -- will probably give the tax’s opponents a new argument. Enough! they’ll say.

“You would think that county officials, Mayor Frank Jackson and the Greater Cleveland Partnership would have a persuasive argument to ask the teams to renegotiate the leases and give the community some relief,” Roberts writes.

Supporters will likely argue that the public hasn’t had to pay much at all to renovate the publicly owned stadiums up to now. The city says it’s paid $10.5 million on football stadium capital projects, while Gateway says it’s paid zero in capital repairs costs so far.

The pro-sin tax side also says the three teams have generated much more than $1.2 billion in economic spinoff in the city, especially downtown. They could also respond to the big numbers with their argument that we should pay for renovations to “protect our investment.”


Cleveland Frowns said...

Thanks for the work here.

Factoring in the tax exemptions that the teams have benefited from, and other hidden costs such as drastically below-market rents (the Indians have paid no rent since 2008, the Browns rent is only $250,000/year (compare to $25M for the Niners in San Francisco), the actual cost to the public could be well north of $2B.

Satinder P. S. Puri said...

Here is the link to Part 1 of the YouTube Video from the "VOTE NO ON SIN TAX" campaign -- a group that demonstrates on the streets and has a presence on facebook as the VOTE NO ON SIN TAX ON MAY 6, 2014: