Capturing the income tax paid by National Basketball Association players and team employees could support approximately $150 million in state general obligation bonding, according to a new Legislative Fiscal Bureau report.
The report, which was requested by Assembly Speaker Robin Vos (RRochester), is an attempt to quantify whether capturing such income taxes – often called a jock tax – would be enough to support general obligation bonds that could be used to finance and build a new multipurpose arena in downtown Milwaukee.
The Milwaukee Journal Sentinel had previously reported that the amount of taxes captured for NBA athletes was $10.7 million in tax year 2012. What is new is that, assuming a flat, 20-year repayment structure on the bonds, $10.7 million in annual revenue could support $150 million in state general obligation bonding.
“The total 20-year cost to repay the $150 million in general obligation debt would be $214 million, which includes $64 million in interest costs,” the report states.
The income taxes from the athletes’ salaries also would be expected to increase in the ensuing years. The NBA has signed lucrative new television deals that are expected to benefit both individual teams and increase the salary cap.
In a statement, Vos said the report outlines “one viable option that the Legislature could consider.”
“One fact that hasn’t changed is that any option that includes taxpayer resources will be a tough sell in the conservative Assembly Republican caucus,” he said. “I con- tinue to hear from members and my own constituents who are hard-pressed to giving away precious taxpayer dollars with so many demands on our resources.” Rep. Jim Steineke (R-Kaukauna), who was elected this week to serve as majority leader beginning in January, expressed skepticism in an interview for using existing state money for a Bucks arena.
He noted Miller Park and Lambeau Field were funded with sales taxes generated in their areas.
“Why do the Bucks deserve something so completely different?” he asked. “I’d rather see something done locally to keep the Bucks there.”
Wisconsin taxpayers who live far from southeastern Wisconsin won’t want to pay for an arena “when they’re never going to go to a Bucks game,” he said. Lawmakers from both parties who represent areas outside southeastern Wisconsin are likely to oppose using state money to pay for an arena, he said.
He downplayed the notion of using the income taxes paid by basketball players for the arena, saying those are general state taxes used for an array of programs.
He acknowledged the state would lose that revenue if the Bucks leave Wisconsin, but added the state would also lose it if it were used to pay for an arena because it would be dedicated to paying off bonds for 20 years.
He said any public financing deal for a Bucks arena should include a claw-back provision so the public gets its principal back if the team is sold at a profit. He said the value of the Milwaukee Brewers went up significantly because of its new stadium, but the public did not get any of its money back when that team was sold.
In a statement, he added: “In this case, the new Bucks owners are asking the entire state to pick up a portion of the tab. This is a vast departure from the way we have operated in similar circumstances in the past. Democrats and Republicans in the Legislature who live well outside of the Milwaukee area would have an extremely difficult time explaining to our constituents why they should give their hardearned tax dollars to billionaire owners of a sports franchise when they will likely never even attend one of their games.”
Rep. Steve Nass (R-Whitewater), elected this month to the Senate, said in a statement that state taxpayers have little interest in paying for capital costs for a new arena.
“The Bucks are apparently a profitable venture since they sold for $550 million. There are legitimate economic reasons to believe that a privately financed arena would also be a profitable venture,” Nass said.
The fiscal bureau report notes that, under the Wisconsin Constitution, the state can issue general obligation debt only for internal improvement projects. Additionally, federal tax policy associated with the tax exemption on interest “generally limits the exemption to bonds issued for private purposes,” the report states. “However, in the past, the state has issued federally tax exempt, general obligation bonds to assist local governments and nonprofit agencies with facility and infrastructure improvements, including the BMO Harris Bradley Center,” says the report. “Legislation authorizing the bonds to be issued for these purposes typically declares that such facilities or improvements have a public purpose. The legislation also declares that if such a facility is not used for that public purpose, the state would retain ownership in the facility equal to the state’s commitment for the facility or improvement.”
The BMO Harris Bradley Center is considered a stateowned institution. If the state Building Commission agrees to issue bonds totaling as much as $150 million, that would be added to the commitment already made by Milwaukee Bucks’ co-owners Marc Lasry and Wes Edens. They have committed $100 million toward a new facility, while former senator Herb Kohl, who sold the team to the pair for $550 million, committed another $100 million. In addition, proponents of the new arenasay other investors might be committing as much as $100 million or more.
In total, that means as much as $450 million could be raised for the arena. No specific estimate of the cost of a new arena has been released, but most facility experts agree the arena will cost between $400 million and $500 million.
Representatives of the Bucks continue to negotiate with Journal Communications, publishers of the Milwaukee Journal Sentinel, to purchase the company’s property on W. State St. The Bucks’ preferred site for a new arena includes the Journal Communications property, and land occupied by the UW-Milwaukee Panther Arena and the Milwaukee Theatre.
Bucks representatives also have begun to approach members of the Wisconsin Center District board to sound them out about selling the UWM Arena and Milwaukee Theatre. The district owns and operates the arena, theater and the Wisconsin Center convention center.
There are two potential roadblocks involving the possible use of the UWM Arena and the Milwaukee Theatre sites for a new arena. Under the terms of deed restrictions put into place in 1995, city consent is required if the property is to be used or conveyed for purposes other than an “exposition center” or “exposition center facilities.” That consent would have to come through action by the Common Council.
In addition, if the Wisconsin Center District is dissolved, all of the property in the district reverts back to the city.
This article was republished with permission from the author, Don Walker. The original article was published in the Milwaukee Journal Sentinel.