Foundation Briefs Advanced Level September/October Brief Resolved

The Holdout Problem

A holdout problem must require assembly, which is the need for at least two distinct properties for a development.

i.           Developers can maintain their secrecy about projects by utilizing dummy buyers to help acquire assemblies.  This would be useful because sellers would not know that a single buyer is attempting all of the land in a certain area.  This is more difficult for government-backed projects because they often require openness.

ii.          Governments can create incentives or subsidies for building in city centers or disincentives for building in the suburbs.  The justification for this can come from redevelopment of central areas.

iii.         The use of eminent domain, but this often raises issues about whether or not a private organization should be able to benefit from the use of eminent domain.

The holdout problem “represents a situation where landowners whose property is essential to the completion of some large development project to seek to block completion of the project in an effort to extract monopoly rents” This biases development away from areas where ownership is the most dispersed, city centers, and towards areas where ownership is more concentrated, the fringes or suburbs of cities.

Opportunity Costs of Public Funding for Pro Sports

If we’re going to talk about the abuse of public resources for sports — and we should! — we should give our attention where attention is due. Only three NFL stadiums were built without public funding, and two of those three used public funds for upgrades. (Only the Jets’ and Giants’ MetLife Stadium, as it happens, was privately built.) Yankee Stadium cost taxpayers $321.5 million. The Yankees are the country’s richest sports team (along with the Cowboys, who play in a stadium built in part with tax-free borrowing). According to Bloomberg (hello!) Businessweek, the U.S. Treasury loses $146 million a year on municipal bonds with tax-free interest issued for sports structures. The taxpayer subsidies to bondholders on the $17 billion tax-exempt debt on stadiums built in the last 27 years will be $4 billion. You know what would be a better use of $4 billion? Repairing roads, building sea walls, preparing for the next big storm.

The Braves complained that Turner Field needed $150m in "infrastructure work alone", which would not "significantly enhance the fan experience". The new location puts them closer to more of their season-ticket holders, most of whom come from the city's rich northern suburbs.

Here's how it will work: the Braves will buy 60 acres of land, and give 15 of them to the Cobb County stadium authority. Those 15 acres, on which the stadium and 2,000 parking spaces will be built, will be exempt from property taxes. The Braves will develop the rest into a "mixed-use, 365-day destination", on which they will pay tax and from which, of course, they will keep the revenue. Cobb County will pay around $300m over the next 30 years. Relative pittances will come from those old stadium slush funds: taxes on rental cars and hotels. Mayors love them because they can tell their constituents that only visitors will pay them, though in Cobb's case that doesn't quite hold up. Visitors may be paying for hotels, but probably not for rental cars—Cobb is too far from the airport. Increased hotel and property taxes in the area to be developed around the stadium will add more, but the bulk—$260m over the next 30 years—will come from a "reallocation" of existing property-tax revenues. This lets Cobb's executive boast that there will be no property tax increases.

That is technically true, but essentially malarkey: the reallocated taxes are currently paying for parks, and were due to sunset in 2017 or 2018. So homeowners may not pay more in the future than they pay today, but they will pay more in the future than they otherwise would have. And this does not even consider what else the county could have done with that $260m, had they decided to keep the tax in place and not funnel it into a sports team's already-deep pockets. Neil deMause at the invaluable Field of Schemes blog explains that Cobb taxpayers are probably looking at losses as high as $200m. Kasim Reed, Atlanta's mayor and an expert knife-twister, told a press conference that "we can't spend money that liberally in the city of Atlanta. We are fiscal conservatives here." (Of course, Atlanta will throw hundreds of millions of public dollars at a new stadium for their football team, but better one white elephant, I suppose, than two.)

Assume for a moment that we actually know with certainty residents’ true valuations of teams exceed the construction costs of stadiums. This would still not necessarily lead to the conclusion that such subsidies are correct public policy. Just because consumers are willing to pay a certain amount for a good does not mean that they have to or should have to. If professional sports at the same level of quality can be provided without a subsidy to the team, this is obviously better for the city. Public policy should be to attempt to provide sports teams at the least possible cost, which could mean contributing nothing to the construction of stadiums if a team can operate profitably when paying the full cost of the playing facility. Even the most accurate contingent value survey would only give a reservation price for the cities.

Humphreys, in fact, says that operating subsidies like those handed out to the Coyotes and Pacers are likely to get even less bang for the buck than stadium cash, which at least might create a few thousand temporary construction jobs. "Not only that, but the operating subsidies are almost certainly coming out of general fund revenues," he says. "If there's a ticket tax or anything that looks like a user tax, at least then the people who are enjoying the benefits are paying. But if it's operating subsidies coming out of general fund revenues, that's money that could go to any other alternative use in the city, like education or public safety."

Even public money with strings attached could go to fill other city needs, say budget watchdogs. Ryan Splitlog of Common Cause Georgia, a nonprofit, nonpartisan citizens' lobby, notes that the money going to the Falcons comes from hotel-motel tax revenue that is designated for promoting tourism and convention business. "I think you could paint with a pretty wide brush stroke when talking about what that means for the city of Atlanta," he says, suggesting fixing the "atrocious" roads and sidewalks in the blocks surrounding the convention center campus as one example. "You could talk about infrastructure projects that improve the quality of life for people who actually live here. I think the public would get much more behind something like that."
Baltimore’s new publically-funded stadium complex ravaged industrially-valuable areas DAT

Chapin, Timothy. “Sports Facilities as Urban Redevelopment Catalysts. Journal of the American Planning Association, Vol. 70, No. 2, Spring 2004.Web.

Somewhat perversely, instead of new development being catalyzed in the immediate district, areas surrounding Camden Yards have seen the opposite: clearing of land for surface parking lots (E. Cline, personal communication, May, 1998). These lots have spread into the Camden Industrial District to serve the massive influx of automobiles and buses on event days. The Maryland Stadium Authority has purchased or leased a number of parcels in the Camden Industrial District and paved them over for event parking (see Figure 2), much to the chagrin of local planners. Attendees also park on other undeveloped parcels, as well as along the streets of this district on event days. City planning staff expressed concern with the infiltration of parking because the city has promoted industrial and manufacturing development in this district, an area that remains best suited for industrial uses U. French and J. Leviton, personal communication, August, 1998).

(…)

From the above it might be suggested that Camden Yards has experienced some success as an urban redevelopment catalyst. However, such a conclusion overlooks the fact that Baltimore's Inner Harbor flourished long before Camden Yards was built. Camden Yards did not create the success that is Inner Harbor; it simply incorporated roughly 20 formerly industrial blocks into the postmodern tourist economy. Camden Yards offers yet another destination in downtown Baltimore, but one that remains disconnected from many of the neighborhoods surrounding it. The old retail district to the north remains disengaged from the downtown entertainment economy; revitalization of this area will likely result from the expansion of the UM-B campus and not Camden Yards. Similarly, Sharp- Leadenhall and Pigtown remain largely untouched by the crowds and dollars spent at Camden Yards, except for local entrepreneurs charging event attendees $20-40 to park in these neighborhoods during events.

The Tax Committee vote is expected to come Friday or early next week, and it might be close. Abrams said that if the committee turns down the measure, the issue is dead for the session, despite the many methods traditionally available to revive bills.

But it appeared the chairman and supporters alike coalesced behind the notion that the two teams do contribute to the quality of life in Minnesota.

"My kids and I are all the time talking sports," Art Rolnick, an economist at the Federal Reserve Bank in Minneapolis, testified before the committee. That quality-of- life issue is worth something, he said, but a public investment in early childhood education is far more important, he said. "Hands down."

If people cannot vote on a stadium that may displace them, this directly costs them access to education, which is a key necessity in social mobility. The tradeoff here is not necessarily economic, but rather direct access to education.