A couple months ago, we funded a study by the University of Washington’s Evans School of Public Policy & Governance for a public finance analysis of the SoDo and KeyArena proposals. We wanted the Evans School to independently analyze how each proposal would affect the tax revenues of Seattle.
The final report is now out, and it has some interesting findings. As they write (emphasis ours throughout):
Under a “base case” set of assumptions applied to both proposals, the model suggests the following:
• SODO’s estimated contribution to the City General Fund is three times OVG’s. The SODO arena would send an estimated $103 million (inflation-adjusted) of new tax revenues to the City General Fund over 35 years. Under the same base case assumptions OVG would generate just under $34 million. These estimates are also consistent across different scenarios. For example, under an “aggressive” set of assumptions SODO would send just short of $111 million to the General Fund, where OVG would send just short of $47 million. “Aggressive” in this context means more successful teams that could command higher ticket prices, higher attendance at games, and other assumptions that would increase revenues. By contrast, under lower ticket prices, lower attendance, and other “conservative” assumptions, SODO and OVG would send to the General Fund just short of $67 million and just short of $25 million, respectively.
• Both plans redirect roughly the same amount of tax revenue. In the base case scenario, the SODO plan redirects approximately $205 million of City admissions tax. The City admissions tax has historically financed the public’s share of capital investments in publicly-owned Seattle sports and entertainment facilities. The SODO group’s position is that collecting that tax on a privately-owned facility puts team owners at a competitive disadvantage relative to markets that do not collect that tax. OVG asks the City to redirect to the City Arena Fund approximately $167 of new City retail sales tax, construction sales tax, admissions tax, parking tax, and the leasehold excise tax. If OVG asks the state and county to redirect their respective portions of those same taxes, then under the OVG plan the total taxes redirected exceed $200 million.
• OVG’s impact on the City’s finances hinges on revenue sharing. OVG has said it will consider transferring some portion of the revenues from the City Arena Fund to the General Fund once the City Arena Fund has received $40 million of redirected revenues. Our model indicates the City will reach that threshold in approximately year 9, and it assumes an annual transfer to the General Fund equal to 10% of the revenues that flow to the City Arena Fund each year. Of course, the City could negotiate a much higher sharing rate and send more revenue to the General Fund as a result. This assumes, of course, that the Arena Fund revenues are more than adequate to cover the arena’s annual capital spending needs. It also assumes the City Arena Fund would not be the funding mechanism for a major arena renovation. Recent experiences suggest that even with a properly-funded capital spending plan, most NBA facilities require a major renovation 12-15 years after opening, with renovation costs ranging from $50 million (New Orleans) to $192 million (Atlanta). If the City Arena Fund is the funding source for a renovation, those costs would almost certainly exceed OVG’s contribution to the General Fund.
• SODO would contribute approximately $100 million of property taxes to local governments other than the City of Seattle, especially schools. We focused on City of Seattle tax revenues because we can assume both proposals will advance the tax arrangements with the City outlined in their public statements to date. We are less sure about similar arrangements with King County, the Port of Seattle, Seattle Public Schools, and other overlapping local governments. However, we can be sure that: 1) OVG will not pay property taxes because the renovated Key Arena will remain publicly-owned; 2) SODO will be privately-owned; and 3) SODO has pledged to pay all applicable local property taxes. Seattle Public Schools’ tax rate in 2016 was $2.18 per $1,000 of assessed value, and the State School Fund rate was $2.17 per $1,000 of assessed value, for a combined schools rate of $4.35. At that rate, SODO would contribute $53 million (inflation-adjusted) to public schools over 35 years. Note also that after the state budget passed in late June, the State Schools Fund rate in Seattle will likely increase. Add to that an additional $3.51 per $1,000 for the ports, emergency medical services, and other local taxing jurisdictions, and SODO’s total property tax contribution to governments other than the City of Seattle is approximately $98 million.
While tax revenues is just one of many factors the Seattle City Council needs to consider, we believe the findings of the Evans School — when combined with the clear traffic/parking/transportation benefits of SoDo, as well as the fact that our project will be entirely privately financed — highlight that our proposal for a NBA/NHL arena in Seattle Stadium District will benefit, rather than burden, Seattle and its taxpayers.
You can check out the full Evans School report at their website.