They threw me a curveball.
The Utah Legislature unveiled two new bills last week that, if passed and fully funded, would funnel nearly $2 billion in tax dollars toward building both a stadium for a prospective new Major League Baseball team and an arena for either or both a new National Hockey League team or the Utah Jazz — it’s not clear which.
I anticipated this to some degree. My data column earlier this month looked at why the vast majority of economists consider it a bad idea to spend public taxpayer dollars on building new stadiums or arenas. In general, it simply doesn’t have a very good return on investment: Money heads to construction without a whole lot of measurable good for the larger community.
But I didn’t expect two things: First, I didn’t expect the asks to reach nearly $1 billion per project; I thought they’d be significantly more reasonable. Second, I didn’t expect some of the mechanisms they’d use to raise that funding, which are very different across the two projects.
Let’s dive in.
The sports complex proposals
HB562 (the baseball stadium bill) and SB272 (the basketball/hockey arena bill) both create development areas around creating new sports venues, and both define how they’ll be funded to the tune of about $1 billion. Other than that, the differences are stark.
The baseball bill creates a new Utah Fairpark Area Investment and Restoration District, akin to the Point of The Mountain State Land Authority. The Fairpark district is a “political subdivision of the state,” but also an “independent, nonprofit, separate ... public corporation” that essentially controls the land within the Fairpark district’s complicated boundaries. A five-member board gets to run the project, and the district can charge various taxes — such as energy, telecommunications, hotel, and sales taxes — like a municipality.
The Fairpark project bill is very specific. It explains how the state will proceed within the district with, or without, a professional major league baseball franchise. It explains how the hotel tax will rise from .32% to 1.92% state-wide (and the rental car tax will rise by 1.5%) if a baseball team comes to the area by 2032. It explains how property tax increases within the district will fund further expenditures. It explains how the state will own the proposed ballpark and the land underneath it, which the baseball team will lease for $150,000 per month for 360 months. And it explains that it will pay for half of the costs of the stadium, up to $900 million.
The baseball bill is 116 pages long.
The bill for the Smiths’ new arena downtown, though, is only 12 pages long.
Instead of creating a state-owned district, it allows a “first class city in a first class county” — the only qualifying such city is Salt Lake City — to create a “sports and entertainment project area.” It says that project area has to be at most 50 acres, and it has to be roughly centered around the Delta Center.
Then, the bill allows the city’s government to raise sales taxes by up to .5% within the city (if such a measure is passed by the city government) to pay for construction of a stadium and other stuff in the project area. That’s it.
The fallacies at play
So let’s talk about those various funding paths, and why they still don’t measure up to scrutiny.
The hotel picture
In supporting the idea of using hotel taxes for the baseball stadium, Gov. Spencer Cox said, “We have some of the lowest taxes in the United States on hotels … so the argument is there’s a little bit of room.” This is a little bit of a fudging of the data: 25 states don’t charge hotel taxes at all. But if you add sales tax and hotel taxes together, Utah does indeed rank 32nd-highest in the nation. If you raised Utah’s hotel taxes to the proposed 1.92%, they would be ranked 18th.
The carrot for the hotel lobby here is that the tax would be offset by the hope that a new sports team would bring in more people to stay in the state. Does that happen in practice? Evidence is mixed.
One study, for example, looked at how prices differed at hotels outside of L.A.’s Staples Center depending on which events were there. When big events occurred, hotel incomes improved for hotels within a mile of the Staples Center, but incomes declined for hotels between one and four miles away. NBA games had positive correlations to room rentals and revenue, but a seemingly downward effect on room rates. NHL games, interestingly, were correlated in declines in all hotel outcomes. And when the NBA or NHL work stoppages occurred, hotel rates actually increased.
As sports subsidy researcher J.C. Bradbury later summed up, “Overall, the results are not consistent with the idea that events in the Staples Center increased demand for nearby hotels over what visitors would have purchased absent events in the arena.”
Another study from Charlotte looked at how that city’s NFL or NBA games impacted hotel stays and revenue. NFL games led to a 40% increase in room rentals, but found no significant impact for NBA games. And finally, a study from St. Louis did find MLB and NFL games were associated with small increases in most hotel outcomes — but not NHL games.
I’d imagine a similar result would be found if you looked at rental car data in these areas, but I wasn’t able to find a study that did.
The value of sports districts
While sales and property taxes are very different kinds of taxes, the claim made in both cases is pretty similar: Having a sports and entertainment district is of massive benefit to the population, and so we can justify using the new tax revenue created through these funding mechanisms in order to build one.
And there’s just very limited evidence to that effect. My previous column already relayed that research:
• When sports franchises arrive or leave, it appears to have zero measurable impact on an overall area’s local income or wages.
• Stadiums do have impacts on the immediate surrounding area of a district — usually increasing hospitality businesses nearby, while reducing retail.
• In general, the research shows that people’s entertainment dollars are not unlimited. When money is spent in a sports and entertainment district, it doesn’t just come from thin air, but instead by taking away from other entertainment income elsewhere.
The “tax that doesn’t impact taxpayers” fallacy
When asked about the baseball stadium project, Cox said, “Most of those taxes are paid by people outside of the state of Utah, so that’s one area where we’re having discussions and negotiations where I’m open to it. ... I’m not open to using General Fund money and writing a check to subsidize these at all.”
Here’s the thing: Raising hotel taxes is not neutral to Utah residents. Many northern Utahns choose to stay at hotels when visiting the southern part of the state, and vice versa. Hotel taxes also could result in decreased hotel revenue, which might mean impacts on hotel employees.
The same is true with the proposed tax increases on energy or telecommunications companies within the district. Those companies aren’t just going to eat increased taxes within the Fairpark service area — they’re going to pass it on to their consumers, namely you and me.
But let’s charitably assume, probably incorrectly, that those taxes somehow were neutral. My biggest problem is in the incorrectly myopic line of thinking here. The total tax picture is fundamentally interrelated.
For example: If raising the hotel or rental car tax is a good idea, then do that! That way, you can reduce the General Fund taxes for Utahns. If you believe that you can wring more money out of telecommunications or energy companies, great! Then let’s charge less for sales tax on food.
And just as importantly: When you use the property taxes gained from one area on just that area, the rest of the community doesn’t have access to the property taxes that from the growth would have otherwise occurred elsewhere.
I thought Salt Lake City Mayor Erin Mendenhall used an interesting analogy in a recent forum.
“Growth is kind of like a hunk of dough. What do you want to get out of it? You can make it into a loaf, you can get 16 rolls out of it, or you could shape it into a braided wreath,” she said. “But if you aren’t getting your hands in it, and shaping the growth as it’s happening, then it happens to you.”
Though Mendenhall supports the subsidies, I agree with her analogy. And I agree that it’s important that our lawmakers shape what our city and state will look like moving forward.
But the amount of dough we have is limited. We cannot magically create more flour or yeast out of creative taxation schemes. If these bills are passed, we’re using our dough to support billionaires building sports stadiums, when instead we could use it for innumerable other projects with a greater return on investment.
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