The Chicago Fire and Bridgeview: another case when building a sports stadium is not a good investment

Residents of the southwest Chicago suburb of Bridgeview are not happy about reports that Toyota Park, built to be the home of the Chicago Fire, has created a lot of debt for the community:

The exchange came Wednesday night at Bridgeview’s first Village Board meeting since the Tribune published a report detailing the small southwest suburb’s financial woes tied to its biggest bet, the 20,000-seat Toyota Park.

The taxpayer-owned home of the Chicago Fire has come up millions of dollars short of making its debt payments since opening in 2006. Meanwhile, the town has nearly tripled property taxes in less than a decade, even as the town offset some of the financial sting by taking out more loans to help make payments.

In all, the blue-collar suburb is now more than $200 million in debt.

In comparing towns’ debt to property values, the Tribune found Bridgeview had the highest debt rate in the Chicago area. Much of the debt is tied to a stadium deal in which the newspaper found insiders landed contracts and town officials enriched their political funds with stadium vendor donations.

The stadium might have helped put Bridgeview on the map (leading to higher status/prestige) as it is the only suburban facility in the Chicago area that is home to a major sports team (despite arguments in the past from the Bears and White Sox that they might move to the suburbs). But this level of debt seems insurmountable for a village of 16,500 people who have a median household income of $42,073, below the national average.

This should be a reminder for many communities, small suburbs or big cities: sports stadiums are not the deals they may be made out to be. Yes, it could bring or keep a major sports team. But, the public debt may take decades to repay, can lead to higher tax burdens for residents who are likely not all attending the games, doesn’t necessarily mean that a host of entertainment businesses will open up nearby to serve stadium patrons, and the primary people who benefit are the sports teams (who get new stadiums for which they don’t have to pay the whole bill) and a small number of local leaders and businesses. It may be nice to mentioned on TV every once in a while (if you can find the more minor channels the Fire tend to be relegated to) and be the politician who helped bring the major team to town but it often isn’t a great deal for the whole community.

Higher taxes might push companies to leave but not necessarily wealthy residents?

Many municipalities and states are looking for ways to raise additional tax revenue and this has led to conflict with companies that either have had or want tax breaks to stay where they are (a prominent Illinois example here). But we could also consider whether higher tax rates prompt wealthier residents to move elsewhere. Some evidence from New York City suggests this did not happen:

According to the Census Bureau’s latest American Community Survey, the average household income of those who left the state in 2010 was $44,739. The average for those who came was $55,419 — the largest differential in at least five years…

A separate analysis of census data found that the number of households making more than $250,000 who lived in New York a year earlier but left peaked in 2004 and has generally declined since 2007. About 14,000 households in 2009 and the about the same number in 2010 reported having left New York within the past year, the lowest numbers in that category since 2003.

That analysis did not take into account inflation, and could reflect lower migration rates in general across the country.

As this short piece suggests, we may not want to run and apply this to all wealthy residents in the United States. Additionally, if this can be done with American Community Survey data for New York City, why not do it with other areas of the country in order to make comparisons? Then we could find out whether this data is more reflective of New York City and its relative wealth and importance as a finance and cultural center than of larger trends about wealthy people.

I do wonder about the value of using short-term migration data to prove points about new legislation and revised taxes. People could move for a lot of reasons beyond just one change and I don’t think the ACS data tells us why people move. This could be a clever way to examine a “natural experiment” but there needs to be care taken in interpreting the results.

Keep McMansions out by adding cemeteries

I have not heard of this strategy before: zone for cemeteries in order to limit the spread of McMansions.

Looking toward a time when cemetery space is likely to be in short supply, the Diocese of Trenton is seeking approval to eventually turn acres of farmland in the Crosswicks section of the township into a final resting place for local Catholics…

In Hamilton, the situation is not as dire as in North Jersey, where, Dressel said, high-rise mausoleums have been suggested as a solution for overcrowding…

Councilman Dave Kenny said a cemetery is preferable to other types of development. And since the land is already owned by the tax-exempt diocese, it’s not as if the township can wring more tax money out of it.

“It protects the hamlet to have cemeteries there to prevent it from more intense development, like McMansions, that would certainly be out of character there,” Kenny said.

Historic districts in order to keep McMansions away? A common strategy. Cemeteries? Interesting. I wonder if there are every NIMBY concerns about cemeteries. And if the diocese could have sold the land to developers who might then build McMansions, why can’t the land be sold and developed in such a way that local governments could get new tax revenues?

The suggestion in this article is that some municipalities don’t plan ahead enough so that there is adequate cemetery space when growth occurs. How often do local zoning boards consider proposals for cemeteries? Is it primarily the responsibility of dioceses or religious organizations to bring proposals forward?

This reminds me that Simcity made little provision for cemeteries (it may only have been a reward in Simcity 4). There has to be some place for people to be buried…

The growing sales share of big box stores

In recent years, big box stores have increased their share of overall retail sales:

In the past two decades, the share of sales going to the top general merchandise stores has soared from 47 percent annually to 73 percent, according to an analysis of census data by University of Oregon sociologist John Bellamy Foster and University of Illinois at Urbana-Champaign communications professor Robert McChesney…

“In pretty much every category, you’ll see that the biggest guys are a lot bigger today than they were 10 years or 20 years ago,” said Lawrence Ring, business professor at the College of William & Mary in Virginia.

The implications of retail consolidation are varied: lower prices for consumers, but also less energetic hiring of workers and a more streamlined economy overall…

Whatever the big stores are doing has been working: Walmart’s U.S. sales last year were $308 billion. Target’s were $78 billion; Costco’s, $59 billion; Sears, $35 billion; Macy’s, $25 billion; Kohl’s, $18 billion; and J.C. Penney, $18 billion.

More points of evidence in a long-running discussion about the value of big box stores in the United States.

Another way you can tell how powerful these stores are: how many communities will turn them down if a big box store wants to open in the community and provide jobs plus tax revenues?

American cities continue to face falling revenues

A new report shows that American cities continue to face falling revenues, leading to changes in city budgets and governments:

Belt-tightening continued in cities across the United States in 2011, as fiscal crunches forced local governments to cut back. City revenue is projected to decline 2.3 percent by the end of 2011, according to a new report from the National League of Cities released Tuesday, marking the fifth straight year of declines.

One of the main factors contributing to the decline in revenue is a drop in property tax collections, which are projected to fall by 3.7 percent in 2011, the second straight year of declines. Last year’s drop of 2.0 percent was the first year-over-year decline in city property tax revenue in 15 years. To make up for the shortfalls, cities cut jobs, canceled infrastructure projects, cuts services such as libraries and parks and recreation programs and modified health care benefits for employees.

Hiring freezes were the most common personnel-related cuts made in 2011. Half of cities reported salary reductions or freezes and nearly one in three reported laying off employees or reducing health care benefits. Other actions included early retirements and furloughs.

Even in good times, cities are often concerned with boosting property and sales tax revenues. Commercial and residential development proposals are often scrutinized to see how much they might bring into local coffers versus how they might require in new services. But in times of economic crisis, municipalities and residents, worried about possible rises in property taxes, look even more closely at this issue. Additionally, it is more difficult to obtain federal or state monies when those governments have their own budget concerns.

The belt-tightening will continue unless the economy posts a remarkable reversal. In the meantime, cities big and small, from the size of Chicago and a looming $600 million budget shortfall to smaller suburbs, will continue to look for ways to maximize revenues. In many places, this will lead to some interesting conversations about whether the local government should dig itself out of the mess or whether the residents should help makeup some of the loss of revenues.

The battle between Illinois and Indiana casinos

Due to budget issues, Illinois lawmakers recently approved new five new casinos. But it remains to be seen how the new casinos in Illinois will affect the already-existing casinos in northwest Indiana:

All told, the five casinos [in northwestern Indiana] generated nearly half a billion dollars in tax revenue in 2010.

Five casinos are strung along the Lake Michigan shoreline in some of the Hoosier State’s most economically depressed communities. Ball State University economist Mike Hicks says at least one casino likely would be shut down by increased competition. Some 80 percent of gamblers visit casinos once or twice a year, and choose newer, glitzier options, Hicks said…

Horseshoe spent $400 million to build a brand-new “boat” that is essentially a floating building just three years ago, an investment Hammond Mayor Thomas McDermott Jr. said was made with the prospect of a downtown Chicago casino in mind.

“We wanted to build something that was Chicago-proof,” McDermott said. “I think it’s the best option outside Las Vegas.”

I have to think that the knowledge that this gambling tax revenue was going to Indiana helped motivate Illinois lawmakers to capture some of this money. And I wonder if any politicians were thinking about the talk from Wisconsin, Indiana, New Jersey, and other states months ago regarding encouraging businesses to leave the high taxes of Illinois.

I haven’t seen much talk about many casinos the Chicago area could reasonably support. There are already four, two in Joliet, one in Elgin, and one in Aurora plus the five in northwest Indiana plus more across the borders in Wisconsin and Michigan. And it would be interesting to see how these existing casinos have helped or hurt their communities (and the state government).

Proposal for government to study driving tax by mile

I’ve occasionally written about the gas tax (see here and here for recent examples) as well alternative forms of deriving tax revenue from driving (see here). There is a report that the Obama administration has proposed a new federal study that would look at taxing drivers per mile driven:

The Obama administration has floated a transportation authorization bill that would require the study and implementation of a plan to tax automobile drivers based on how many miles they drive…

Among other things, CBO suggested that a vehicle miles traveled (VMT) tax could be tracked by installing electronic equipment on each car to determine how many miles were driven; payment could take place electronically at filling stations.

The CBO report was requested by Senate Budget Committee Chairman Kent Conrad (D-ND), who has proposed taxing cars by the mile as a way to increase federal highway revenues…

The administration seems to be aware of the need to prepare the public for what would likely be a controversial change to the way highway funds are collected. For example, the office is called on to serve a public relations function, as the draft says it should “increase public awareness regarding the need for an alternative funding source for surface transportation programs and provide information on possible approaches.”

I have several quick thoughts about this:

1. Doesn’t the government have to go to some method like this in the future with the advent of electric cars? If people are buying less gasoline (which is generally thought of as a good thing), then gas tax revenue will decrease.

2. If a tax like this were implemented, does this deincentivize purchasing electric cars or more fuel-efficient vehicles? Although you might pay less at the pump for gas, you would then pay more for driving longer distances.

3. How much of this is going to turn into a public relations battle? It is interesting that the proposed study would look into this. I’m sure a few things would worry some people:

a. How is the government going to use this tracking information since they will already be tracking the miles driven? Of course, this is potentially already an issue in states with toll transponders like Illinois and the IPass system

b. Is this a tax on mobility or on the American way of life (i.e. sprawl)? It would be interesting to see how this new tax might compare to existing costs for driving. Overall, this article reminds me that driving is not cheap – it may feel like freedom but it is expensive freedom.

4. Is a tax for miles-driven too broad? Different vehicle sizes put different stress on road surfaces. Should a tax also take this into account? Or is the difference between a Honda Insight and a Honda Pilot not significant?

5. There could be some interesting consequences of this. Would there be fewer road trips and driving vacations? Would the airline industry (and the rail/high speed rail industry) benefit? Would putting the costs into miles driven rather than tacked onto a gallon of gasoline make people think twice about purchasing a home further from their work?

April Fool’s prank in Evanston about snow removal sticker

Municipal employees and officials are somewhat beholden to residents and their tax dollars. Therefore, it would be interesting to know the reaction of public officials to an April Fool’s prank regarding snow removal published yesterday in a community newspaper in Evanston, Illinois:

As WBBM Newsradio 780?s Mike Krauser reports, Evanston is dealing with a budget crisis, and a huge bill for the blizzard back on Feb. 2 and 3, which dumped 21.2 inches of snow on the Chicago area.

So, the Roundable reports, their solution is to charge for snow removal.

The Roundtable reports under the new plan developed by the city’s Snow Czar, Pearl Le Blanc, anyone who wants snow removed in front of their homes will be required to buy a “snow removal sticker.”

The plan was approved at a heated City Council meeting on April 1, the Roundtable said.

Residents who participate will rent orange traffic cones from the City of Evanston, and will affix daily snow removal stickers to the cones. The stickers will cost $2.25 per day, the Roundtable reported.

I would imagine that officials at City Hall might not have been too pleased at receiving phone calls from angry residents.

Is it too outlandish in these days of budget shortfalls to suggest that a community could increase revenue by requiring such a sticker?

The possible shifts in the foundations of tax bases

Governments are dependent on tax bases for revenue. Hopefully, the tax base meets financial expectations and if things are going well, the taxes bring increased revenues, leading to more spending (and saving?) possibilities. But what happens when tax bases decrease?

This is an issue facing a number of government bodies and a number of taxes are affected:

-I was reminded of this again by this piece (h/t Instapundit) which suggests that increasing income taxes on the rich may not work out in the long run as economic troubles can greatly affect the incomes of the rich.

-Property taxes are affected by the assessed value of properties. If property values are down, such as in this economic crisis where it appears housing prices will be depressed for quite a while, then tax revenue may go down. (Or they may not – can local communities really afford to have less money coming in through property taxes?)

-So called “vice taxes,” on things like cigarettes, may be self-defeating: as people smoke less, the revenue will slowly dry up.

-The gas tax will be interesting to watch in future years: as the government pushes for more electric vehicles and with higher gas prices, this could mean that less gasoline is purchased. Money to pay for new roads and maintenance will have to come from somewhere.

A couple of questions about these different taxes:

1. Is the uncertainty about tax revenues in the last few years really that different from other points in history? If not, what have people done in the past?

2. Might we expect to see some major changes in taxation in the coming years as governments look for different (perhaps more stable?) or more sources of revenue?

3. How are sales taxes or VATs affected by economic crises?

(The realm of taxes is not my area of expertise but I do know the importance of some of this to communities: limited or decreasing property and sales taxes lead to big issues with budgets which then affect services which then angers residents.)

A few comments by Joel (3/31/2011):

One way that cities and states are seeking to increase collection revenues is through enhanced sales tax enforcement.  As Amazon is finding out, for example, governments have their ways of pressuring online retailers.

Of course, to a certain extent, this is simply turning into an arms race, with businesses increasing their lobbying budgets and hiring more tax attorneys.

Rationale for ban against future fast-food restaurants in South LA

Earlier this week, Los Angeles developed some new restrictions for new fast-food restaurants:

New fast-food restaurants in South Los Angeles will be banned within a half mile of existing ones under an ordinance approved Wednesday by the City Council.

The law includes other restrictions on stand-alone eateries, the Los Angeles Times reported. They include guidelines on landscaping, trash storage and other aesthetic issues.

Similar limits are in place in other LA neighborhoods. The council imposed a moratorium two years ago in southern Los Angeles.

Is this an example of the government telling people what they can or cannot eat? Is this example of a government limiting business or jobs opportunities? The rationale for these new regulations is interesting:

The goal of the restrictions is to encourage the development of stand-alone restaurants and grocery stores.

“For a community to thrive, it is important to have balance, a full variety of food, retail and service providers,” said Councilman Bernard C. Parks, one of the sponsors of the ordinance.

The ordinance includes exemptions for fast-food restaurants in mixed-use developments and shopping malls and for existing restaurants planning to expand.

These sorts of rules are not unusual in communities. How does this differ from a suburban community that decides it won’t allow any more banks in its downtown? Or communities that have restrictions against tattoo parlors? Both banks and tattoo parlors create jobs and bring in some sort of tax dollars. If the City of LA wants to promote other kinds of development, this seems like a reasonable rule that doesn’t force out already existing stores but limits their future growth.

At the same time, the issue of fast food seems to bring out passionate arguments from people. Do we have a “right” to fast food restaurants? A lot of critics of sprawl argue that fast food restaurants represent the worst of sprawl: they are completely dependent on the automobile, the food is cheap, mass-produced, and not healthy, and the restaurants and their signs are garish advertisements for multi-national corporations who couldn’t care less about local communities. Others argue that we should be able to eat what we want when we want.

In Los Angeles, they seem to have made a decision about promoting other kinds of development. Communities make decisions like this all the time, depending on factors like tax revenue and what goals or values they wish to promote.