USA TODAY International Edition
Taxing tourists has critics
NFL, MLB teams rely on visitors to fund stadiums
Much like Donald Trump, the San Diego Chargers and Texas Rangers want to build something big in their backyards.
But they can’t — or won’t — pay for it all on their own. So who can they make pay for it instead?
In Trump’s case, the Republican presidential candidate says he wants to build a wall on the Mexican border and make Mexico pay the bill. Similarly, the Chargers and Rangers want to build sports stadiums for themselves and somehow make fans of rival teams pick up a huge part of the tab.
In November, voters will have their say. The Chargers are urg- ing them to vote yes for a $ 1.8 billion football stadium and convention center “paid for by Raiders, Broncos and Patriots fans,” according to their campaign website.
Similarly, the Rangers hope voters approve a $ 1 billion baseball stadium to be paid in large part by visitors and tourists.
To make this happen, both teams simply want to tap a revenue source that’s more popular than ever for funding big- time stadiums — hotel room or rental car taxes that are mostly paid by out- of- towners, including fans of visiting opponents.
“What could be sweeter than Raiders, Broncos and Patriots fans all helping pay for the project when they pay their hotel bill?” former Chargers quarterback Dan Fouts says in a team campaign video.
It’s arguably smart politics for those pushing expensive campaign projects this fall. After cycling through a massive publicly subsidized stadium boom since 1990, experts suggest it might even be the only way the electorate will agree to much more of it.
The people voting on socalled tourist taxes — local residents — generally won’t have to pay for them because they don’t stay in local hotels. The people who do pay for them — visitors — don’t get a vote on them because they live somewhere else.
Yet cautionary tales have littered the national landscape from Seattle to St. Louis, where visitors to county hotels are scheduled to pay the debt on an abandoned NFL stadium for five more years.
“It’s a progression of always trying to tax people who have no vote,” said Charles Leocha of Travelers United, a non- profit advocate for travelers. “Our country was founded on ( resistance to) taxation without representation, but now the localities are trying to find a way to do that as often as they possibly can.”
Five of the six newest NFL stadiums rely on local hotel tax revenue to pay for part of the costs. Another $ 1.5 billion NFL stadium — in Atlanta — opens next year with help from $ 200 million in bonds backed by hotel taxes. Developers in Las Vegas want an increase of the same to help build a $ 2 billion stadium for the Oakland Raiders.
“This has become the rage for sports teams attempting to find public subsidies for new venues,” said Dennis Howard, longtime sports marketing professor at the University of Oregon.
And it’s not even limited to bigleague teams that are threatening to relocate if they don’t get enough public subsidies.
Even cities lacking major league teams such as Birmingham, Ala., and El Paso have among the nation’s seven most expensive set of hotel- related taxes, at 17.5% each, according to a study by HVS, a hospitality industry consultant. Both recently increased their room tax to help pay for new minor league baseball stadiums.
CAUTIONARY TALES
To stay in a hotel room in St. Louis County, Mo., tourists and business travelers must pay for an unusual mix of goods and services:
There’s the regular room rate, often costing $ 100 or more.
Another 13% goes to the government in taxes, including a state sales tax and a 3.75% county tourism tax.
And then there’s the cherry on top — an additional 3.5% tax that helps pay the bills for a stadium left behind by the NFL.
It’s a stiff surcharge to swallow. After 21 years of playing at The Dome at America’s Center ( formerly Edward Jones Dome) in St. Louis, the Rams recently ditched town for greener pastures in Los Angeles. But that vacated stadium has big construction debt and maintenance expenses.
The city and county each pay about $ 6 million a year for the dome, with the state kicking in $ 12 million. Even when the Rams played 10 games a year there, it wasn’t clear that direct Rams revenue covered those costs.
Meanwhile, there wasn’t enough money in the county budget for employee pay raises last year. But the dome will be funded for several more years, even though it has little use.
“I guess they’ll put some tractor pulls in there or dirt bike races,” said Fred Lindecke, a St. Louis County resident who has opposed public funding for stadiums. “There aren’t many convention events that need an auditorium that big.”
The St. Louis situation can be blamed on a bad deal for taxpayers — a lease that allowed the team to leave before the bonds were paid off.
Yet it’s not the first time that teams tried to get out of leases when their current stadiums grew stale in comparison with others. And it probably won’t be the last. As technology rapidly changes, the stadiums of today and tomorrow might become outdated even faster.
In Arlington, Texas, voters will decide whether to replace a stadium that opened 22 years ago. The city council voted unanimously this month for an election to determine whether to help fund half of a Rangers stadium by redirecting money from a 2% hotel room tax, a 5% rental car tax and a half- cent sales tax.
In Atlanta, the NFL stadium will get 39.3% of Atlanta’s hotel room tax revenue through 2050 to help cover debt and operations, according to an agreement approved by city and state officials. That’s the same amount given to the Falcons’ old Georgia Dome, which opened in 1992 and in recent years received more than $ 20 million annually from such revenue.
Additionally, Cobb County commissioners approved a $ 700 million baseball stadium for the Atlanta Braves scheduled to open next year, replacing the Braves’ current home, which opened 19 years ago. About half the cost will come from public funding, with a big chunk of that paid by similar taxes on visitors. FUNDING EVOLUTION In the 1960s and ’ 70s, several bigleague teams got multipurpose stadiums through 100% public funding. In San Diego, $ 27 million in revenue bonds ( about $ 200 million in today’s dollars) paid for the construction of what is now city- owned Qualcomm Stadium, home of the Chargers since 1967 and former home of the Padres.
But then came rising costs. Team owners wanted more expensive stadiums with potential to generate more revenue. And even though the teams were willing to pay a bigger share, they still wanted as much funding from the public as they could get.
“Back in the day, the city would pay the entire freight of these buildings, and they were generally civic or memorial buildings, funded through ( various taxes),” Howard told USA TODAY Sports. “They weren’t nearly as expensive. Now we’ve crossed the billion- dollar barrier ( for stadium costs). … Communities just can’t underwrite these bills.”
The big boom came since 1990. Of the 62 teams in the NFL and Major League Baseball, 14 play in stadiums that originally opened earlier than that. Since then, about $ 7 billion in public funding has been spent on constructing or renovating NFL stadiums, including taxes on locals and visitors, according to a report last year by the Taxpayers Protection Alliance. More than $ 11 billion in public subsides went to other pro sports venues, according to another estimate.
Many taxpayers soon had enough. Not only do they lack the money to pay for them, but studies have shown that the stadiums’ benefits don’t justify the public fortune they’ve spent.
No matter what kind of tax is used, “there is no compelling evi- dence that having an NFL team or new NFL stadium does anything to improve incomes or employment of taxable receipts in the cities that have these things,” said Victor Matheson, an economics professor at College of the Holy Cross.
The growing wealth of billionaire team owners also added pressure on them to pay for a larger share of their facilities. Yet the public often still paid a portion, often driven by the fear that the team might leave town otherwise. The public spending came in various sources, including government contributions, sales taxes, cigarette and alcohol taxes, lottery funds and rental car and hotel taxes.
More recently, there are signs that the only palatable tax to fund a pro sports stadium is the tax that local residents generally don’t have to pay.
“The tax of last resort,” Leocha said.
The Chargers’ proposal calls for the largest bond offering in city history — backed by an increase of the hotel room tax from 12.5% to 16.5%, if local voters approve it Nov. 8. The team and NFL will pitch in $ 650 million, and no other new tax money is being sought.
THE DOWNSIDE
One big argument against using a hotel tax — or any tax — to fund stadium construction is that such revenue could be used for better purposes instead, such as parks, street repairs or other government services. Just ask St. Louis.
Such projects can become sinkholes for taxpayer money in other ways, too, particularly if the city is on the hook for maintenance and related infrastructure. In King County, Wash., last year, tourist tax revenue funded the final $ 18.7 million payment on roof repair debt for Seattle’s Kingdome — a former football and baseball stadium that was imploded 15 years earlier.
In San Diego, operational expenses for Qualcomm Stadium were projected to exceed revenue by more than $ 10 million a year, excluding bond payments, according to a 2011 report for the city.
The tourist industry also feels the burden of increased hotel taxes. After analyzing the Chargers’ proposal, HVS recently issued a report that said the direct benefit of it was dwarfed by the cost.
“The new room nights ( generated by the project) would generate $ 2.3 million per year in lodging tax revenue,” the report states. “This compares to the proposed $ 67 million annual expenditure, which includes the public investment for construction and operating costs. This revenue does not justify the combined investment and annual operating expenses of the Stadium- Conven- tion Center.”
Such tax increases generally raise costs for visitors, who might instead choose cheaper destinations.
And if there’s a big enough downturn in tourism, the hotel tax revenue might not be enough to pay the debt, leaving bond investors at risk. In 2010, weak tourism during the Great Recession led Fitch Ratings to warn investors of a possible default on bonds used to help build Orlando’s $ 480 million basketball arena. The bonds were backed by hotel room taxes, which were collapsing at the time but have since recovered.
THE UPSIDE
On the other hand, stadium projects aren’t always about the bottom line. Proponents say such projects boost tourism, economic activity and civic pride.
In Birmingham in 2010, the city council approved increasing the lodging tax by 3.5 percentage points to help build a $ 64 million baseball stadium that opened in 2013. Since the first year of collection in 2012, the tax revenue from the increase has gone up 29.3%, according to Tom Barnett, the city’s director of finance.
“The project has spurred significant economic development throughout central Birmingham,” Barnett said in an email. “While the project cannot be directly related to all of the economic development and revitalization, most business leaders and developers do attribute it to the ballpark.”
Likewise, the San Diego Regional Chamber of Commerce is supporting the Chargers’ stadium proposal. The Chamber’s CEO, former San Diego Mayor Jerry Sanders, said it was a matter of “civic pride and the positive impact a new stadium would have” on the area. He also said it was about keeping the Chargers in San Diego, where the team has played since 1961.
If the vote fails, the Chargers could join the Rams in Los Angeles, where they have an optional deal to share a new privately funded stadium near Los Angeles International Airport.
It comes down to a matter of priorities and values for the cities and their residents. Even if residents aren’t paying for it, such taxes can only be raised so many times before they become costprohibitive for tourists and damaging to the local economy. Is this the right cause for such an increase?
The answer might be much different if the people paying the taxes got to vote instead.
“Travelers seem to be used as the piggy bank for everything,” said Leocha, the travelers’ advocate. “As long as there are politicians and as long as they need money, they are going to take the path of least resistance.”