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‘Creative financing’ code for ‘taxpayer-financed,’ economists say

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(The Center Square) — The commonwealth of Virginia, the city of Alexandria and Monumental Sports and Entertainment are partnering to bring a $2 billion sports and entertainment district to Northern Virginia, with “no upfront investment” from taxpayers, according to Gov. Glenn Youngkin.

Though many of the deal’s specifics have yet to be shared with the public, some economists aren’t buying it. State and local governments often enter into agreements with sports teams in the name of economic development, and rarely, if ever, in those situations do taxpayers come out on top, according to J.C. Bradbury, professor of economics, finance and quantitative analysis at Kennesaw State University.

“Semantics are very important here. They’re going to say, ‘We’re not going to raise taxes.’ But I always go back to that old economist adage — there’s no such thing as a free lunch. You’ve gotta get that $1.5 billion from somewhere,” Bradbury told The Center Square.

Virginia has been courting Monumental Sports and Entertainment owner Ted Leonsis and his Capitals and Wizards for some time. Leonsis has long voiced dissatisfaction with Washington D.C.’s terms for its Capital One Arena, calling it “the worst deal in sports.”

Monumental will put up a $403 million investment toward a new headquarters, a sports network media studio, a Wizards practice facility, a 6,000-seat performing arts venue and an expanded eSports facility.

The city of Alexandria will contribute $56 million toward the 6,000-seat performing arts venue and $50 million to underground parking development.

The state will finance the remaining $1.5 billion through bonds to be paid back through revenues the district will generate, according to Youngkin.

“The financing here will be supported by the taxes created by this project,” Youngkin said. “We have an investment from the city of Alexandria … and, most importantly, it is the horsepower generated by those future taxes, which don’t exist today, that allows the commonwealth of Virginia to not be forced to make an upfront investment.”

Bradbury, who has studied stadium economics extensively, disagrees.

“I don’t know how you can call $1.5 billion of bonds issued not an up-front investment. You borrow the money and you’re planning to pay it back with future revenue — that doesn’t mean it’s not an up-front investment,” Bradbury said.

Additionally, often in public-private stadium deals, the team doesn’t end up paying property taxes because the state owns the land on which team facilities reside. In this case, Virginia plans to create a state stadium authority to purchase most of the development land from its current Maryland company owner.

The future taxes Youngkin mentioned could be referring to tax-increment financing, according to Chris Douglas, professor of economics at the University of Michigan-Flint, who has also studied public-private entertainment district partnerships. It occurs when governments use taxes captured in the district — whether sales tax at retail stores and restaurants or increased property taxes due to proximity to the stadium — to pay down the bonds.

But this ultimately isn’t fair to the taxpayer, Douglas says, because that money could be going toward other public services.

“It’s an opportunity cost… That’s the real cost to the taxpayer — taxpayers are losing out on the property tax revenues that otherwise would have been collected if this financing scheme wasn’t put in place,” Douglas told The Center Square.

Youngkin spoke proudly of the deal to Fox News show host Laura Ingraham this week.

“We are going to form a public-private partnership like none other in America,” he said.

“It will be I think the most creative financing structure because of the fact that we’re not putting an upfront payment.”

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