Wall Street Journal...
A
Stadium’s Costly Legacy Throws
Taxpayers for a Loss
By Reed Albergotti and Cameron
McWhirter
July 14, 2011
CINCINNATI—Here
in Hamilton County,
where one in seven people lives beneath the poverty line and budget
cuts have left
gaps in the schools and sheriffs department, residents are bracing for
more
belt-tightening: rollback of a property-tax break promised as part of a
1996
plan to entice voters to pay for two new stadiums.
The
tax hit is just the latest in a
string of unforeseen consequences from what has turned into one of the
worst
professional sports deals ever struck by a local government—soaking up
unprecedented tax dollars and county resources while returning little
economic
benefit.
With
a combined estimated cost of $540
million, the stadiums—one for football’s Bengals, the other for
baseball’s
Reds—were touted by the teams and county officials as a way to generate
cash
and jobs. The Bengals, who had threatened to relocate if they didn’t
secure a
new home, drove negotiations. And it is that deal—the more lucrative
arrangement struck with the teams—that has fanned the county’s current
struggles.
An
analysis by The Wall Street Journal
shows that of the 23 National Football League stadiums built or
renovated
between 1992 and 2010, only two involved a single county government
willing to
shoulder the debt burden necessary to build costly new facilities. Of
those 23
deals, the Bengals pact was unusually lopsided in favor of the team and
risky
for taxpayers—the result of strained negotiations between a local
government
and the professional sports team it was anxious to keep.
At
its completion in 2000, Paul Brown
Stadium had soared over its $280 million budget—and the fiscal
finger-pointing
had already begun.
The
county says the final cost was
$454 million. The team’s estimate, which doesn’t include infrastructure
work
around the stadium, puts the tab at $350 million.
But
according to research by Judith
Grant Long, a Harvard University professor who studies stadium finance,
the
cost to the public was closer to $555 million once other expenditures,
such as
special elevated parking structures, are factored in. No other NFL
stadium had
ever received that much public financing.
A
spokesman for the Bengals, vice
president Troy Blackburn, says the deal was fairly negotiated and
similar to
other arrangements made by NFL teams at the time.
He
attributes the cost overruns to the
county’s decision to move the stadium location to a site where it was
more
expensive to build.
Hamilton
County commissioners say the
location change accounted for only $70 million of the extra costs.
A
preliminary PricewaterhouseCoopers
audit of construction costs, reviewed by the Journal, found that there
were
insufficient financial controls on the part of various project managers
and
contractors hired by the county. It notes that at least $35 million of
the cost
overruns were unrelated to the site change, of which the Bengals were
responsible for roughly $4 million.
The
auditors, citing “blurred accountability,”
said they hadn’t been given enough information for a full accounting.
“Each
party suggested that we speak to other parties about specific details
of the
changes,” they said in the report.
On
top of paying for the stadium,
Hamilton County granted the Bengals generous lease terms. It agreed to
pick up
nearly all operating and capital improvement costs—and to foot the bill
for
high-tech bells and whistles that have yet to be invented, like a
“holographic
replay machine.” No team had snared such concessions in addition to
huge sums
of public money, Journal research shows.
To
help finance its stadiums, Hamilton
County assumed more than $1 billion in debt by issuing its own bonds
without
any help from the surrounding counties or the state. As debt service
ratchets
up, officials expect debt payments to create a $30 million budget
deficit by
2012.
“The
Cincinnati deal combined taking
on a gargantuan responsibility with setting new records for optimistic
forecasting,” says Roger Noll, a professor of economics at Stanford
University
who has written about the deal. “It takes both to put you in a deep
hole, and
that’s a pretty deep hole.”
The
stadium’s annual tab continues to
escalate, according to the county’s website. In 2008, the Bengals’
stadium cost
to taxpayers was $29.9 million, an amount equivalent to 11% of the
county’s
general fund.
Last
year, it rose to $34.6 million—a
sum equal to 16.4% of the county budget. That’s a huge multiple
compared to
other football stadiums of the era that similarly relied on county
bonds for
financing. Those facilities have cost-to-budget ratios of less than 2%.
Robert
Boland, sports business
professor at New York University’s Tisch Center says that while the
Cincinnati
deal was skewed, it’s important to remember there were two sides at the
table.
“You can’t blame the Bengals at all for negotiating the most favorable
deal
they can,” he says. Hamilton County was a “willing participant.”
Given
the national economic slump, the
county budget would have run into trouble with or without the Bengals
deal. But
county officials say the cuts are deeper and longer lasting because of
it.
Unlike most areas of the budget, the stadium can’t be pared.
“It’s
the monster that ate the public
sector,” says Mark Reed, Hamilton County’s juvenile court administrator.
Like
many other items in the budget,
the juvenile court has seen its funding slashed—by $13.4 million from
2008 to
2010. It was forced to nix funding for programs like Youth, Inc., which
worked
with troubled adolescents.
County
Auditor Dusty Rhodes initially
supported the stadium deal—partly as a matter of civic pride. But now
he feels
differently about the costly legacy that has grown in the arenas’
shadow—and
believes there’s plenty of blame to go around.
The
county, he underscores, has used
some of the tax dollars earmarked for the stadium on things like a road
project
and a new waterfront development. “They just went nuts spending this
money for
stuff that was not envisioned,” he says.
The
Bengals maintain that the county
has made a series of financial moves that left it vulnerable to a
downturn. “If
you make a decision to fund something, you can’t try to hold somebody
else
responsible for that decision,” says Mr. Blackburn.
The
Reds, through a spokesman, said
the team is under new ownership and can’t speak to any local financial
problems. The Reds’ Great American Ballpark, completed in 2003, didn’t
go over
budget and today is largely self-supporting.
Cincinnati’s
deal, like many of
similar vintage, was crafted as a way to keep sports franchises in
place. In
the 1990s, many pro teams threatened to relocate unless their local
governments
could offer subsidies.
Teams
were given public land and rent
abatements. Some received new stadiums worth upwards of half a billion
dollars,
paid for in large part with government bonds.
But
unlike in Cincinnati, where a
single county shoulders most of the risk, the exposure for most NFL
stadium
deals has typically been spread over a large area. When the Pittsburgh
Steelers
and Philadelphia Eagles got new fields, in 2001 and 2003, the state of
Pennsylvania picked up some of the tab. When the Denver Broncos landed
a new
stadium in 2001, six counties carried the burden.
Hillsborough
County, home of the Tampa
Bay Buccaneers, was another exception, shouldering most of its stadium
costs.
The
Bengals and the Reds had shared a
facility called Riverfront Stadium since 1970. The push for separate
homes was
led by the Bengals, who had said as early as 1995 that without a new
stadium
they might be forced to relocate.
Some
local officials had cautioned
that the stadium expense was too great. They warned that the projected
$300
million in economic benefits, outlined in a report commissioned by the
county,
were exaggerated.
Tom
Luken, a former Cincinnati mayor
and councilman, actively campaigned against the deal. “Anybody with
half a
brain can figure that this is a bad deal,” he says. “As it turned out,
it was
even worse than they painted it.”
The
Bengals’ Mr. Blackburn says that
residents were “an informed and engaged electorate.”
Negotiations
between the Bengals and
the county were ultimately handled by a three-person county board of
commissioners. One of those commissioners, Bob Bedinghaus, joined the
Bengals
in 2001 and is now the team’s director of business development.
Hamilton
County voters overwhelmingly
approved a half-percent sales tax increase in March 1996, paving the
way for
the pair of stadiums. In exchange, residents were promised a
property-tax
rollback and more funding for public schools.
After
the vote, the Bengals haggled
for roughly a year with the county over the construction and lease
terms under
a deadline imposed by the team, which refused to share its financial
records,
according to a county official present at the meetings.
Among
the sticking points: who would
pocket the millions in annual parking revenue (the Bengals now collect
those
funds) and who would pay for security costs (the county picks up the
bills).
The
Bengals say that the county had
expert consultants during the negotiations and that NFL teams don’t
make
financial information publicly available.
All
along, the Bengals had used as
leverage offers from other cities, including Baltimore—saying the city
had floated
a better deal.
A
letter dated June 1, 1995, which was
reviewed by the Journal, suggests the team had exaggerated one of its
prospects. Sent by an attorney for The Maryland Stadium Authority, it
stated
that any Baltimore deal would be capped at $200 million, or 16% less
than what
Hamilton County officials had been dangling. Maryland also refused to
cover
operational costs.
It
said that neither the governor nor
the stadium authority would support “any proposal which contemplates
seeking
legislative approval for additional government funding.”
Stuart
Dornette, the Bengals attorney,
maintains that the Baltimore deal was better, in part because the home
team
would get to keep revenue from other events held in the stadium. He
says the
team also believed the $200 million cost limit was flexible.
John
Moag, head of the Baltimore
stadium authority at the time, disputes that notion, and reiterates
that there
was no additional government funding available. The more favorable
terms the
team secured from Cincinnati, he says, “may be the best deal in the
NFL.”
Hamilton
County ultimately agreed to
cover all stadium cost overruns as well as most operating and upkeep
expenses—a
tab of roughly $8 million per year.
As
soon as the Bengals stadium went
up, sales tax revenue began to slow from the record growth the county
had seen
in the mid-1990s. The county has had to restructure the debt on the
stadium a
number of times to keep up with payments. Late last year, officials
announced
they would have to break their promise about reducing property taxes
for 2011.
In
the fall of last year, the Bengals
offered to make larger lease payments to help the county pay debt
service on
the stadium. In exchange, the team asked for $43 million in capital
improvements, among other concessions. One item on the wish list: a
high-definition video scoreboard. The talks, however, fell apart, and a
new
lease was never negotiated.
Recently,
as local officials mulled
new ways to stretch the budget, one commissioner suggested making up
for the
tax hike by cutting another property-tax levy: one that funds health
services
for the poor. A decision on the budget is still pending.
The
Bengals had said that with a new
stadium, the team’s revenue would increase, allowing it to sign better
players,
win more games and attract more fans to the area. In 2000, the new
stadium’s
first year, the Bengals had the same record they’d had the previous
year, 4-12.
Since then, the team has managed just two winning seasons in the new
facility.
Its attendance levels have actually dropped.
Mr.
Dornette, the Bengals’ attorney,
says the team is spending roughly what other teams spend on player
salaries.
Harold
Flaherty, a former
schoolteacher, says he is livid about the sports pact. “It staggers my
imagination that we should pay for this,” he says. “I think it’s the
dumbest
thing we ever did.” Mr. Flaherty, 77, will pay about $240 more in
property
taxes this year due to the rollback.
Mr.
Flaherty, a sports fan who voted
against the stadium deal, says he doesn’t go to Bengals games. “I
already give
them money,” he says.
Read
it at the Wall Street Journal
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