As the Stadium Deal Turns

March 1, 2006

The drama of the past two years over a new Nationals baseball stadium being fought between the DC City Council, the Mayor’s Office, and Major League Baseball has had more turns than a roller coaster. Like all stadium funding deals, how much the local government should pay for a new stadium and how it should be funded are the key questions. MLB, who owns the team now, wants a deal in place so that it can get the most money it can when it sells the team to new ownership. News of the latest proposal comes to us from the Washington Post:

D.C. Mayor Anthony A. Williams (D) has told Major League Baseball officials that the city has identified $20 million to cover potential cost overruns for a new stadium, a proposal that could resolve the acrimonious standoff over the project.

But several D.C. Council members expressed concern yesterday that the plan would put the city’s investment in the stadium over the $611 million spending cap the council approved last month.

The latest negotiations appear to be the final chance to resolve the standoff before Monday, the deadline set by the council for MLB to endorse the spending cap.

Over the next two years, the District is projected to earn about $20 million in excess revenue from a gross-receipts tax on businesses, a utility tax on businesses and federal buildings and taxes from concessions at Robert F. Kennedy Memorial Stadium. Those taxes were implemented last year to pay off debt service on the construction bonds. (Full Story)

So part of the funding for this new stadium will come courtesy of a government imposed tax on concessions. We see many cities often believe that this is the proper method of stadium funding, and in theory it is nice because it adheres to the benefit principle nicely. But it raises the question: Why does the government need to be involved on that specific issue in the first place? They could just lower the public funding for the stadium and let those who earn the profits (instead of taxes) from concessions pay for that part of the stadium themselves.

As for part of the funding coming from taxes on other businesses, the relevant question is basically “why”? We have a government essentially taking resources from some businesses and giving it to another business. Beyond the obvious issue of fairness, any economists will tell you that this type of central planning will essentially always lower economic efficiency. That is a far cry from the “economic boom stories” that you will hear from proponents of public funding across the country who constantly ignore the reality that there is no such thing as a free lunch.

To read an in-depth detail on why sports teams are in nearly all cases not the economic engines that proponents make them out to be, you can read online the full text of Sports, Jobs, and Taxes by Roger Noll and Andrew Zimbalist.

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