Bishop: PawSox or Not to Sox – That is The Question
Thursday, June 07, 2018
As many had suggested might happen, Speaker Mattiello has seen a light at the end of the Pawsox tunnel. Indeed, one might say that the Speaker was listening to Pawtucket Mayor Don Grebian’s plea that if the state did not want to be a major partner in the stadium wouldn’t it simply be willing to dedicate state tax revenues from a stadium district and let the city take the project forward.
So the speaker has called the bluff of those who have promised that “the stadium will pay for itself." First, to be clear, the sense that if you give back all the tax revenues due to the state and the city these will cover the costs of a project is not the true measure of whether something “pays for itself”. By those rules, we should give back all the taxes generated by sales and employment at Walmarts or Home Depot or the Warwick Mall or the corner store for that matter so long as these refunds are dedicated to local facilities of those businesses. No one likes taxes, but it doesn’t take the least bit of economic education to realize that if we really adopted the notion that you rebate to businesses any taxes they generate in return for being located in the state, we would need to do some ungodly belt-tightening that might even make us less government types blush.
Well, of course, that isn’t the standard the Speaker is out to set. Instead, we treat the great unwashed businesses as the workhorses of our tax system, filling the state's coffers, while high profile businesses like baseball take a walk. So he has proposed a dedicated stream of tax revenues from the baseball enterprise and its associated development district toward a stadium while not committing to make up any shortfall in the revenues, attempting to evade the 38 studios trap.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTJust what the Mayor asked for . . .
While this is precisely what the Mayor asked, much criticism has been leveled at the Speaker’s plan as being more expensive based on the difference in interest rates estimated between moral-obligation borrowing – where the state commits to seek an appropriation if revenues fall short -- and revenue-backed borrowing -- where the only commitment is the identified stream of revenue. In this case, that stream would be “state economic activities taxes” defined in the speakers draft of an amendment to H-7290 as sales and income taxes generated in the “Ballpark District”, a portion of the “Downtown Pawtucket Redevelopment Project Area”. The boundaries of both are conveniently left to the complete discretion of the Pawtucket Redevelopment Agency (PRA) so they could conceivably be defined to include broad swathes of Pawtucket without regard to the current state of development and taxpaying businesses there.
The awesome power run amok
But no worry for big government planners, only for property owners, the speaker’s draft also does away with the archaic notion that economic development eminent domain ought only to be used to acquire blighted property. In what is certainly one more Kelo in waiting this draft would ‘update’ the state’s redevelopment law so that agencies like the PRA can take whatever they want. The state has the awesome power to take land for public use but the notion that subsidized private development is a public use is a sad hangover from the tenure of David Souter on the US Supreme Court where his opinion approved seizing the little pink house. We should be no less sympathetic if the target is a red brick warehouse or a beige pyramidal shopping center.
And this ridiculously abandon giveaway of the “awesome power” is not limited to acquisition for the stadium under the tired rubric that being able to stop by when there is no game or maybe another Dylan concert makes it public space. No such beard is needed as the power would extend throughout whatever “redevelopment area” for whatever purpose public or private the PRA chooses to define. This is perhaps the most worrisome aspect of the Speaker’s proposal.
What me worry?
But what worries stadium proponents is that the speaker’s approach could cost more. They believe bonds backed only by the state tax revenue generated will be significantly more expensive than bonds like those for 38 studios that included a state promise to seek appropriations to cover any shortfalls in bond payments from the identified revenue. Well, if it’s a slam dunk that this project will “pay for itself” what are they so worried about? But it’s a much harder thing to convince investors putting in their own money that these projections are solid than it was to convince the Senators who are putting up your money.
Indeed, municipal finance professionals know a good revenue bond when they see one and “essential service revenue bonds” often carry lower rates even than general obligation issues approved by the voters – and there’s a reminder that they could dispense with all the pretense and simply put this on the November ballot ( I suspect there is a reasonable chance it would pass). But there is a fundamental unwillingness to follow the constitutional design that requires submitting borrowing to the electorate. At least Speaker Mattiello proposes submitting it to the market but even the stadium’s proponents quite well understand that the Pawsox are no “essential service”.
And here is where you have to wonder, even if it is a reasonable idea to devote tax revenues from a stadium district to building a stadium instead of to the broader state purposes the rest of us have to support, do those figures really hold up? That, of course, is what anyone investing in these as revenue bonds would ask (as well of course as calculating the chances that the state could be harassed into curing a default or embarrassed into a rescue of Pawtucket even though it made no such commitment, because the smartest thing in the world is to get paid a risk premium but not really take on the risk).
Do the math
The State Department of Revenue took a look at the numbers and the most complex and largest predicted contribution to the state is the income taxes of those who work in the “ballpark district”. This was pegged by team and city consultants B&D as about $1.5 million a year, itself close to the debt service to be supported by the state. But it is simply a lump sum without an indication of what salary levels and typical employee tax liabilities lead to the estimate. So the Department of Revenue worked to reverse engineer what scenario B&D might have been describing and concluded (page 31) that the 481 jobs estimated to be generated (that itself could not be validated and was taken as a given by DOR) would have to average about $80,000 annual salary to a single person with no dependents and no deductions(thus paying the top state tax rate) in order to deliver $1.5 million in income tax collections.
Maybe selling pretzels will be a patronage job to be handed out at that rate. Although it was pointed out that a two-week rehab stint for a Boston star getting $30 million a year is the kind of thing that helps the average. Well, your average superstar is going to have worked on their tax liability, but let's say that for each week that happens that these pros bless Rhode Island with 5.99% of their take home. Well that gets you maybe a 50th of a way to your desired tax collection per week of work on a $30 million dollar paycheck. But it turns out that only one Red Sox player makes anything like that. And what Boston fan in good conscience can really want David Price to be hurt so we can build a stadium in Pawtucket.
From there, salaries drop quickly through the 20s and under 10. By the time you get past 5 pitchers, the highest position player is Xander Bogaerts at $7 million a year who was just down in Pawtucket for a day. It’s going to take a lot of that to get us up to $80,000 average. And where are we going to find all these single folks with no deductions to make that tax money roll in? Maybe we can actually make some money running a dating service or a new reality show to hook them all up.
Foregone revenue, not so fast . . .
And analyzing the sales tax receipts is both more straightforward and more complicated. Figures from McCoy indicate current sales in the stadium and it is legitimate to predict a significant initial increase in attendance at a new stadium (although some new venues maintain that increase over time while some do not). Sales outside the stadium, i.e. spending by game attendees in the new ballpark district, are a little more difficult to pinpoint. But the most difficult part from a policy perspective is whether all this sales tax revenue ought even be credited to the park under a “foregone revenue” principle.
The idea is that if the park were not there this revenue wouldn’t be collected. But that mistakes how an economy works. While some people might go up the road to Worcester and the WoSox and spend money out of state, others would spend money on different entertainment in state. Who knows: go to a movie; rent a sailboat or kayak; take in a play or musical event -- and then eat dinner in those ‘districts’ of the state. And these “Ballpark District” businesses will have sales when there is no ball game going on and when they might very well have made sales without proximity to the ballpark. So the very idea of committing this revenue to the stadium without allowing for the reality that not all of it would be lost to the state if the Pawsox leave and that there will also be some loss in revenue from activity that now exists in the “Ballpark District” reveals this plan as more generous than the state ought to be. Yet this plan is criticized for the lack of a further state guarantee!
The state should fund Public Goods not Public Spectacles
What the state should really be willing to commit to this kind of an effort is the public infrastructure necessary to get there and enjoy the game. Forgetting that the proposed state share is already too generous, a project of this size needs significant attention to access roads and parking, the cost of which has been conveniently left out of the proposal to make it look cheaper than the proposal for the riverfront stadium in Providence. The much ballyhooed Durham Bulls stadium that we are to take as a model of how a Pawtucket stadium could rally a flagging local economy is serviced by three doubled parking decks that hold an average of 1000 cars apiece and represent on the order of $60 million in present dollar expense (with structured parking costs estimated at $20,000 per space).
It was actually the parking costs for the Providence Place Mall that the state committed tax receipts to cover. And while the sales tax receipts at the mall have covered that cost, no one can say how much of those sales are simply diverted from other stores in Rhode Island undermining any narrative that the subsidy of the mall is “paying for itself”. (It certainly is not doing so for Providence which receives no property taxes from the mall for 30 years and in all likelihood by the time those 30 years are up, malls as we know them will be obsolete. So rather than sitting pretty and finally collecting big revenue Providence is instead the victim of a hubristic attempt to put itself back on the map by deciding what businesses to subsidize and guessing wrong.)
Pawsox stadium vs. Durham Bulls stadium
But Pawtucket is more of an open book to write in. They want to move city offices out of Downtown and see those developed for commerce. (And why they need eminent domain remains a question if developers have such a choice of property owners to negotiate with, as does how they would pay for new for new offices). So why couldn’t PawSox stadium drive development as has been the reputation of the Durham Bulls stadium which was also part of a large office and commercial development project the American Tobacco Company?
Well, it turns out that development in Durham had a few more things going for it than the Durham Bulls. Rather than an owner who wanted the city to go about acquiring parcels, this was one large industrial site and the owner actually carved out space for the baseball stadium and the Durham Performing Arts Center and all of this about a mile and a half down the road as some of the closest chic commercial development to Duke University. So you have to imagine something like Thayer or Wickenden street with an American Locomotive size renovation and both PPAC and a stadium all together in a safe attractive neighborhood.
Is it possible that Pawtucket could develop a critical mass of its own manifesting some of those attributes? Surely. And does everything have to be an ivory tower to be successful? Surely not. But the state absolutely needs to limit its exposure to the basic project. If it doesn’t work then the pessimists would be right to caution against state guarantees, but if it does work $25 to 50 million in infrastructure would be needed in short order. Even with all the structured parking in Durham, the local weekly describes the district during a Bulls game as “utter madness”.
It’s difficult to make predictions, especially about the future
The speaker’s plan properly directs the discussion to how reliable are predictions this will “pay for itself”. If this is not sensible to do without a state guarantee, then it's not sensible to do. The speaker’s outline of a plan is too generous, and its loose standards for eminent domain are laughable rather than laudable. Of course one wants the effort to succeed but you’ve got all of downtown Pawtucket to work with and the spectre one holdout is simply not an excuse for turning Pawtucket into Peking where the government runs the economy.
Nor should Pawtucket lose site of the opportunities it continues to catalyze with self-organizing centers of commerce. Artists and artisans have found a home there and as Rhode Island looks to position itself as an affordable alternative to greater Boston, refugees from Boston’s success can help Pawtucket’s. This has been true in the jewelry district in Providence, where a slow-motion redevelopment that was overshadowed by the mall, and sidelined by down city tax credits to the point of being forgotten, continues to nurture clubs and residences with a city chic that escapes Providence Place and Providence proper.
If the Pawsox owners double down on Pawtucket with the private side guarantees that could secure this project, the state should be ready with infrastructure to make it the most accessible and convenient stadium in Triple-A baseball with unparalleled opportunities even when games aren’t going on. But if they don’t, one municipal finance professional suggested to me today, why don’t we just lease McCoy to a Double-A team and it will probably get the same attendance anyway!
Brian Bishop is on the board of OSTPA and has spent 20 years of activism protecting property rights, over-regulation and perverse incentives in tax policy.
Related Slideshow: GoLocal: Benchmark Poll, October 2017
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