Your Liberty is Our Interest

How to Finance Louisville City FC Professional Soccer Stadium

by Theresa Camoriano

On April 11, 2017, Louisville City FC announced that it plans to build its new soccer stadium in Butchertown, not far from Waterfront Park, just East of Louisville Slugger field.

Five parcels of land are under option, a total of 40 acres.  They will be used for a 10,000 seat stadium, as well as a retail, office and hotel complex, with the stadium opening as early as 2020 – the United Soccer League’s deadline for its clubs to move into stadiums meant for soccer.  The stadium may eventually expand to 20,000 seats. The full project will include 400,000 square feet of office space, two 250-room hotels, retail space, surface parking lots and a parking garage.

The owners anticipate that a mix of public (state and metro government) and private funding will pay for the project, which could lead to $200 million in new investment.  The stadium itself is expected to cost $40 million.

The owners anticipate that the city would acquire the land, clear it and resolve any contamination from old oil tanks on the site.  Metro government would then turn the land over to the developers. (What does it mean to “turn the land over”?  Hand it over for free?  Rent it for $1 per year?  Sell it at market value?  What kind of potential cost is involved in resolving any contamination from old oil tanks? We are not told.)

The state government financing portion would be through a tax-increment financing district, or TIF, which returns a portion of new tax revenue generated at the site to the developers.

Experience with YUM! Center financing:

The TIF for the YUM! Center has just been extended from 20 to 45 years by the KY legislature.  The bonds will have to be refinanced to avoid default in 2020, because the revenues are not enough to cover the payments on the bonds. Louisville Metro has pledged to provide $10.8 million per year over the 30 year life of the bonds.  U of L has committed to paying at least $2.5 million more per year over 30 years.  From a layman’s view, it appears that the refinancing will involve extending the bonds for 15 years beyond the expected 30-year life of the facility, so taxpayers will be left paying for an additional 15 years for a facility that is no longer being used.

Clearly, this arrangement has left the taxpayers holding the bag for a project that was not fiscally sound in the first place.  Unfortunately, unsound investments are common when the investments are made by force rather than on a voluntary basis.

 

CATO Institute studies on Public Funding of Stadiums and Arenas:

CATO refers to public funding of stadiums and arenas as a “collusion between big business and big government that fleeces the rest of us”.

These stadium deals “lead to increased taxes and higher prices, squeezing the average fan for the benefit of owners and sponsors.  And that’s not even counting the overwhelming majority of taxpayers, regardless of fandom, who never set foot in these arenas.”

Typical arguments for these sweetheart deals:

The stadium will attract investment to the area. It will result in an increase in jobs, increase in tax revenues, and increase in property values.

CATO’s studies show that the evidence tells a different story.  In many cases, taxpayers are continuing to service debt on now-demolished stadiums.   These deals benefit team owners and politicians at the expense of taxpayers.

 

Government Has No Business Getting Involved in These Projects –

Sports franchises, office buildings, hotels and restaurants are private businesses, owned by private investors.  If they are a smart investment, then let the owners make that investment.  Either they are a good financial risk, in which case investors will voluntarily invest in them, or they are not, in which case, taxpayers should not be forced to subsidize them involuntarily.

Let the potential owners of the stadium, restaurants, offices, and hotels join together on a voluntary basis to make the project a success.  If they want to invite the general public to invest in the project voluntarily, by buying advance season tickets or buying shares in the enterprise, they are free to do so.  But the general public should not be forced to subsidize these projects.

The argument that this project will be good for the community could be made for any privately-financed business.  Every successful business creates benefits for the community.  That does not mean that taxpayers should be forced to subsidize private businesses.  In fact, if taxpayers have to be forced to subsidize the business in order for the investors to invest, then it probably is not a good investment in the first place.

What ends up happening in these taxpayer-subsidized deals is that people who are politically-connected end up being subsidized by everyone else.  And the subsidy is not voluntary.  It is achieved by force.  That is both morally wrong and economically wrong.

Don’t we always say we want a “level playing field”?  Then, in all business investments, including sports stadiums, we should make sure that the playing field is indeed level.  There should not be any forced subsidies to give one business an advantage over another.

Forcing taxpayers to subsidize businesses is cronyism.  Although it may be done in a manner that is technically legal, it is a form of corruption – a sweetheart deal for the benefit of those who are politically connected at the expense of everyone else.

Our state is broke.  We have no money to throw around on sweetheart deals.

We already have a pension crisis that was caused by politicians who made generous promises, received benefits for making those promises, and then walked away leaving the taxpayers and prospective pensioners holding the bag.  We already have a YUM! Center that was sold on unrealistic projections and is being bailed out by the taxpayers.  We cannot tolerate any more of these sweetheart deals.

This cronyism needs to stop now.  We need to grow our economy based on real private investment and based on the truth–not based on pie-in-the-sky projections and on forcing taxpayers to subsidize private businesses.

It is up to us as citizens and taxpayers to demand an end to these sweetheart deals.  We need to let our elected officials know that we have had enough of cronyism and forced subsidies and that we are watching them and will hold them accountable.

 

(Theresa Camoriano is a patent attorney in Louisville, KY.)

April 18th, 2017 at 10:00 am


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