Sunday, July 02, 2006

Jim Schutze, why you bring me down?

Well, because he tells it like it is and it's depressing. First, I should tell general readers (as if we have any) that I don't live in the Big D itself. I live right next to it, so I have an interest in it, especially as its municipal development directly impacts where I live. Not only that, but being the place of my birth there's a certain attachment to it. But for the most part, it's because the leaders of Dallas set an example of monumental stupidity when it comes to making decisions about how to use tax money.

This monumental stupidity is exemplified in one of the decisions made years ago to develop "Victory Park", which includes the new American Airlines center and most recently, the W hotel. Condos are also going up in the area. Now at first, this sounds like a payoff of a good investment. But if you actually look deeper than the surface (which you'd think people paid to handle the fortunes of over a million residents would do), you might see that there's something rotten in the Big D.

Let's take a recent study by an economist at the University of Texas at Arlington. In it, he finds that stadiums actually cost a city revenue. Surprising eh?

The economist who dug into the numbers said he was even surprised by his findings.

"What we're seeing is one football game lowers tax revenue by about $500,000 dollars," said Craig Depken, a University of Texas in Arlington sports economist.

The study done by UTA found that regular season football games actually cost the host cities about a half million dollars in sales tax revenues.

He goes on to say that basketball also costs a city money, but that hockey and baseball don't. Strange, but Dallas doesn't even have a baseball team. The Stars do play at AA center, but of course, not year-round.

Depken gives a brief explanation of the phenomenon.

While football fans spend money, it is mainly spent at the stadium where the benefits go primarily to the team.

"Your locals are spending $75,100 inside the stadium, but those dollars are not taxed the same way as if they were spending them at Target or JC Penney," Depken said.

So, for a football stadium, not only does the city fund the stadium, it then loses about $500,000 a game! 16 games, 8 at home, that's 4 million dollars! Makes me extra glad we decided to let the Cowboys go (Texas stadium is actually in Irving). That's almost the entire budget of the library system!

But anyway, we were talking about Dallas, and Dallas has basketball and hockey. So you might say, "Well, I guess it's an even trade." I suppose in the end it could still be profitable...if the city of Dallas hadn't footed the construction bill. But in any case, in 1995 Dallas had a Mark Rosentraub, also from UTA (damn, I'm proud of my alma mater) come tell the City Council that it wouldn't be worth it even if it did generate profit.

This is what Rosentraub has to say about Dallas and its current predicament.
For one thing, if we lost the Mavs and the Stars tomorrow, it wouldn't hurt the Dallas economy a bit--the effects would be negligible.

To prove his argument, Rosentraub produced 1991 statistics (the most current available) that he obtained from the U.S. Department of Commerce showing the importance of professional sports to the strength of the Dallas County economy.

Of the $30.7 billion in total payroll dollars generated countywide, 29 percent was generated by service industries (such as EDS and UPS), 18 percent by manufacturing, 12 percent by finance, insurance and real estate, 11.5 percent by the wholesale business (such as trucking) and 11.5 percent by transportation (like D-FW Airport). Only .16 percent--just over a tenth of one percent--came from professional sports. The numbers remain consistent when you look at the number of actual jobs created countywide. Of the 1.1 million jobs held in 1991, only .07 percent resulted from pro sports. (The addition of the Stars to the equation would have neglible effect.)

"Professional sports is nothing more than a frill," Rosentraub says. "On the other hand, if you don't have manufacturing, services, finance, insurance, real estate and transportation, you're not going to have sports. You couldn't afford it. You wouldn't have enough money to support it. You'd be Abilene."

Yow. In case you're not familiar with it (and if you're not Texan, why would you be), Abilene is a dusty little hole of a city way out west.

So even if a sport isn't sucking you dry, it's not doing you any good at it's best! So why do we love to build professional sports venues for the owners and then lose revenue on it? I guess because everyone believes the myth that arenas and stadiums are good for a city.

And lest you are tempted to believe the owners when they say they'll start developing around the proposed arena/stadium, don't. It's a lie. Here's the one Ross Perot Jr. told Dallas when he was getting them to front the cash for the project.

"Ross Perot Jr. said Tuesday that he would like to create a 4-acre public plaza and other amenities that would turn a proposed $230 million arena into a 'Times Square' for Dallas," according to the short piece that somehow required two reporters to craft.

The article by Jim Schutze tells us what really happened.

The development around the arena is called "Victory," as if it were a Broadway musical. Victory is now at 33 percent the size backers promised it would be back when they talked the City Council into signing a very one-sided contract with them.

The projections called for the total taxable value of property in the development--excluding the arena, which is nontaxable--to be $384.4 million this year. According to information provided to me by the city's Department of Economic Development, the Victory development is worth about $128.7 million now, one-third of what was expected.

And because Victory park is in a TIF (not a disagreent, but a special tax zone):

The new W Hotel pays full taxes, just like you and me. People who buy condos or other property in Victory pay full property taxes. But 85 percent or more of that money doesn't go into the city's general fund like the money you and I pay. Instead it goes into a special fund dedicated to Victory.

So unlike you or me, who pay taxes to fund things like mass transit and roads that we never use, these people pay taxes and get 85% of it spent on them. Boy, wouldn't we all love that deal?

And here's the shameful deal that Ron Kirk and his City Council made at the time:

This brings us to two key issues: How much money have we either already given to Victory or promised to give them in years ahead, and what is that money for? In 1997 when the new taxes were to go before city voters for approval, Mayor Ron Kirk swore, "Our costs on the arena are $125 million, and they're not going to go a penny higher." That was never true, not even for a split-second.

In 1998, we--you and I, the taxpayers--took on $141.2 million in debt in order to finance the construction of the arena, which cost $230 million to build. Our $141.2 million went to pay $110 million toward construction of the arena, $15 million for "infrastructure" and $16.2 million for interest on the bonds. We agreed to pay for this debt by putting a new 5 percent tax on car rentals and a 2 percent tax on hotel rooms within the city, making us that much less competitive for convention business with surrounding cities.

Partners Ross Perot Jr., who owned the basketball team at the time, and Tom Hicks, who owns the hockey team, put in $105 million.

Uh...come again? The city, with public monies, put in $141.2 million dollars for a stadium that Perot and Hicks would own? And the city doesn't get revenues from sales inside the stadium? Would you let these people run your city? Would you even trust them to get a good deal on a car? As Napoleon Dynamite would say, "Idiot!"

And wait, that's not even the most egregious stupidity. The Dallas City Council was so stupid even Napoleon Dynamite couldn't come up with an expression for them. Check this out.

But we're not done with the subsidy. Perot and Hicks said they couldn't possibly develop the area around the new arena if the city wouldn't agree to pay them back for even more of the new streets and sewers needed to service their own development. So in a separate deal, the City council agreed to chip in yet another subsidy of $25 million, putting the taxpayer tab so far for Ron Kirk's promised $125 million deal at $166.2 million.

Hang on. We're just getting rolling here.

A year after we agreed to the deal, Perot and Hicks sold naming rights to the arena for $150 million, payable 100 percent to them, zero percent to us, according to the contract negotiated by our City Council. A year after that, Perot sold the basketball team for $155 million more than he had paid for it.

An important footnote here is this: Of the $125 million you and I put into the arena, $10 million went to Perot and Hicks right off the top. Perot drew $8.4 million as the fee he charged us for being the developer of his own project. Another $1.58 million went to Hicks as his fee for arranging financing of his own project, which amounted mainly to getting us to pay for most of it.

So if they split the $150 mil down the middle, that means Perot came away with $238.4 million...for doing nothing. Hicks came away with a slightly smaller, but just as unreasonable $76.58 million. At least Tom Hicks kept his team! Anyway, articles by Jim Schutze always make me glad I don't live in Dallas (well, more glad). Although Mayor Laura Miller is opposed to such corporate welfare, she hasn't been able to stem the tide of such idiocy in the council. Who knows what they'll give away next for businesses that don't actually make any money? Office space for the National Man-Boy Love Association (I'm not linking it, but it's real). Anyway, if you live in Dallas and you gripe about welfare queens and people who buy beer with food stamps, let me tell you, you have more important things to worry about. I'll look up some articles later about how Dallas forfeits tax money left and right to the tune of 30 million dollars.


Xanthippas said...

Wow...those are pretty damning figures. I've said before that if people want to pay for the intangible benefits that having a major league team or a new stadium brings to a city (civic pride, etc., etc.) then that's okay, but it's one thing to know you're putting out a little money, and quite another to be rooked by wealthy business owners who fatten their wallets with revenue from stadiums/arenas that taxpayers paid to build, pump up the value of their team in the process, then make out like bandits when they sale their teams, renege on promises to develop the surrounding area, and take off. I guess it's good business practice to rip-off a city and take off, but civic leaders and politicians are the ones who are truly to blame for letting themselves and their cities get conned.

Nat-Wu said...

Of course both parties are to be blamed. The civic leaders for willfully ignoring the warnings they got about stadium developments and the owners for outright lying about their intentions. But hopefully, Dallas is an example other cities will choose not to follow, so maybe the story will have served a good purpose in some way.