Card Sharks

The St. Louis Cardinals want your money for their $370 million ballpark. But before the game begins, somebody needs to reshuffle the deck.

This is the best-case scenario drawn from the team's numbers. It assumes there won't be a players' strike in the next 30 years. It assumes baseball will be as popular for the next 30 years as it is today. In short, it assumes a lot. (See chart.)

The team says a new stadium would generate so much revenue that existing taxes would more than cover the cost. "What we're trying to get across is, this building will pay for itself, and it will pay for itself with Cardinal fans," Lamping says. "These dollars come only from people who go to the ballpark. They don't come from people who don't care about the Cardinals. Let's just look at it in terms of when you buy a ticket, if you buy a soft drink, if you buy a program, if you buy a beer, a stuffed Mark McGwire Beanie Baby, what's that going to generate? In many respects, you can look at this (taxes generated at Busch) as a user fee. The people who use it (the new stadium) are generating the funds to pay for it and leaving a lot left and ensuring growth for other services in the state of Missouri, other services in the city of St. Louis."

There are several problems with the team's assertion that the stadium would pay for itself, that Cardinals fans would bear the entire cost through tax revenue generated at the stadium. For one, Congress in 1986 changed the tax code in an attempt to end federal stadium subsidies. The changes made stadium bonds taxable if more than 10 percent of the bond proceeds benefit a private entity and if more than 10 percent of the debt service is secured by property used by a private business. Dennis Zimmerman, a former Library of Congress researcher who specializes in tax law, makes the impact on stadium financing clear in his article "Subsidizing Stadiums," published in the book Sports, Jobs and Taxes: The Economic Impact of Sports Teams and Stadiums (Brookings Institution Press, 1997). "In order to avoid exceeding the (10 percent) security interest test, a stadium bond issue must be structured so that no more than 10 percent of the debt service for the bonds is secured, directly or indirectly, by property used in a trade or business," writes Zimmerman, who is now a tax analyst for the Congressional Budget Office. "This precludes paying for debt service directly with stadium-related revenue, or indirectly with general revenue (for example, taxes or lottery receipts) that is replaced with infusions of revenue earned from the stadium."

Cardinals president Mark Lamping: "I guess if every time there's going to be public dollars involved in any project that we're going to put it forth for the people to vote on it, then why do we need legislators?"
Jennifer Silverberg
Cardinals president Mark Lamping: "I guess if every time there's going to be public dollars involved in any project that we're going to put it forth for the people to vote on it, then why do we need legislators?"

In other words, the Cardinals' financing proposal appears to violate at least the spirit of the 10 percent rule, because the team is saying that only baseball fans who go to the stadium would pay for it. How would the team address this potential problem? "If you're somehow asserting that the stadium can't be built because of this law, I think you might be wrong," Lamping responds. "I think it (the financing plan) would need to be structured differently than the way you anticipate it being structured." But he offers no specific examples. Has the team crunched numbers with investment bankers? "Not that we're prepared to talk about, no," he says.

The debt-service restriction helps explain the design of the stadium bill now before the General Assembly. Under the bill, the city, St. Louis County and the three bordering counties would have representatives on the stadium authority if those entities agreed to donate money to pay the stadium debt. The bill also allows any other government body to donate money. With the exception of the city, none of these entities gets tax revenues from Busch Stadium, nor would they receive any revenue from a new stadium, so money from these entities wouldn't count against the 10 percent rule.

What would back these tax-exempt bonds? The bill says the assets of the stadium authority -- in essence, the stadium itself -- would be the sole guarantee for investors. In the event the stadium authority doesn't have the money to pay its debt, the governor would be required to put the shortfall in his budget. It would be up to the General Assembly to approve the appropriation, but lawmakers would be under no legal obligation to do so.

The lack of a solid legal guarantee helps explain why the stadium bonds would carry a high interest rate. Lamping says the team has calculated an interest rate of 6-7 percent, comparable to the amount charged on a used-car loan. The rate is also comparable to what teams pay when they fund stadiums themselves. In Denver, for example, the Pepsi Center is being financed with a private bond that carries a 6.94 percent interest rate. "We could live with that," Lamping says.

The Cardinals insist they're looking out for taxpayers. "Our plan would be to do this as inexpensively as possible, which suggests financing it through tax-exempt revenue bonds that would be issued by the (stadium) authority and purchased privately," Lamping says.

There are cheaper ways. In other cities where the public subsidizes stadiums, government-backed revenue bonds -- which usually require voter approval -- are less expensive because they're typically paid off in less than 20 years and carry a lower interest rate. Revenue bonds issued for the new Denver Broncos stadium carry a rate of about 5 percent. Another alternative would involve issuing general-obligation (GO) bonds for a new St. Louis ballpark. GO bonds, which typically are repaid over 30 years and backed by the taxing and borrowing power of government, these days carry an interest rate of around 5 percent. Based on a 5 percent rate, the yearly debt service would be about $3 million less than the $19 million annual cost projected by the Cardinals. Over 30 years, that adds up to a savings of more than $80 million. But voters would have to approve GO bonds for a ballpark -- it would be a statewide vote if the state used its credit to guarantee the bonds. And that's not something the Cardinals want. "I guess if every time there's going to be public dollars involved in any project that we're going to put it forth for people to vote on it, then why do we need legislators?" Lamping says.

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