How to Argue with an Arena Skeptic Part 1 – The $58 Coliseum Tax Myth

There have been countless times over the past several weeks where I have found myself shaking my computer screen or mobile device in frustration (note that shaking a mobile device is somehow far less cathartic than a computer screen) when reading arguments on twitter or facebook about the upcoming August 1 arena referendum. And the frustration is just as much at well-meaning arena supporters as at its opponents. Too often supporters either adopt the false assumption of arena opponents or overstate the economics of the arena without the specifics. In this series of posts, I intend to identify some of the strawmen and debunk some of the myths that crop up in arguments about the arena deal.

The Referendum Will Not Result in a $58 Annual Tax on Residents.

Too often arena supporters accept the notion that the arena deal would mean an additional tax of $58 per household and instead argue why that's not a lot of money or that the consequences of the team leaving is worse.  Aside from not being particularly effective, the assumption is simply not true.  In fact, (as others have noted) the tax impact of the referendum will most likely be much, much less than $58.

The $58 number is based what the total estimated annual debt service of $26 million/year by the county would mean for the average taxpayer. However, this number assumes that the county will borrow and spend $400 million and not receive a penny in return.  Sort of like assessing the cost of buying a house (or making any other investment) and focusing only on the fact that you're giving money to some guy and ignoring the fact that some guy is giving you something (namely, a house) in exchange.  While the house may or may not be a worth what you're paying, to ignore the value of the house completely is absurd - but this is exactly what the $58/year number does.

So, what will the county receive in exchange for the $26 million/year in debt service?

  • Even if the Isles stink and the arena does poorly, Wang is obligated to pay the county $14 million annually once the building is built. Thus, the county's annual debt service obligation is actually $12 million annually, or approximately $27/year per household.
  • Under the Wang lease, the $14 million payment is a minimum.  If 11.5% of arena revenues exceed $14 million, Wang is obligated to pay the county that amount instead.  Based on this arrangement, the county estimates that Wang's annual payment will actually be $18.9 million annually. As I explain here, this estimate is based on the Islanders having attendance levels and ticket prices at around the NHL average and playing no playoff games. Islander fans know that a team featuring Tavares, Okposo, Grabner, Strome, et al. in a new arena (deep breaths) might regularly sell out and advance into the playoffs, but that might not convince an arena skeptic (although you can certainly try!).  In any case, $18.9 million in annual payments lowers the county's payment to approximately $7 million. This translates to approximately $16/year per household.
  • In addition to the revenues under the lease with Wang, the county will also receive tax revenues from both arena sales (tickets, food, parking, etc.) and economic activity generated by the arena (area restaurants, spending by team employees).  This number is somewhat difficult to estimate and depends on various assumptions, but the county estimates $9.2 million in tax revenue, allowing the county to realize a $2.2 million profit, or a per household tax savings of $5/year.
  • None of the above takes into account the minor league ball park deal, which the county recently concluded, according to Newsday.  The deal will include a revenue sharing arrangement with the minor league team, although Newsday did not include the details regarding the arrangement.  Any payments or tax revenues resulting from the minor league ball park would further lower the county’s debt service obligation and the tax burden on county residents.

In sum, while the actual cost to taxpayers is unknown, once the arena and ballpark are complete, it will definitely be less than half of $58 per year and may even allow the county to turn a profit.

Next:  What Will the Islanders Leaving Town Cost Taxpayers?

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