Thursday, September 22, 2016

City Financed Stadiums

The citizens of the city of Arlington will soon vote on whether to increases taxas (0.5% sales, 2% hotel, 5% car rental) to subsidize the building of a new ballpark for the MLB Texas Rangers to the tune of $500 million. The concept looks beautiful.

This event affords a nice application of the indifference principle. The new venue will spur new development, offer new entertainment opportunities, and generate general positive amenities which will lead some people to want to move to Arlington. On the other hand, each of the current 140,000 households will be on the hook for an average of ~$3,500 in new taxes over the next few decades which will encourage some out-migration. If the former outweighs the later, leading to a net migratory influx, more home buyers should bid up housing prices. If not, house prices should fall.

The experience with Jerry World might be informative. My research on Arlington taxing itself to subsidize AT&T Stadium in the amount of $350 million finds that this event led housing prices to fall in Arlington relative to neighboring cities. The cost of the tax outweighed any benefits. Moreover, the total housing stock fell in value by ... wait for it ... $350 million.

9 comments:

  1. Brittany HippenstielOctober 2, 2016 at 10:08 AM

    There are clearly many pros and cons associate with the new stadium. First let’s look at some of the positive aspects of this 5million dollar project. This will bring in new jobs, new residents, and new opportunities. It will provide a large entertainment venue for people to enjoy many things. Those are the obvious benefits. Some of the negative aspects are the raise in taxes. Yes, this is huge, and may run out local residents, but being part of a thriving community would be worth this increase in taxes, wouldn’t it? The post states that the increase will be $3500 over a number of years, not all at once. This can also negatively affect the real estate market and the value of homes. This may cause a quick increase of houses on the market to allow the people being effected by the tax increase time to get out. BUT, with all of this being said, there is a vote that must take place, which means there is a time where all of this can be heard. Where you can express concerns, and allow people to understand the pros and the cons.

    “The experience with Jerry World might be informative. My research on Arlington taxing itself to subsidize AT&T Stadium in the amount of $350 million finds that this event led housing prices to fall in Arlington relative to neighboring cities. The cost of the tax outweighed any benefits. Moreover, the total housing stock fell in value by ... wait for it ... $350 million.” (Michael Ward, blog dated September 22, 2016)

    The experience with Jerry Wood, is a very similar situation which ended with a very negative outcome. The taxes pushed people out, which then in turn the community lost so much by the housing stock fall. This is an outcome that can come from this new stadium as well, and for an even larger amount, which could be absolutely devastating to Arlington, and neighboring communities.

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  2. This situation seems to be a case where the right people aren't in place making the right decisions. The citizens themselves probably were not the best judges of what would be a good investment in this case. Someone with better investment would have recognized that there would have been a net migratory outflux. Although the concept was "beautiful", it wasn't beautiful enough to attract a higher number of people than the number that left.

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  3. *better investing skills

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  4. In the long run, the stadium will bring revenue, jobs, and traffic through Arlington; a place that loses business to downtown Dallas. The new stadium would generate approximately $77.5M in revenue (http://www.dallasnews.com/news/arlington/2016/07/05/besides-500-million-else-texas-rangers-getting-stadium-deal). However, if $250M falls on the tax payers, that’s a heavy burden for the citizens of Arlington to bear considering they just went through this with Cowboys’ stadium. When it comes to voting on city financed stadiums, I believe that the residents should have say in what the taxes are increased by.
    If taxes are going to be increased at a heavy burden for the citizens, the city of Arlington and the Texas Rangers need to come up with a different way to have the stadium built. One suggestion might be having the Rangers enter into a PILOT (payment in lieu of taxes) agreement with the city of Arlington. Rather than the Rangers paying taxes directly back to the city, they pay a portion to the schools and local town so that the citizens benefit from lower property taxes and the schools benefit from receiving additional revenue to help them accomplish goals.
    My local school in NY has a PILOT program set up through 2 major corporations and it has helped our school district expand the school, implement new facilities for athletics and the fine arts, and hire more qualified teachers because they have the additional revenue to spend on salaries. If the Rangers, Arlington and the tax payers can come up with a plan like that, every single party could benefit in the long run.

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  5. Arlington’s proposal to build a stadium using local tax paper money is not a quick decision to make. They must analyze the tradeoff of what the present day sacrifice would be verses future gains in revenue to the area.
    Investors and city planners should look at the example from the past when they planned to move the Cowboys from Irving to Dallas by building a new stadium. This plan would also involve an increase in taxes for the locals. Shortly after the announcement housing values sank.
    One idea the city could go with is to implement a short-term temporary tax increase to build the stadium with assurance that taxes would decrease when revenues came in. The controversy with this is that it could take years to build and there would not be research to insure that the profit would be more than sufficient to increase housing prices in the long term and increase profit to local businesses with increased traffic.
    The city would need to have a higher economic profit than its initial capital cost to be profitable. They would also want to consider the amount of jobs it could bring to the area. Do the benefits outweigh the costs?


    Dehring, C. A., Depken, C. A., & Ward, M. R. (2007). The Impact of Stadium Announcements on Residential Property Values: Evidence from a Natural Experiment in Dallas-Fort Worth. Contemporary Economic Policy, 25(4), 627-638

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  6. Personally, I have never been a fan off taxpayers paying for stadium/venues. Owners benefit from the parking to concession and the city doesn’t normally receive a kick back but taxes.
    Vegas is looking to add a stadium and throwing the different as a tax on to hotel bills not the citizens of Vegas. In an article by Travis Waldron (2016) he states,” The new stadium is backed by billionaire casino mogul and Republican megadonor Sheldon Adelson, who has pledged $650 million for the project ― but only on the condition that the state approve the subsidy. Raiders owner Mark Davis will also contribute $500 million toward the new stadium, which has a total projected price tag of $1.9 billion.”
    Overall this would create a unique competitive industry. As there is nothing in Vegas stadium wise but it could have a negative effect on the gaming companies. People may not want to pay the extra tax and not go at all to Vegas. It also gives more options and potential less time spent in the casinos and other shows. To some degree a monopoly is created because of the football and other large venue options. Where the monopoly losses some luster is, there are so many other entertainment options to choose from.
    Travis Hoium (2016) wrote, “The public subsidy will be paid for with a 0.88% increase in the room rate tax on the Las Vegas Strip and a 0.5% increase in other areas of Clark County. This is on top of a 0.5% room tax increase to fund $420 million for a convention center expansion, a site that brings thousands of people to Las Vegas each week. The extra tax on rooms for tourists may seem small, but it's on top of the current 12% tax on rooms on the Las Vegas Strip.” I think overall business (hotels) need to take a strong look at this before being so all in.


    Hoium, T. (2016, October 15). Taxing Las Vegas Visitors: Casino Giants Now Behind Las Vegas NFL Stadium Plan. Retrieved November 18, 2016, from http://www.fool.com/investing/2016/10/15/taxing-las-vegas-visitors-casino-giants-now-behind.aspx

    Waldron, T. (2016, October 14). Nevada Legislature Approves $750 Million Tax Subsidy For ... Retrieved November 18, 2016, from http://www.huffingtonpost.com/entry/las-vegas-stadium-subsidy_us_58013c27e4b0162c043c083b

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  7. With RentalCars you can find affordable car hire from over 49,000 locations globally.

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  8. The idea of having the public support the funding of a new stadium always creates and interesting economic query for the local community. The opportunity for increased economic prosperity that the new stadium will bring, has to be looked as versus the financial burden placed on the residents of the area. Arlington Mayor Jeff Williams was quoted as saying: "I believe very strongly that this is a win for Arlington," And it is a win for the Rangers, but it's a win for North Texas too." In particular, he points to a report projecting that the new stadium would generate $77.5 million annually in economic impact for Arlington (Mosier). $77.5M in additional annual revenues for the community is a huge impact for the local businesses, restaurants, hotels, and the local workforce. But, is that enough to justify the $250M expense that will be levied on the community?

    My opinion is very straight forward on topics like this, I do not live in Arlington, and therefore cannot speak for the people of the community. The best way to make a determination if this is right for a community and its people is to let them have their voices heard and vote on the topic. In November of 2016, the Arlington voters made their voice heard loud and clear, 60% Yes and 40% No to the new stadium (Perry, 2016). In the eyes of the local community the was enough value in the project for them to support it. The extra cost is taxes did not offset the value that this new stadium will bring to their community and the future generations of Arlington.

    This is the best way to answer a localized economic question, let the people of that community decide what is best for their people and their local economic policies.


    References:

    Mosier, Jeff. Environmental Writer, The Dallas Morning News. Besides $500M here is what the Texas Rangers are getting in the new Stadium Deal. http://www.dallasnews.com/news/arlington/2016/07/05/besides-500-million-else-texas-rangers-getting-stadium-deal

    Perry, Dayn. MLB.com Election Day: Arlington Voters Approve New Texas Rangers Ballpark worth $1B. November 9, 2016. http://www.cbssports.com/mlb/news/election-day-arlington-voters-approve-new-texas-rangers-ballpark-worth-1-billion/

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  9. I can understand how at first glance it sounds good on paper: building a stadium can increase and benefit the tourism industry (hotels, restaurants, etc), and create thousands of new jobs for the construction, maintenance and upkeep, not to mention the benefit to the surrounding areas - which in turn benefits the populations living in that area. This is the siren song that has prompted many cities and countries to build stadiums for the Olympics, the promise of future opportunity, and of course they’ll find other uses for it once its built… (Little, 2016). In the Bronx where I used to work, we went through years of arguments over building the new Yankee Stadium (Craggs, 2009). But the question here remains: do the increased taxes imposed on the residents, offset the worth just as much? The article provides this as an example of the Indifference Principle. I propose that building the stadium is a great example of exploring opportunity cost; and that the Rangers themselves are the mobile asset that will be indifferent about where they go: they will make the same profit no matter if they stay or move after their contract expires in 2024 (or whatever the proper baseball terminology is).

    What is often downplayed, is the effect increasing taxes will have in the long run, the potential displacement of people or disruption, to make way for the construction site, and whether residents will even be able to afford attending the new stadium and enjoy its amenities. What is the opportunity cost? Could that tax be better spent elsewhere, such as a park, improved schools or transportation? is baseball enough of a draw for people to want to come to Arlington to begin with?

    According to Dehring et als (2007), a series of announcements about a new stadium being publicly subsidized actually led to “reduced residential property values in Arlington. In aggregate, average property values declined approximately 1.5% relative to the surrounding area before stadium construction commenced. This decline was almost equal to the anticipated household sales tax burden, suggesting that the average expected amenity effect of hosting the Cowboys in Arlington was not significantly different from zero.”

    If the net result is nothing – except perhaps an annoyed population that didn’t want yet another stadium to begin with – I daresay it’s not enough of a reason to build it.

    REFERENCES:

    Bolsmann, Chris (2010, June 10). Is the World Cup Bad for South Africa? Harvard Business Review. Retrieved from https://hbr.org/2010/06/is-the-world-cup-good-for-south-africa

    Craggs, Tommy (2009, 10/30). Why Your Stadium Sucks: Yankee Stadium. Deadspin. Retrieved from http://deadspin.com/5393033/why-your-stadium-sucks-yankee-stadium

    Dehring, Carolyn A., Depken, Craig A., Ward, Michael R. (2007, October 29). The Impact of Stadium Announcements on Residential Property Values: Evidence from a Natural Experiment in Dallas-Fort Worth. Wiley Online Library. Retrieved from http://onlinelibrary.wiley.com/doi/10.1111/j.1465-7287.2007.00077.x/full

    Little, Becky (2016, August 5). Neglected and Recycled Olympic Stadiums from Around the World. National Geographic. Retrieved from http://news.nationalgeographic.com/2016/08/world-olympics-rio-stadiums-games-sports/

    Tammy, John (2017, February 23). What Say Paul Krugman About Rio’s Olympic-Sized Implosion? Real Clear Markets. Retrieved from http://www.realclearmarkets.com/articles/2017/02/23/what_say_paul_krugman_about_rios_olympic-sized_implosion__102560.html

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