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Guest MINDSETTER™ Sheehan: New PawSox Proposal Still Falls Short of Public’s Approval

Wednesday, December 20, 2017


James Sheehan

I would like to respond to a letter written by two of my fine Senate colleagues regarding the Pawtucket Red Sox stadium proposal.

I will start by commending Senate Finance Chairman William Conley, his committee and the Senate leadership for incorporating positive suggestions into the amended proposal, such as shoring up Pawtucket’s financial position by providing additional revenue streams — 50% naming rights and a surcharge on premium seats. The cost of the proposed stadium remains roughly the same at $83 million (before interest), which will be raised through the sale of revenue or moral obligation bonds. Three parties would share this expense over 30 years. The state would pay $23 million, Pawtucket $15 million and the team $33 million, in addition to their one-time equity contribution of $12 million.  In spite of improvements made, the proposal still falls short of meriting public support.

The primary flaw remains: Rhode Island should not bear the lion’s share of the risk of stadium ownership (debt). While some argue there is no legal requirement to repay moral obligation bonds, we have learned through the 38 Studios’ debacle that public agencies are “too big to fail.”  Accordingly, the State would serve as the ultimate financial backstop. 

No one has a crystal ball to predict how the franchise will perform over a 30-year term. My colleagues are clearly bullish on the future of the PawSox. They argued that an investment in the PawSox represents a low risk because the team is a proven business entity.  Of course, past performance is no guarantee of future results. They further argued that “the state’s Auditor General and Commerce Corporation separately scrutinized the company’s (PawSox) financials, and both reported back that the PawSox organization will have the resources to keep their promise and pay their share of the debt.”  But, they failed to mention that this analysis was largely dependent on a hoped-for surge in fan attendance.  While some new stadiums experience an initial increase in attendance, these increases were usually temporary.  Sustaining increased attendance, in the medium and long-term, is vital to the success of this entire deal.

What would happen if there were a decline in attendance in the medium or long term?  Given shrinking attention spans, it is highly plausible that attendance for baseball, a slow-paced, traditional game, may decline over the next 30 years.  If attendance declines, the PawSox may not generate the necessary income and tax revenues to enable full payment on the stadium (debt). Taxpayers would be then asked to take up the slack. Worse yet, should the franchise become insolvent, taxpayers would be called upon to pay-off [many] millions of dollars in remaining stadium debt.

My colleagues also claim that the new stadium would invigorate economic growth in Pawtucket. But research on publicly-backed stadiums has concluded that new sports facilities have a small effect on economic activity and employment. That is why reputable economists have concluded that the return on investment from publicly-backed sports facilities is minimal.  As it relates to jobs generated at the stadium, these tend to be seasonal and most often, low-paying.

Lastly, my colleagues warn that if the PawSox were to leave Rhode Island, the state would have “less tax revenue to fix its roads and school buildings.” Perhaps, but I would submit that this number would be relatively small. However, conversely, if the stadium were built, and it simply “pay[s] for itself,” there would be, likewise, few, if any revenues leftover to pay for such public projects.  In other words, if the stadium succeeds, the public return on investment would essentially be a break even. However, if the franchise were to be unsuccessful or fail outright, taxpayers would be on the losing end of yet another sizable public/private venture gone bad.

While the weak financial position of Pawtucket has been mitigated in the recently amended PawSox stadium proposal, the risk of stadium ownership has not. Given the significant net worth of the PawSox team owners, it is unfair for them to ask the general public to bear the lion’s share of the risk for their business venture. Instead, the owners could privately finance the upfront costs of building the stadium. The public could perhaps then rebate the owners those taxes attributable to the new stadium on an annual basis.  Short of this, the owners should provide financial guarantees to protect the public interest in years to come.     

The author, James Sheehan of North Kingstown, is a state senator representing North Kingstown and Narragansett


Related Slideshow: New PawSox Deal—December, 2017

Here are the provisions of the legislation according to the Senate Finance Committee,

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Compliance with Public Corporation Debt Management Act: The legislation was amended to better conform to the requirements of the State’s Public Corporation Debt Management Act, or “Kushner Act.” The Budget Office’s fiscal note indicated that the bill as originally written did not meet these requirements. The statute requires that financing leases to which the state is a party must be authorized by the General Assembly through resolution. The resolution must include the maximum possible obligation of the state. The original language only listed the value of the principal to be borrowed and not the cost of issuance and total debt service. The amended language more clearly identifies the maximums as $41.0 million, $26.0 million, and $18.0 million for the Series A, B, and C bonds respectively.

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Naming Rights: Based on the fact that the Pawtucket’s redevelopment agency will be the owner of the new ballpark and the determination that Pawtucket will experience a gap between new revenue and its annual debt obligation until sufficient ancillary development has taken place, S-0989 was amended to direct 50 percent of the ballpark naming rights revenue to the City of Pawtucket to assist with its annual debt service payment. This revenue is estimated to be $250,000.

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Ticket Pricing: Based on the determination that Pawtucket will experience a gap between new revenue and its annual debt obligation until sufficient ancillary development has taken place, S-0989 was amended to reflect the transfer of the premium ticket surcharge revenue from the state to the city. The bill clarifies the definition of a “ticket” and was amended to include language memorializing the team’s commitment not to raise ticket prices for five years.

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50K sq. ft. Ancillary Development: The legislation requires any future lease to include a provision that the team develop a minimum of 50,000 sq. ft. of real estate contemporaneously with the construction of the ballpark.

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Maintenance and Capital Improvement: S-0989 was amended so that any future lease must contain a requirement that the team is responsible for the daily, operational maintenance of the ballpark and its costs. The lease must also explicitly make clear that the state is not responsible for operational maintenance. The lease shall require that the team be responsible for a minimum 50 percent of annual capital expenditures and that the city, state, and team must contribute a minimum of $150,000 in total per year into a capital expenditure fund to finance capital expenditures. The parties will be required to develop a multi-year capital improvement plan detailing expected, future capital projects and outlays. No capital expenditure funds shall be used for operational maintenance.

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Construction Costs: The $12.0 million of equity pledged by team owners is required by the legislation to be the first funds expended towards the construction costs of the new ballpark. In the event that land acquisition and ballpark construction costs come in less than $83.0 million, the savings shall be distributed on a pro-rata basis to the team, city, and state at a rate of 46.5 percent, 32.4 percent, and 21.1 percent respectively. Lastly, any construction cost overruns that exist will be paid by the team.

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Public Park: The bill memorializes the commitment by the parties of making the new ballpark available as a public park facility. The bill requires the lease to contain a provision directing the city to provide planning and operational assistance on public park aspects of the park. The lease must also specify that the facility will be operated year-round in and around the ballpark, separate and apart from the ballpark’s baseball-related uses, in order to create public recreational, social, and communal benefits.

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Green Design & RIIB Financing: S-0989 was amended to encourage the use of energy efficient and sustainable design, construction, and operations at the new ballpark. It encourages the use of financing programs available through the Rhode Island Infrastructure Bank, including, to the extent practicable, the State Revolving Funds and the Efficient Buildings Fund, which provide low cost financing for eligible renewable and energy efficiency, stormwater abatement, water conservation, and other sustainable infrastructure projects.

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Fair Labor Standards Act Compliance: The legislation was amended to affirm the requirement that the team comply with fair labor standards. Employers associated with the business of the ballpark, including the team, would be required to adhere to state and federal Fair Labor Standards practices, including provisions that prevent labor misclassification by incorrectly designating workers as “independent contractors.”

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Lease Conditions: The lease is required to be for 30 years and must be reviewed and approved by the State Properties Commission prior to the issuance of bonds.

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Eminent Domain: Based on the concerns expressed during public testimony and a subsequent determination that the need for this expansion was overstated, S-0990 was amended to eliminate the expansion of eminent domain powers under the Redevelopment Act and to restore the definition of “blighted and substandard” throughout the bill.


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