BALLSTON-VIRGINIA SQUARE

Civic Association Newsletter

April/May 1996 - Volume 19, No. 8



MOODY'S INVESTORS SERVICES--STADIUMS

According to Moody's Investors Service, "state and local officials seeking real or perceived economic benefits from tourism, professional sports franchises, and conventions issue a variety of types of debt to finance stadiums, arenas, and convention centers, as well as other types of exhibition facilities such as auditoriums, concert pavilions, performing arts centers, museums, and aquariums. Because of the high cost and often controversial nature of these projects, these financings are among the most visible issues in the public finance market.

Moody's rates a large number of these financings.

In general, Moody's rates each issue of debt for stadium, arena, and convention center projects on a case-by-case basis. These ratings reflect primarily [their] analysis of the specific security pledged and the credit strength of the sponsoring government. But, because the success or failure of the project can affect the ability and willingness of the issuer to repay its debt, [Moody's] ratings also reflect an assessment of the financial viability of the project itself...."

Wide Variety of Stadiums, Arena, and Convention Center- Related Debt

The issuance of debt for the construction of stadiums, arenas, and convention centers represents a significant and highly visible segment of the public finance market. Cities, counties, and states build new stadiums and arenas to retain existing sports franchises and attract new ones. New convention centers are constructed and existing centers expanded to compete with those in other communities. Officials hope that these projects will generate tourism, increase tax revenues, create jobs, revitalize downtown areas, and provide other economic benefits.

Convention centers are almost exclusively financed through the issuance of public debt. Stadiums are generally financed with public debt or, increasingly in recent years, with a combination of public and private funds. Private funds typically consist of equity contributions by team owners or revenues generated from the sale of luxury boxes and naming rights. Many arenas are financed either publicly or through public/private joint ventures, but a significant number are financed entirely privately or with a small public contribution such as providing the building site....Moody's maintains approximately 190 ratings on public financings for stadium, arena, convention center, and other exhibition facility projects. (A complete listing of these ratings is available in Perspective on Entertainment and Tourism, "Moody's Ratings of Entertainment and Tourism Facility Debt," February 17, 1995....

Unique Characteristics of Stadium, Arena, and Convention Center Projects

Stadiums, arenas, and convention centers are different in many ways from more traditional public enterprises. Unlike water and sewer systems, electrical utilities, or airports, exhibition facilities are rarely self-supporting. Most rely on a General Fund subsidy or earmarked tax revenues to help pay debt service and operating expenses. Unlike other subsidized enterprises like mass transit systems, stadiums and convention centers operate in highly volatile, competitive markets.

A well-designed stadium can become an unexpected financial burden on its sponsoring government if it fails to attract a sports franchise or an existing franchise moves away. Revenues can also suffer if a team has a poor season or if there is a sports strike. A convention center may be poorly utilized if the number of hotel rooms is not sufficient to support large shows, the area lacks local attractions that make it a desirable destination, or other communities build more attractive facilities.

The project's design may not fit its market. For example, a stadium may be too large for a small city to support. A convention center may not have the size or configuration of exhibit halls needed to attract the trade shows that management has targeted.

Design requirements change rapidly. For example, trade shows look for larger, column-free exhibit halls or on-site headquarters hotels; and team owners demand more luxury boxes and new, "old-fashioned" ball parks. Overall, competition for sports franchises and trade shows has increased significantly in recent years as more communities have constructed stadiums and convention centers. Team owners and show managers have sought to turn this situation to their advantage.

Finally, because of the cost and the risks involved and the perception that these projects may only benefit a small portion of the community, there is often a substantial level of disagreement over the need for a stadium, arena, or convention center. The resulting lack of political consensus may limit the sponsoring government's willingness to provide funds for facility operations and debt service.

As a result, financial viability--the extent to which facility revenues, subsidies, and earmarked tax revenues, if any, can be expected to support both debt service and operating expenses--is frequently open to question. For new facilities, feasibility studies are often unrealistic--facility revenues and operating expenses may not meet projections. For existing facilities, financial viability remains an issue. Over time, a facility's operating deficit may grow, placing an increasing burden on the issuer's General Fund or outstripping receipts of an earmarked tax. Even a facility with a history of successful operations may run into trouble if its competitive position weakens...."

Source: MOODY'S INVESTORS SERVICE, Public Finance Department, "PERSPECTIVE on Entertainment and Tourism," February 13, 1995


MEMBER COMMENTS--PROPOSED STADIUM

On April 13, 1995, the Association received an e-mail from one of our dues-paid members concerning the Gunston Hall public hearing on the proposed major league baseball stadium in Arlington. At the Gunston Hall meeting last Tuesday on the proposed baseball stadium at twin bridges, many objections were raised regarding the placement of the stadium at the intersection of the George Washington Parkway and I-395. These included safety issues regarding the takeoff and landing of aircraft at nearby National Airport as well as financial, noise, and nuisance issues.

One issue that was not addressed, however, was the issue of accessibility to the stadium. Supporters of the stadium argued that the stadium would be similar to those in Baltimore, Cleveland, and Denver, and would benefit the area in ways similar to those cities. At least in comparison to Camden Yards in Baltimore, this is not the case. For example, in the area of accessibility, Camden Yards lies in the middle of a street grid, with roads accessing it from all directions. In addition, the stadium is served by MARC with the light rail line coming within about four blocks of the stadium. Furthermore, I-395 (no relation to the I-395 passing through Arlington) runs right by the stadium. This means that Camden Yards is easily accessible from a large number of directions and multiple modes of transit.

Access to the proposed Twin Bridges stadium, however, is much more restricted. Examining maps of the proposed stadium area that existed in the lobby of Gunston Hall, I found that there were only two ways to get into the stadium area. One is by way of Boundary Channel Drive, and the other is from the south, from Crystal Drive - a side city street. Although the map shows roads practically encircling the stadium, these roads are limited access highways (i.e., I-395, Jefferson David Highway, and the George Washington Parkway) that will not directly access the stadium. Furthermore, the east boundary of the site is a lagoon and the railroad line. This would create, in effect, a cul-de-sac. With the approximately 12,000 parking spaces being proposed in the stadium area, having only two ways to get into the stadium area is asking for traffic nightmares, especially for commuters using the 14th Street Bridge.

Rail transit to the stadium area is just as poor. The nearest metro stop would be at least a mile away, precluding walking to the stadium from Metro under all except possibly the best weather conditions. The only rail-based access proposed to the stadium was a VRE stop near the stadium; VRE, however, is a poor substitute for the Metro because VRE tickets have to be purchased in advance. In addition, VRE only serves the Virginia suburbs and nearby downstate rural areas. The bulk of the fans who come to the stadium would probably come from Maryland and D.C.

The only possible solution to these problems is to use shuttle buses from the metro stations and satellite parking areas at the Pentagon. This also has problems. The stadium would be allowed to let 4,000 cars park in the Pentagon parking lot. This means that about 10,000 people would need to cross I-395 to get to the stadium, for which up to 200 shuttle bus trips would be required. Aside from the pollution problems, this would take an inordinate amount of time and would result in some fans possibly not getting into the stadium until the late innings (the whole process would have to be repeated in reverse to get fans back to their cars after the game). This would not be tolerated for very long. Similar, if not greater, problems exist for transport to and from the metro stations.

Aside from the mundane access problems, the two-road access problem is especially serious in the event of an emergency (e.g., an air disaster). Aside from the problems of removing nearly 50,000 people from the stadium area in a short amount of time, emergency vehicles would have a difficult time getting into the stadium area. People that didn't die or get seriously injured in the disaster itself would probably do so in the panicked evacuation afterward. The accessibility problem, therefore, is a major shortcoming of the Twin Bridges stadium that is not comparable to that of Camden Yards and the other recently constructed stadiums. If none of the other problems regarding the siting, construction, and use of Twin Bridges stadium were serious, this problem should be enough to convince the Stadium Authority as well as Arlington County to not build this stadium in this area.



BASEBALL STADIUMS ON THE INTERNET

1) According to their home page on the Internet Web, San Franciscans for Planning Priorities '96 ("SFPP") is a grass roots umbrella organization of citizens, neighborhood organizations, and small businesses created in response to the current proposal that would encourage development of another baseball stadium in the China Basin area. The home page states that SFPP is united in [their] concerns over how the City can suddenly ignore more than a decade of planning and economic development. "The China Basin area is transforming into one of the City's finest residential and small business neighborhoods.

We believe that imposing a massive stadium into the mix will destroy the City's efforts thus far." SFPP indicates that they have come together because of concerns over the impacts of a hastily conceived, little discussed stadium proposal after years of careful planning and development in the China Basin area.

According to the SFPP, studies prepared by a sports team to promote themselves should always be viewed with skepticism, and the Giants study is no exception. The SFPP home page states that "An independent study found that very few stadiums, even if privately built and financed, achieve a positive net accumulated value. Private financing of construction costs reduces the level of public subsidy, but does not eliminate it. Stadiums generate revenues through leases, income from concessions, and the imposition of stadium use and hotel taxes. Public subsidies take the form of low rent charges, granting property tax exemptions, and providing public infrastructure. Part of the excess costs over revenues are charged back to the fans, but the residents of the local city end up making up the difference."

Further, SFPP writes There is also an "opportunity cost" associated with supporting a local sports team. Officials must evaluate whether the subsidized sports business would have the greatest net impact of available alternative uses of the money. Public officials must ask, "Which is more valuable--money for schools, police, transit, tax reductions, or stadiums?"

Source: San Franciscans for Planning Priorities '96

2) According to Steven T. Khalil, in his editorial for the Detroit News, "New stadium? The Republicans sell out," No issue being debated in Lansing, [Michigan] these days goes as strongly against the Republican Party platform as the proposed state aid for a new Tiger Stadium. "Many voters assumed that if the Republicans were the majority party, they would put a stop to corporate welfare. Unfortunately, it seems that the players have changed, but the game remains the same. Tigers owner Mike Ilitch has paid lobbyists to work around the clock in Lansing to persuade state officials to support his stadium plan...

Contrary to Ilitch's claims, Mr. Khali writes "All studies show that government subsidized stadiums ultimately benefit team owners at the expense of both the taxpayers and the fans. Stadiums built with the expectation of becoming assets to their communities often become huge liabilities. Such projects are not self-sufficient and inevitably depend on taxpayers to avoid going broke. A recent addition to the list of troubled stadium projects is Cleveland's new Gateway complex.

Cuyahoga County taxpayers paid $275 million in "sin" taxes to build Gateway (a stadium and arena) and are liable for $305 million more in costs. In addition, the state of Ohio contributed $45 million in gifts and grants; other government agencies sent $15 million more in infrastructure."

Source: The Detroit News, Editorial Pages Friday, June 23, 1995.

3) According to the USA Today Sports, on March 16, 1996, Voters mindful of the anguish suffered by Cleveland's sports fans face a tough decision Tuesday: Raise their sales tax to build new baseball and football stadiums or risk losing a team. The article discusses the background why Riverfront Stadium, which is only 25 years old, may be torn down--both the baseball Reds and football Bengals want "glitzy new stadiums with lots of income-generating luxury boxes." Opponents of the tax increase argue that the Cleveland Browns experience shows that even giving the owners what they want doesn't ensure the teams will stay.

Source: USA Today Sports.

4) According to the News and Observer Publishing Company, on October 16, 1995, Seattle, Washington, "It took three days of political wrangling to squeeze a $320 million baseball stadium financing plan out of the Legislature." The article describes the King County Council members reaction to the plan. For example, councilman Ron Sims said "It was great politics[;] It was just bad governance." Also, several council members said the financing package could hurt the county's finances and overburden taxpayers.

Source: The News and Observer Publishing Company 1995 Associated Press.

5) See the following copyrighted articles on the Internet:

a. "Let's give owners the bum's rush" by Nando.net;

b. "If McClatchy get Pirates, baseball wants a new stadium by 2000," by Nando.net;

c. "County officials shun $300 million, baseball-only stadium for Astros" by Nando.net;

d. "Virginia group trying to lure Astros, report says" The News and Observer Publishing Group, 1995 Associated Press



Return to the April/May 1996 Newsletter- Index


The BVSCA Home Page