David Michael Miller
It would be hard to find a more unpopular idea than the proposal to spend $150 million in state money to support a new Milwaukee Bucks arena. A recent Marquette Law School poll found state residents oppose the idea by more than a 4-1 margin, with 79% against it and only 17% in favor. Even in the Milwaukee media market, 67% of those polled objected to subsidizing another pro sports team.
Looming over the effort to bail out the Bucks is the specter of George Petak, the Republican state senator from Racine who was recalled from office in 1996 for supporting the state plan funding Miller Park. But baseball is more popular in Wisconsin than NBA basketball, and then-Brewers owner Bud Selig was not wealthy, while the Bucks’ owners, Marc Lasry, Wes Edens and Jamie Dinan, are among the wealthiest people on the planet, with a combined net worth of more than $5 billion. That makes this sports subsidy even tougher for taxpayers to swallow.
The strategy of Gov. Scott Walker and Republican legislators has been to describe the bailout as not really a net tax. Thus, Walker’s spokeswoman Laurel Patrick says, “Governor Walker’s focus is on protecting taxpayers by maintaining the current revenue stream,” namely the income taxes paid by Bucks players. “Without progress on a new arena, the Bucks will leave Wisconsin in 2017, costing the state nearly $10 million a year in lost revenue collections.”
But there are two problems with that rationale. For starters, any business could thereby demand a subsidy; they, too, have workers who pay taxes and many could also threaten to leave the state. Doesn’t this open the door to offering taxpayer bribes to many businesses?
Secondly, the $10 million in annual income taxes retained by keeping the Bucks in Wisconsin will be more than offset by the project’s cost to taxpayers. Assuming the arena lasts 30 years (the Bucks current venue, the Bradley Center, is 27 year old), the taxes retained would amount to $300 million. Meanwhile, the state plan calls for the $214 million state subsidy (when you add in $64 million in interest payments), a $30 to $70 million subsidy by the city and county government in Milwaukee, plus various valuable tax exemptions.
The state proposal awards the team a sales tax exemption on “building materials, equipment and supplies used” to construct the arena. It is expected to cost $500 million, and assuming the cost of materials is, say, $300 million, that exemption would be worth about $17 million.
The proposal calls not for an NBA arena, but a “Sports and Entertainment District,” and specifies that a property tax exemption, in addition, will be extended to “parking lots, garages, restaurants, parks, concession facilities, entertainment facilities, transportation facilities and other functionally related or auxiliary facilities or structures.” It would appear that nearly anything the Bucks owners develop in the area will be exempt from property taxes, including the arena, a proposed practice facility, public plaza, beer garden, probably any Bucks apparel and merchandise shops and who knows what else.
Assuming the arena and these “auxiliary facilities” will together cost at least $700 million (a pretty conservative estimate) and figuring that value times the current Milwaukee property tax rate ($29.97 per $1,000 of value), that equals a property tax payment of nearly $21 million per year. Over the likely 30-year life of the arena, that’s a total property tax exemption of $629 million. (That estimate might be high as property tax assessments for new buildings are typically set below construction costs. On the other hand, it applies the current tax level for all 30 years of use, while the buildings’ value and taxes are likely to rise over time.)
The proposal also specifies that the “income of a sport and entertainment district would be exempt from the state corporate income and franchise tax.” This language is very broad and would seem to include any revenue-generating facilities, shops and restaurants the Bucks develop within the district. Given the state corporate income tax of 7.9%, this exemption could be quite significant over the course of 30 years.
All told, the full 30-year cost of the arena could be well in excess of $800 million. The Bucks owners and Republican legislators have cited the project as a boon to downtown Milwaukee, but so far any proposed development cited by the team appears eligible for the property tax exemption. This could relegate a huge swath of downtown, up to 30 acres of developable land, to a massive nonprofit that pays no taxes while eating up city services (police, fire, garbage collection, snow removal, etc.) and whose bars and restaurants could take away business from taxpaying businesses in the downtown area.
It’s a proposal that would likely outrage most state taxpayers, except that newspapers (which gain readers and revenue by covering pro sports) have done such a poor job explaining the project’s true costs. Heaven help the politicians if voters learn the full story.
Bruce Murphy is the editor of UrbanMilwaukee.com.