Stadium Subsidies, All Over Again . . .

Earlier this year, the Saint Louis Board of Aldermen narrowly approved the issuance of roughly $65 million in bonds to fund improvements at the Scottrade Center. Renovations have begun, but bonds have yet to be issued, and recently a lawsuit was filed against the city and others which alleges that publicly funding improvements to a facility that benefits primarily private interests—the NHL Blues and its ownership—violates the Missouri Constitution. You can read more about the suit here. The Blues have filed a suit of their own, too.

I am not a lawyer, and I have no intention of commenting on the legal merits or demerits of the suit. Rather, I’d like to use this as an opportunity to think about the policy fundamentals underlying the public funding of arenas.

But first, some facts about the current project*:

• The city owns the property and leases it out for $1 a year.
• Scottrade currently brings in about $6 million in sales and other tax revenue a year to the city.
• The bonds would cost the city a total of $106 million over 30 years.
• Based on projections, renovations will bring in an additional $145 million in tax revenue over 30 years, meaning the city would make a $40 million “profit” over that period.
• If the facility isn’t renovated, it is projected to generate less and less, finally bottoming out at $4 million a year. (These are just projections from the Scottrade Center’s consultants—click on the link below to see their full 32-year set of estimates).

*For arguments sake, I am assuming the projections are accurate. But, as an aside, these figures were produced by a consulting firm which regularly is off by margins of 50%.  

So what are we to make of the current situation? For one, “investing” in the facility is not a get-rich-quick (or even a get-rich-slow) proposition for the city. Taxpayers could see a much higher return on a similar investment in a diversified portfolio. Alternatively, no taxpayer investment could be made at all, and the city would still see $4 million come in every year.

Nor will investing in Scottrade significantly contribute to urban core revitalization. For one, if the city doesn’t fund these improvements, the facility will not disappear from the face of the earth. In addition, stadiums and mega-events are overwhelmingly considered by economists as poor ways to grow an economy. It is radically unscientific to claim stadiums and arenas are boons for the economy.

Now one might say that the city owns the building, and so, like any decent landlord, should pay to keep things up. This line of thought is understandable (though some claim the city doesn’t own the facility, but just the land it sits on), but it appears misguided. I understand that a landlord has an obligation to keep property in good shape if a tenant pays rent. The Blues pay neither rent nor property taxes. (Sure, events at Scottrade generate sales tax revenue, but that’s an ancillary benefit of the arena, not an excuse to avoid paying for use of the building or for upgrading it.) Plus, many of the slated improvements are things like new scoreboards and sound systems, not just building fundamentals like piping, furnaces, and other mechanical improvements. Demanding the city pay for upgrades is akin to demanding a landlord install big screen TVs for the squatters living on his or her property.

If the Blues have had the facility rent and tax free, and take in all the revenue from NHL and other events it hosts, isn’t it reasonable for them to pay for upgrades themselves? Perhaps the city can help put in new pipes, but is there any good reason for city, and potentially state, taxpayers to fix up a facility that primarily benefits wealthy team owners?

Why is our city so desperate to hand out tax dollars it simply doesn’t have?