Post on 13-Jan-2016
description
The Washington Nationals’ stadium: a gift from the DC tax payers
Nate Cruz | Andrew Derifield | Josh Hart
May 3, 2006
Overview MLB moved Montreal Expos to
Washington in 2005 Currently playing in RFK stadium thru
2007 City paid for interim upgrades
MLB agreement requires that DC must produce new stadium in order to keep team
Timeframe: Actual and Assumed
2004
2038
2005
2008
DC wins Expos from MLB
Nats begin playing at RFK
Nats start at new stadium
Bonds for stadium construction issued
2006
End of stadium useful life
The new stadium
Located by the Anacostia River Blocks from the U.S. Capitol
41,000 seats 2,500 club seats 1,112 suite seats
Over 1 million gross square feet Ready for 2008 Season
Stadium location
Stadium design
Source: http://www.jdland.com/dc/stadium.cfm
Stadium site: current structures
Source: http://www.jdland.com/dc/stadium.cfm
DC’s hopes for new stadium
Catalyst for neighborhood development New housing, restaurants and other
entertainment venues will emerge Example of Coors Stadium in Denver
bringing about development in downtrodden neighborhood
Is the stadium worth it?
Should the taxpayers of DC subsidize the stadium at a cost of approx $678M?
Will this stadium add value to the city? Directly from stadium as well as adjacent
developments
General assumptions - overview Consider CBA for Nationals prior to new stadium
Costs of RFK improvements and new revenues Benefits
Game attendance Taxes Visiting team sales tax Existence value
Costs Land
Acquisition Infrastructure upgrades Environmental remediation
Stadium construction Stadium financing Metro station improvements Forgone property tax revenue
Estimated costs for the stadium are substantial
Sources: “DC Stadium Land Acquisition Cost Study,” Deloitte & Touche LLP - 22 March 2005; “Recommendation for Financing of Baseball Stadium,” DC Office of the Chief Financial Officer, April 2005; “Ballpark Hard and Soft Costs Cap and Ballpark Lease Conditional Approval Emergency Act of 2006,” DC City Council, 23 March 2006.
Cost Category Estimated Cost($ millions)
RFK Renovations (actual) 24
Land Acquisition 77
Infrastructure Upgrades 56
Environmental Remediation 8
Metro Station Improvements 20
Stadium Construction 475
Parking Garage Construction 16.5
Forgone Tax Revenue 1.6
Total 678
Renovations at RFK were significantly over budget
Original stadium agreement stipulated a $13 million expense to renovate RFK Stadium to accommodate baseball
Actual cost was $24 million
Source: “Ballpark Hard and Soft Costs Cap and Ballpark Lease Conditional Approval Emergency Act of 2006,” DC City Council, 23 March 2006.
Land/Infrastructure cost assumptions
• A sewer tunnel may need to be relocated at a cost of $29 million
Photo Source: http://www.jdland.com/dc/stadium.cfm
Cost Category Assumed Cost to DC Government
Land Acquisition 85-125% of cost estimate
Infrastructure Upgrades Assumed baseline is $56 million
Possible Sewer Relocation Assumed probability of 0.5 that expense is req’d.
Environmental remediation assumptions
$8 million estimated cost
Photo Source: http://www.maps.google.com/
Cost Category Assumed Cost to DC Government
Environmental Remediation 85-125% of cost estimate
Navy Yard Metro Station upgrade
¼ WMATA revenue is a subsidy – we are guessing the best case for DC is to pay ¼ of the $20 million total cost to upgrade
Source: “Proposed Fiscal Year 2007 Budget,” Washington Metropolitan Area Transit Authority, 2006.
Cost Category Assumed Cost to DC Government
Metro Station Improvements City will pay 25-100% of cost
Issues with Debt Washington’s current bond credit ratings:
Moody’s: A2 S&P: A+
We assume that all costs of construction, except RFK renovation, are being paid for through bond issue
Applicable Interest rate: 4.8 – 5.3% Broker fee: 1.5 – 3.2% of total debt issued 30 year bonds
Sources: “Recommendation for Financing of Baseball Stadium,” DC Office of the Chief Financial Officer, April 2005; “Debt Management,” DC Office of the Chief Financial Officer, <http://cfo.dc.gov/cfo/cwp/view,a,1323,q,590208.asp>, accessed 28 April 2006.
Foregone tax revenue DC government will permanently loose
property tax revenue from the stadium site We estimated that it can currently generate
$1.6 million in annual revenue Average annual increases in assessed value
will be 3-8% Actual market value appreciation has been 13-
18% in the immediate area We assume an 80% collection rate
Sources: “DC Stadium Land Acquisition Cost Study,” Deloitte & Touche LLP - 22 March 2005; “Housing in the Nation’s Capital, 2005,” Fannie Mae Foundation & The Urban Institute, 2005.
Total Cost NPV = $560 million
Cost NPV($ millions)
RFK Renovation 24
Site Prep, Construction & Debt Costs 498Foregone Property Tax Revenue 40
Total 560
Stadium does not create new jobs
Potential Benefits Count? Comments
New Construction Jobs
NO Unemployment is near record low; recent construction boom.
New Retail Jobs NO Retail employment at record highs.
New Jobs for Baseball Players
NO No positions to be filled by unemployed DC residents.
“…Orlando and Washington again posted the lowest unemployment rates in February, 2.9% and 3%, respectively…”
-BLS Metropolitan Area Employment and Unemployment Summary(4/5/06)
Stadium does not create new spending
Devil Rays
0.03
0.035
0.04
0.045
0.05
0.055
0.06
0.065
0.07
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Spending Attendance
Tax Revenue from ticket sales, concessions, and merchandise only counts for nonresident spending that
would otherwise be spent in the suburbs.
•Assumed 75% of fans non-resident
•50% of their spending is new to DC.
•Their overall spending tracks with attendance.
DiamondBacks
0.03
0.035
0.04
0.045
0.05
0.055
0.06
0.065
0.07
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
En
tert
ain
men
t as
% In
com
e
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Att
end
ees
Spending Attendance
Sources: Bureau of Labor Statistics and Baseball-Almanac.com
Devil Rays: No new spending
Diamondbacks: No new spending
DC’s taxes and Team rent create some benefitsPotential Benefits Count? Comments
Tax revenue from new gross receipts tax
NO Taxing DC companies is merely a transfer of money, not a gain.
Tax revenue from new utilities tax
½ Federal gov’t pays utilities taxes, so their part is new to DC, but not paid by DC.
Tax revenue from ballplayer residents and visiting teams
YES Income, property, and sales tax from players living in DC is new, as is sales/hotel tax on visiting team spending.
Rent paid by team YES But DC gave away naming rights, so rent is reduced by $2.5M/yr
No benefits from increased property taxes
Actual property value increases from 1999-2004 has been 13-18%.
Ballparks can decrease local property values (ie. Traffic and noise)
No new appreciation in property value was assumed to be attributable to the stadiumSource: “Housing in the Nation’s Capital, 2005,” Fannie Mae Foundation & The Urban Institute, 2005.
Total benefits NPV = $335 million
Benefit NPV($ millions)
New Income/Property Tax from Resident Players
77
New Sales/Hotel Tax from Visiting Team 5Rent from the Team 45.5Stadium consumption taxes (tickets, food, shirts…)
74
Business Utilities Tax 120Existence Value (assume $2 per DC resident) 13.5
Total 335
Simulation: randomized variables Cost Assumptions
Land Acquisition Cost Environmental
Remediation DC-Borne Costs for
Metro Station Cost Over-/under-run Bond Sales Fee Bond Interest Rate Ave Property Tax
Increase Sewer Pipe Relocation
Benefit Assumptions Ave DC CPI Ave DC Pop Growth Ave DC Income Tax
Burden Ave Growth of MLB
Salaries Ave % of Stadium
Spending New to DC Ave % of Players
Living in DC Ave Naming Rights
Value Ave Per Capita
Existence Value
CBA simulation: 3 Social Discount Rates
Normal: 6.25% Approx. interest for well rated corporate
bonds Low: 2.5%
EPA est. High: 8.5%
Cost of capital for “ordinary” business at commercial bank
NPV: Stadium is a loser
Mean Range Min
Range Max
Stand Dev
Normal -$210 -$359 -$66 $42
Low -$489 -$767 -$219 $80
High -$138 -$247 -$32 $32
Crystal Ball simulations with 5,000 trials were performed for each scenario. Results are in millions.
Conclusion: stadium is a bad deal for DC
No scenario produced positive NPV There are no indications that stadium
will create significant new entertainment spending
In order to obtain NPV=0 for stadium, Nationals’ must have an existence value per resident of about $35-40 per year.