Thursday, May 17

When Is a Free Lunch Not Free?

I know this might run afoul of the prevailing sentiment about the proposed new arena in SoDo, but I'd like to add my two cents about the supposed "tax-free" contributions the public will be making to said arena.

As it stands, all taxes generated by the building - from sales taxes to admission taxes to property taxes - will be redirected away from the city and county general funds and towards paying down the public's debt on the arena. (Going off memory, I think that provision lasts about five years, or at any point, it lasts until the debt is entirely paid). Proponents of the building claim this makes the building "tax-free," in the sense that as those taxes would not exist without the new building, they are, in a sense, found money.

Except that's not really the truth. Yes, there is certainly a large chunk of money that will be generated by the NewSonics that would otherwise not exist, but what percentage is unknowable and, furthermore, there is a very, very large percentage that is being re-routed from other, existing expenditures - expenditures that do contribute taxes to the general revenue.

That's a lot to digest, I know, so let me try to explain it in less complicated terms. 

Let’s take a hypothetical casual basketball fan, Xavier McMillan. In the past, Xavier attended five Sonic games a season, buying a total of 15 tickets a season (his friends, Spencer and Detlef, usually went with him). Those 15 tickets cost him an average of $30 each, and let’s say Xavier spent an additional $40 a game on food, drinks, etc (I know, he’s cheap). Add it all up and he has spent, on an annual basis:

Tickets, $450
Other, $200
Total, $650

After the Sonics left town, Xavier had no pro hoops to follow (well, he drove down to Portland once, but, geez, that was a long drive, and Spencer Payton still hasn’t paid him back for gas like he said he would). So, he started going to other games. A few M’s games, a couple UW games, even a Seattle U game that one Thursday when there wasn’t anything good on TV. In the end, he didn’t dole out the entire $650 that he did on Sonic-related spending, but he did spend $400. And all of the money he spent was being taxed and sent to general funds.

Now, a few years later, Xavier is excited about going to Payton’s Place to watch the Sonics, and all that money he spent on the Mariners, the Huskies, etc. will now get spent on the Sonics.

And that’s the key to this whole deal – instead of contributing $650 that would be taxed and used for roads, schools, and so forth, that $650 will now be taxed and used for a basketball arena.

Now, we can get into the argument about whether the government should or shouldn’t spend money on the ridiculous things it spends money on, or whether tax money spent on building new arenas for billionaires is better than tax money spent on the normal bullcrap governments spend money on. But this isn’t the time for that argument.

No, this argument is whether the money Sonic fans contribute in arena tax revenue is money that would not otherwise have been spent anywhere in King County. Ask yourself, as Sonic fans, what did you do with the money you would have spent on tickets, beers, and popcorn at KeyArena in the past few years?

I’m guessing that at least some of that Sonic money has been spent on other things – movie tickets, bar tabs, rent, Sounders tickets, whatever – all things that contribute tax money to the general fund.

However, by putting up a new arena, you will, in essence, be taking the money you would have been contributing to the general fund and, instead, be directing it towards paying down the debt on the new arena. Now, as a Sonic fan, that’s perfectly fine with you. I’m sure you’d much rather see your $100 or whatever in tax revenues spent on a basketball team than on another study of how to get people to take public transit or whatever else it would have been spent on.

But regardless of how you feel about how the money is spent, the argument that general fund revenues won’t be affected by this new arena is, well, not a lie exactly, but not exactly the truth, either.

(UPDATE: For a better, well reasoned take on this subject from someone who knows quite a bit more about it than myself, check out Field of Schemes.)


chunkstyle23 said...

I am an avid reader of Field of Schemes as well. The site takes a much-needed skeptical view of arena deals around the country, especially this one. I have yet to read of any deals that pass this site's muster, though. The sense I get is that he hates the Hansen deal much less than others (Vikings stadium=Public Enemy #1), which should count for something.

Art Thiel's take is skeptical, but fair: The money quotes are from Dwight Dively. It doesn't give Hansen a pass, but does recognize the less-hyped upsides to the deal.

Anonymous said...

"Since no new taxes will be sought, nor old taxes diverted, the $200 million public contribution essentially is a loan, whose debt will be retired from building taxes as well as up to $2 million in annual rent. Any shortfalls in revenue will be covered by ArenaCo, which will also cover all cost over-runs during construction."

This is from Thiel's article, and is exactly what bugs me about this deal. I have no problem with Hansen, Arena Solution or whomever - they've been totally honest and upfront about the situation. My problem is when the media and/or supporters start trumpeting the "no new taxes" b.s. If you spend five minutes studying this, it is absolutely clear that taxes will be diverted from the general fund to help pay for this arena. As FOSchemes points out (rightfully) this is NOT a loan, no matter what Art Thiel says.