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Star The Economics Section - Page A2 Star

[last updated 15:20 09-21-96]
September 19, 1996


by Howard Hobbs, Ph.D., Economics Editor

PALO ALTO - Dale Rubin, of Salem, Oregon is an attorney who specializes in public subsidy issues. He recently finished a brief for a public policy group in which his concluions of law were that municipal subsidies for sports stadiums are unconstitutional. He said 'Almost all state laws say that no public entity should be aiding private enterprise. In spite of that, billions of dollars of bonds are flowing to build these sports facilities.'

The city government in Fresno, Calif., which has no professional baseball team is being muscled by a professional team's owner and their legal representatives to participate in this kind of sports welfare. The proposal involves the indirect use of federal money and municipal bonds.

Despite the effort to cut federal costs by scaling back social welfare and economic subsidies to private industry, the professional sports industry is one place where federal subsidies are alive and well.

Fresno is just one of many small cities who hope to gain notoriety by obtaining a professional baseball team. It may happen in Fresno where City Hall is getting deeply involved in underwriting the lease on an unbuilt mega-stadium. The way Fresno City officials are talking, a professional baseball franchise just canít say 'no' to an expansion deal like this one. This is certainly a trend in smaller, out-of-the-way, municipalities like Fresno.

A recent report published by the Library of Congress said federal, state and local subsidies to help build sports stadiums and arenas are fast spreading into rural America.

The annual public subsidy for 21 sports stadiums around the country was worth $150 million in 1989. Those were for stadiums and arenas that cost about $50 million to build.

Interestingly, federal subsidies quadrupled to more than 65 percent of total subsidies for stadiums that had a construction tab of $200 million or more.

Critics of public subsidies say that small cities like Fresno are paying for bigger cities to build stadiums. 'It's hard to justify federal subsidies and stadium financing any way you look at it' said economist, Jeff Humphreys, at the University of Georgia.

Cities and counties who have long backed this type of stadium and arena financing. They have usually argued that the economic benefits justify the subsidies.

However, another study done by economist, Robert Baade at Lake Forest College in Illinois, showed otherwise.

Baade's study showed 27 of the 30 metropolitan areas that had a change in the number of stadiums or arenas, had little or no discernible change in per capita growth. The three remaining areas (St. Louis, San Francisco/Oakland and Washington, D.C.) actually had a negative impact in per capita growth after the stadiums were constructed.

Most of the job growth projections that are made by local college and university economists are inflated, according to the study. For example, the study concluded that the economic benefits of having a football stadium in Baltimore, Md. was overstated by 236 % because of the failure of local economists to recognize the limited sports dollar available in the region.

'The business of sports financing has changed,' Baade said. 'Today, in order to make a deal look feasible, communities are asking for more up-front money from team owners but they are willing to cut generous lease arrangements,' Baade said.

Thatís the problem everywhere. And thatís the problem in Fresno where a professional baseball team is about to be subsidized by taxpayers when the team's lease and rental payments for use of the facility don't cover the operating and construction costs.

A federal subsidy occurs, for example, in Fresno when a portion of the stadium financing is backed by state-local bonds whose interest income is exempt from federal taxes. Most are like that of Fresno, these exemptions cause the interest rate to be lower than the interest rate on taxable bonds of equivalent risks.

In the past decade, the majority of construction of these professional sports stadiums and arenas were financed through tax exempt bonds.

'So essentially you are noticing more government subsidy at a time when federal government is trying to cut other programs,' said James Solano, a Philadelphia-based sports agent and consultant.

Sen. Daniel Moynihan (D) of New York would like to end that. He has authored a bill in Congress that prohibits the use of tax-exempt bonds to finance stadiums for the private sector, like those in Fresno.

Instead, he argues the additional revenue generated from the taxable bonds should go into teaching hospitals.

Moynihan admits he will not be able to move the bill through Congress this year but he vows to bring it back in the 1997 legislative session. Fresno City Hall is attempting to complete its financing scheme in time to beat any new laws protecting the public interest next year.

However, Jay Ruffner, an Arizona attorney representing the Phoenix Suns basketball team [not in negotiations for moving its team to Fresno] said there's nothing wrong about a team leaving Phoenix for more lucrative deals.

'I do not see a problem. As long as the team conforms to all the guidelines, it should be allowed to move elsewhere,'Ruffner told reporters. But, he warned the communities who are looking to cut deals with professional teams and hang-on to them for awhile, 'If you want to keep the team, make sure you insert those provisions in the contract,' he said.

This loveíem-and-leavíem mentality has left cities holding the bag and without teams not knowing what to do next or how to attract another team.

John Stewart a sports consultant sums it up this way: 'Now, the obvious choice is to raid some other city and offer the team more money, more luxury sky boxes with hot-tubs and a better stadium! And who is paying for these risks - taxpayers.'

Enter, Fresno, Calif., a place where water may be scarce but the corn is always green! A Fresno RV dealer, Paul Evert and Southern California investor, Dave Cates has stepped forward as private investors and made large contributions of cash this week. With that the Fresno Diamond Group has slightly more than 1/2 of the $9 million needed to purchase a Triple A team. They want the Phoenix Firebirds baseball team.

The Fresno Business Journal reported on Saturday in a story playing in its September 23, 1996 newspaper there is an October 31st deadline for the down payment on the $7 million purchase price on the triple AAA minor league team.

When, and if, that hurdle is cleared, Fresno Mayor, James Patterson wants to proceed with City construction of a multimillion dollar stadium with municipal bonds and a lease agreement tied in with the profit making pacific Coast League team.

Well, what is happening in Fresno Calif., is a good example of why the public interest is challenging the use of mumi bonds for such arrangements. Fresno wants a cozy relationship like this. Without it, investors are far and few between. When investors don't pay federal income tax on the interest paid to them by the City, it amounts to just another Washington subsidy.

American taxpayers all over this nation can't afford this investment subsidy anymore, even if it means Fresno can't have its latest 'urban renewal' project in what is the abandoned 'Downtown' which s now merely an enclave of converted private sector office bulidings now owned and occupied by loacl, state, and federal government offices.


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