July 13, 2011

Bengals stadium: Worst. Deal. Ever?

Good, long article in yesterday's Wall Street Journal on the financial woes of the Cincinnati Bengals' Paul Brown Stadium — or rather, the financial woes of Hamilton County, which built the place in 2000 and within four years was suing on the grounds it had been hoodwinked into a sweetheart deal. Among the article's highlights:

• The initial $280 million price tag ultimately swelled to $350 million (if you believe the Bengals), or $454 million (according to the county), or $555 million (according to Harvard stadium expert Judith Grant Long, whose long-awaited book Full Count, I am assured, really is due out any month now). This last figure would set a record for public subsidies for an NFL stadium.
• As a result, the county has been facing steep debt payments: $34.6 million in 2010, equal to 16.4% of the county budget. As a result, the county has been slashing funding for things like schools, the sheriff's department, and youth programs, and is now set to repeal the property tax reduction that was the carrot to get county residents to approve the Bengals stadium (and an accompanying Reds stadium) in the first place.
• Hamilton County hamstrung its own finances by agreeing to let the Bengals collect all parking revenues at the new stadium, while the public picked up all security costs. The team put pressure on the county by saying it would move to Baltimore without a sweetheart deal — but documents from the time indicate that Baltimore's offer was capped at $200 million in public funds, and would not cover operating costs.
• Even on the field, the new stadium has underperformed: "The Bengals had said that with a new stadium, the team's revenue would increase, allowing it to sign better players, win more games and attract more fans to the area. In 2000, the new stadium's first year, the Bengals had the same record they'd had the previous year, 4-12. Since then, the team has managed just two winning seasons in the new facility. Its attendance levels have actually dropped."

The problem, it seems, is that unlike in other municipalities, Hamilton County footed the entire stadium bill itself — and counted on a 0.5% sales tax hike to make the bond payments. When sales tax revenues didn't grow at the rate the county had hoped, it was left with a budget hole that's grown progressively larger.

(The Bengals have since responded with a two-page letter that asserts that it's the county's fault for making a lousy deal, and anyway the real problem is the county took part of the sales-tax proceeds and wasted it on things like roads and public schools.)

One hopes this will be a cautionary tale for other local governments negotiating leases, but it probably won't be, for reasons already discussed here. In case any local elected officials with lease talks on their agenda are reading this, though, here's a handy crib sheet of quotes from the WSJ report on the Bengals fiasco to reference in your hearing testimony:

"The Cincinnati deal combined taking on a gargantuan responsibility with setting new records for optimistic forecasting," says Roger Noll, a professor of economics at Stanford University who has written about the deal. "It takes both to put you in a deep hole, and that's a pretty deep hole."

"It's the monster that ate the public sector," says Mark Reed, Hamilton County's juvenile court administrator.

Tom Luken, a former Cincinnati mayor and councilman, actively campaigned against the deal. "Anybody with half a brain can figure that this is a bad deal," he says. "As it turned out, it was even worse than they painted it."

And finally, the punchline: Hamilton County commissioners are set to vote today on spending another $307,000 on the stadium, to upgrade its instant-replay system from analog to digital — stadium upgrades being the county's responsibility as part of that lease that taxpayers arm-twisted the Bengals into accepting. Next step: holography!