Thursday, July 28, 2011

How to Argue with an Arena Skeptic - Updated

(Blogger's Note (From Nick): If you haven't, please enter Rock The Referendum and spend the weekend motivating people to come out and vote on Monday!)

In advance of the upcoming vote, I thought I would update and repackage my “How to Argue with an Arena Skeptic” three-part series because, would you believe, there still are some skeptics out there, my efforts notwithstanding. So here it goes.
1. The Referendum Will Not Result in a $58 Annual Tax on Residents.
Too often arena supporters accept the notion that the arena deal would mean an additional tax of $58 per household and instead argue why that's not a lot of money or that the consequences of the team leaving are worse. Aside from not being particularly effective, the assumption is simply not true. In fact, (as others have noted) the tax impact of the referendum will most likely be much, much less than $58.
The $58 number is based what the total estimated annual debt service of $26 million/year by the county would mean for the average taxpayer. However, this number assumes that the county will borrow and spend $400 million and not receive a penny in return. Sort of like assessing the cost of buying a house (or making any other investment) and focusing only on the fact that you're giving money to some guy and ignoring the fact that some guy is giving you something (namely, a house) in exchange. While the house may or may not be a worth what you're paying, to ignore the value of the house completely is absurd - but this is exactly what the $58/year number does.
So, what will the county receive in exchange for the $26 million/year in debt service?
  • Even if the Isles stink and the arena does poorly, Wang is obligated to pay the county $14 million annually once the building is built. Thus, the county's annual debt service obligation is actually $12 million annually, or approximately $24/year per household. The Office of Legislative Budget Review added another estimated $4.9 million in estimated tax revenue, to lower the burden to $6.7 million annually or $13.80 per household in Year 1 of the new arena.
  • Under the Wang lease, the $14 million payment is a minimum. If 11.5% of arena revenues exceed $14 million, Wang is obligated to pay the county that amount instead. Based on this arrangement, the county estimates that Wang's annual payment will actually be $18.9 million in the first year of the arena’s operations. As I explain here, this estimate is based on the Islanders having attendance levels and ticket prices at around the NHL average and playing no playoff games. Islander fans know that a team featuring Tavares, Okposo, Grabner, Strome, et al. in a new arena (deep breaths) might regularly sell out and advance into the playoffs, but that might not convince an arena skeptic (although you can certainly try!). In any case, $18.9 million in annual payments lowers the county's payment to approximately $7 million. This translates to approximately $14 per household in Year 1 of the new arena.
  • In addition to the revenues under the lease with Wang, the county will also receive tax revenues from both arena sales (tickets, food, parking, etc.) and economic activity generated by the arena (area restaurants, spending by team employees). This number is somewhat difficult to estimate and depends on various assumptions, but the county estimates $9.2 million in tax revenue, allowing the county to realize a $2.2 million profit, or a per household tax savings of $4.4 in Year 1 of the new arena.
  • The county and taxpayers’ burden are almost certain to get smaller each year the arena operates because while the debt service is fixed, revenues will grow due to inflation. This is the basis for Camoin’s conclusion that the arena deal will result in a net profit $27/year per household.
In sum, while the actual cost to taxpayers is unknown, once the arena and ballpark are complete, it will definitely be far less than $58 per year and should allow the county to turn a profit.
2. What Will the Islanders Leaving Town Cost Taxpayers?
One of the main argument arena supporters make is that a “No” vote means that the Islanders will leave the County and the Coliseum will be closed, which will result in a tax increase as a due to lost revenue associated with the Islanders and the Coliseum. Unfortunately, this is one area where supporters often engage in unrealistic bluster regarding the impact of a "No" note. Yes - a shuttered Coliseum would devastate the economy in the immediate area and the eyesore of a decaying Coliseum or an empty Hub would serve as a painful reminder regarding the county's decline. However, while it is difficult to precisely assess the "net" economic hit the county would take, it is unlikely to cause the homeowners' tax bills to increase more than $58/year, the number that the arena plan is said to cost the County.
But, as noted above, the $58/year "Coliseum tax" is a myth. Because the actual cost of the arena plan is far less -- and may even may result in a small decrease in taxes -- it's silly to use the $58/year number as a benchmark.
So what will a "No" vote cost the average homeowner? According to the county’s economic consultant, Camoin Associates, the county will lose at least $7.8 million per year in tax revenue, which translates to $16/year per household. As noted above, this number is difficult to calculate because it seeks to answer a hypothetical question – what would happen to all of the Islanders and Coliseum related economic activity were the team to leave? Would families go to a movie theater in the county? Or watch the Nets in Brooklyn? Or stay home and watch pay per view? Would Katy Perry find another venue in the county to perform in or decide to forgo the county on her next tour? The $7.8 million is based on economic modeling done by Camoin Associates to predict what would happen if the team left and the Coliseum closed, so by nature the number is open to question. However, thus far I haven’t seen any criticism of Camoin’s methodologies or alternative analysis that yields a different result.
While arena supporters might think that $17/year seems like a small amount, to the anti-tax crowd leading the charge against the arena plan, any tax increase is toxic.
The skeptics’ response is “well, what’s the big deal if the Coliseum closed and the team left? Who’s to say that the property won’t be redeveloped for other uses? Wouldn’t real estate developers be chomping at the bit to redevelop this property?” That may be the case, but isn’t that sheer speculation? We don’t know what sorts of plans potential developers might propose, how much revenue they might bring in and whether they will be able to get all of the necessary approvals (including any zoning variance from the Town of Hempstead). Why would reject a plan that is on the table with a willing tenant and permanently chase away the tenant all in the hope of a completely hypothetical Plan B? It’s interesting how arena opponents criticize Mangano’s projections as speculative yet seem to think development will magically materialize in the place of the Coliseum, forgetting the nightmare the Lighthouse Project process was.
But more importantly, what will take the place of the Coliseum? Another shopping mall? Another set of office buildings? The Islanders is a unique institution that creates economic activity within the county by drawing visitors from the region in a way that malls and office parks cannot.
And of course, to an Islanders fan, the cost of replacing the Islanders with a Target, Dave and Busters and an Olive Garden is way, way more than $16 per year. But if you are an arena skeptic, I assume that doesn’t count for much.
The number 1 argument of arena skeptics I find online is “Wang should pay for the arena himself.” Or more accurately “WANG SHOULD PAY FOR THE ARENA HIMSELF!!@!!”
We all know the sorry history here – Wang DID try to fund the arena himself as part of the Lighthouse Project but was stymied by the Town of Hempstead. And many arena plan supporters cite this to skeptics. But skeptics probably don’t care about the back story. We also know that arenas and stadiums rarely get built this days without substantial government help. But, again, that’s not going to convince a skeptic.
The strongest response is as follows: Wang is paying for somewhere between 60% and over 100% of arena costs himself under the lease with the county. Under the lease, Wang is obligated to pay a minimum of $14 million per year for 30 years, or a total of $420 million. The arena costs will initially be funded with $350 million of the $400 million bond issue. Total principal and interest on the $350 million is (using the numbers issued by the legislative budget office) $682.5 million. Thus, assuming Wang only pays the minimum payment under the lease, he will be funding 61.5% of the total cost of the arena ($420 million of $682.5 million). However, if 11.5% percent of arena revenues exceed $14 million, Wang is obligated to pay that amount instead. As discussed here, the county's economic expert, Camoin Associates, using fairly reasonable assumptions, estimates that the the 11.5% revenue share provision will kick in, requiring an $18.9 million payment during the first year of arena operation, to increase each year by 3% to reflect inflation. If these estimates are correct, Wang’s annual payments will total $770.4 million -- actually exceeding the cost of the arena to the county. In fact, even the revenue share amount is $17 million in Year 1, the arena will turn out to be fully funded by Wang. And this doesn’t even take into account Wang’s obligation to fund cost overruns – which would increase Wang’s contribution to the arena cost.
4. Don’t Be Stupid. Use Basic Math. Don’t Slavishly Follow Ideology or Political Leaders. And Robots?? Are You #@^#! Kidding Me?!?
Unfortunately, there may not be enough room on the Internets to respond to every inanity but forth by the Vote No crowd. A sampling will have to suffice:
· We want purty pictures! Seriously, the LI Press complained that there are no architectural renderings of the new arena. As if somehow the shape or coloring of the arena is relevant to what will be voted on on Monday. As if voters somehow have the constitutional right to pass on the how publicly financed building look. As if the Islanders should spend hundred of thousands of dollars to satisfy voters who need to “see” what they are voting on.
· Wang is running away with 88.5% of revenues! This has suddenly become a Vote No talking point – that the county only gets 11.5% of the revenues while Wang gets 88.5%, which translates to hundreds of millions according to the Camoin estimates. The problem is that Wang doesn’t actually get to keep 88.5% of revenues unless he doesn’t want to pay his players and other employees and any other expenses he has. Revenues does not equal profits.
· I don’t believe in publicly funded sports facilities. The word “believe” should be reserved for God, religion and perhaps the team you root for. Applying it to public policy leads to the kind of nightmare currently unfolding in Washington – blindly refusing to accept reality because of political ideology. While it is reasonable to generally be against publicly funded sports facilities, it shouldn’t relieve you of actually looking at the current situation the county is in, the details of the revenue sharing arrangement and what might happen if the Islanders leave.
· Ahhh!! ROBOTS!!! Yesterday, an elderly woman called News 12 to complain that the estimates of new jobs that an arena will bring were exaggerated because the new jobs will be automated. I don’t quite know how to answer that, but it gives me an idea as to who Garth should go after for that top 4 defenseman:

He is a very, very low cap hit.

26 comments:

  1. I will start by saying that I am voting yes, have followed this referendum and the lighthouse project for years and feel this absolutely must get done.
    However, the cost will be $58 per household (average) not $13. I am well aware of the fact that the Islanders will pay rent - minimum $14M per year, plus the property/sales/hotel/entertainment tax. The issue is that this money will not be put in a lockbox to specifically pay off the debt service. No politician, democrat, republican, independent, whatever - that takes a vote for a $58 dollar increase will ever reduce that amount. The public votes YES for $58, they will take $58 end of story. Once the public agrees to it, you can bet your ass that it will be charged the full amount every year. It's just the reality of it.
    I am more than willing to pay my $58 and then some. The area needs this desperately.

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  2. Dave, this is sparkling, absolutely sparkling. I hope everyone involved in covering this reads it.

    In addition to the "Lost Coliseum Tax," we also need to consider opportunity costs in the form of planned investment that now won't happen.

    Ed Mangano claimed on Mike Francesa this past Tuesday that people are calling him interested in building hotels, bars, restaurants, and "upscale bowling alleys" (meaning, another Lucky Strike Lanes my good friend Andrew can get thrown out of.....). This arena will spur investment in the surrounding area from businesses who see a revitalization, and it is meant to be the anchor of The Shire (TOH gutted zone built on the corpse of the Lighthouse Project).

    Would any of this happen if there wasn't an areener? I doubt it sincerely.

    The cost of doing nothing is more than just what we will lose, but also what we cannot hope to get in the future.

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  3. Anon - your points about the lockbox are well taken, and your surrounding points are also very good.

    I suspect, assuming the referendum passes, that a lockbox may be a condition from the democrats in exchange for that all-important supermajority, but that's speculation right now. All we can/need to do right now is vote.

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  4. Nick,

    Nassau has always been considered a "pass through county" if this fails it will be truer than ever before.

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  5. Nick,

    Again, I'm pushing for a YES vote and bringing everyone I can with me. I am an Islander fan and also fall into the category of an 18-30yr old that has watched the majority of my friends leave the county. Nassau county is far too expensive for most of them to stay. A dollar goes much further in other locations (real estate especially). If the Islanders leave, there really is nothing in Nassau that would define it from any other county in the surrounding area - with the exception of it's large taxes. There are over 3,000 counties in the U.S. but there are only 120 major professional sports franchises. If the Islander's leave, Nassau would just be another one of those two thousand plus counties without a franchise and cement itself as a "pass through" county between the city and the Hamptons.

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  6. I posted this on the Newsday website on the article of how a New Nassau Coliseum will cost the commercial taxpayers more:

    [quote]HOW MISINFORMED CAN PEOPLE BE!!!!! The cost of the entire loan without any of Wangs input would be MAX $58.00 per household per month. According to the terms of the deal Charles Wang is going to pay a MINIMUM of $ 14 million per year against the debt service, which will bring the MAX cost per household to $ 13.80!

    That is if Charles Wang does not sell a single ticket!!!!! From the revenue, not the profit but the revenue, Charles is paying 11.5% toward the debt service. If (when) that number exceeds 14 Million, the 11.5% is what he will pay, which will further reduce the debt service.

    The alternative will be an increase in taxes when the Isles leave. Not only a tax increase but a TREMENDOUS LOSS OF REVENUE! in which the county will lose out in taxes from the businesses, property taxes if they leave and any sales taxes they would have paid in the additional business they would have done based on Coliseum events!

    They naysayers in the project are looking at such small numbers in comparison to the number that will be lost is the Coliseum closes. Such a shortsighted bunch here![/quote]

    --islanderbill

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  7. Bill - I made a similarly exasperated comment yesterday. I can't believe people out there don't know the difference between revenue and profit.

    Good post.

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  8. My post never made it to Newday. I tried posting it again and it seems to have worked this time.

    --islanderbill

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  9. Rather than getting your information from a hack who's never ran an economic analysis in his life until a month ago, why don't you people take a look at some real numbers? http://www.longislandpress.com/2011/07/28/ed-mangano-charles-wang-plan-to-rebuild-nassau-coliseum/5/

    While some of you may be willing to take the hit because you're "fans" you have no right to force the rest of the county to do the same. This is the kind of thoughtless populism that is driving our country into the ground. Its not even populism because the people that think they are voting for their own benefit are actually losing (the only winners here are the spoiled hockey brats, Wang and the unions)! Community decisions made by an alliance between billionaires, reactionary, mindless, and misinformed teenagers and bloggers posing as experts (more likely than not to fulfill some sick desire to massage the part of their childhood ego devastated by their failure to have a prom date or make the football team), is not, what I believe, what Thomas Jefferson had in mind while he penned the Declaration of Independence. China is breathing down our neck, our fiscal house is a complete disaster, we're involved in at least five military conflicts overseas, and all you fools can concern yourselves with is some two-bit hockey team so a billionaire can do his part to raise the gini coefficient even more? Please!

    Honest thinkers- take my advice and don't take ANYTHING from this guy or any other guy who writes on this site. They're no more experts on economics or fiscal policy or monetary policy or marginal rates of return or future returns or investment rates or GDP or capital accounts than I am on ancient Phoenician pottery.

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  10. Anon

    not even worth a reponse--but here goes;

    What happens to local businesses if the Coliseum closes...Isles do not draw the most fans to be sure but on game nights the local businesses do better.

    Also there are some concerts and the circus there as well, which supports the local economy as well.

    Take into account what the tax burden would be if the place closes...not only for the Coliseum itself but for the surrounding businesses. Where do you think the Nassau pols are going to make up this money....three guesses.

    Serviously you are all taken up that this is all a "scam" to bilk the taxpayers.

    Let this "spoiled hockey brat" reiterate the question:

    WHERE IS THE REVENUE THAT THE ISLANDERS AND OTHER EVENTS FROM THE COLISEUM GOING TO COME FROM ONCE THE PLACE CLOSES?!?!!?!?

    This isn't about the Islanders anymore, it's about trying to prevent the Island from sinking anymore

    Damn

    --islanderbill

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  11. To the last poster:

    Who is forcing you to do anything? A VOTE is going to be held - you can vote yes, vote no, or abstain. A public referendum is going to be held and I encourage you to exercise your franchise and vote.
    As for the rest of your comment, I believe the phrase goes "if you can't attack the idea, attack the person".
    As for your encouragement to "honest thinkers" to not take "ANYTHING from this guy or any other guy who writes on this site" I can only assume you include yourself in this "any other guy" category.

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  12. Bill - I made a similarly exasperated comment yesterday. I can't believe people out there don't know the difference between revenue and profit.<-

    Really, Nick?

    Take a look around you lately?

    Most people can't SPELL revenue.

    Seriously, people, get out on Monday and bring as many people with you to the polls as you can. I've got between 4-5 people myself.

    In the immortal words of the GREAT Al Bundy, "Let's Rock!"


    -Big Van Vader

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  13. Ahh, yes. That bastion of journalistic excellence. The LI Press. A paper well known for serving as excellent bird cage liner or protecting the kitchen table when my kids do art projects.

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  14. Bravo, anon. Very brave of you to not attach your name towhat you wrote - but hey let's concentrate on your comment.

    First, as a previous poster said, nobody is forcing anyone to do anything. There will be an ELECTION (ask Mr. Jefferson to help you out if you don't know what that means) and unlike Jay Jacobs and Desmond Ryan, who are already lobbing bombs at NIFA to get them to overturn it, we are bound by the outcome.

    I hate to break this to you, so please, sit down and prepare yourself.....economic analysis isn't limited to the reports you agree with. The analysis that drives you so crazy comes from the non-partisan Office of Legislative Budget Review, County Comptroller Maragos, and the independent reports from Camoin Associates and Martin Cantor of Dowling College. You don't invalidate their study just because you disagree with it.

    As much as you seem to want to, you can't change math. Charles Wang's MANDATED minimum payment will AT WORST cover over60% of arena costs. This is far and away the best taxpayer deal, and the fact that you resorted to ridiculous and childish insults only serves to prove you can't argue this on the merits and have to resort to attacking me and Dave, who put our identities out there.

    You are free to vote however you wish....as, it may shock you to realize, am I. If you want to talk merits, we're all happy to oblige you. If you want to make up lies and hurl mindless insults, I'm sure Jay Jacobs or ABLI would be glad to give you a job.

    And by the way....that nightmare scenario you described....that's democracy, asshole.

    Now, can you give your opinion on the clay pot I found on my recent trip to the ruins of Carthage?

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  15. And one last question....if this is so minor and we're all sad and pathetic people....what does that make the guy who takes time out to write a long comment about how sad and pathetic we are?

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  16. That guy is a tool...Hes saying that we're forcing him into this???

    He says the Isles are a 2 bit hockey team...Funny thing is us 2 bit hockey fans are more informed than this so called reporter...What a fucking joke!


    This is what we're up against...Ignorant, self serving, tools...

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  17. I believe our little Democrat operative is now consulting his bosses on how to respond to truth when all he did is throw turds, saying it was Democracy

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  18. Remember when we were on the Dems' payroll, BD?

    I guess the Republicans are bribing us now....

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  19. The Dems have been playing dirty...The rep's werent this dirty when pushing for the LHP...I hope people will remember this when they go to the polls...

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  20. "I guess the Republicans are bribing us now...."

    Bribery?
    LOL....Let's talk about "bribery", shall we Nick?
    How's that "contest" to get out the vote coming along.

    Luv ya guys
    505

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  21. Umm. Islespassion.. playing dirty is a republican art form.. They tried to drum up opposition to the LH by suggesting that the housing would be projects and low-income housing (read: MINORITIES!!!!!! WHARGARBLE!) Did you forget that piece of ugliness?

    Why aren't people remembering the republicans who put us in this situation? Vote them out and we'll get the LH back on track and we'll have teh best of both worlds.

    As for development.. the problem is that there is no master plan so once again, a parcel of land will become and ugly hodge-podge "design" of stand-alone commercial buildings and stripmalls.

    And can anyone really say that Wang will sign anything that will make him lose MORE money? There is no way a businessman who has lost money because the Nassau GOP blocked him at every turn will sign a contract that says he will guarantee payments even if revenue is down. And if he does sign it, expect parking, concessions and tickets to cost a whole heck of alot more to cover any operating losses. He'll reserve the right to charge $30 for parking and $8.00 for a hot dog.

    And also, if the vote is YES, Wang cannot pay for the vote because that is ILLEGAL.

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  22. Foolish taxpayers think that they should fund a sports team. If things are so great for this sports team and they are going to make such a great amount of money, they should shoulder the burden of the colosseum themselves. When is the American public going to wake up. Get the government out of private business!

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  23. Anon: Why do you refuse to accept that Nassau Coliseum is owned by the County and therefore it's the county's job to maintain its asset? Facts are a stubborn thing......

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  24. Also, Anon (the Dem plant one): The Lighthouse is dead, gone, and not coming back. Nobody is more upset about this than I am, but to actually try to re-litigate this as if you could bring it back is insulting.

    Maybe if your party fought this goddamn hard to keep it while Kate Murray was MURDERING it, we'd all be attending a ribbon cutting for Phase I. Don't you DARE abdicate responsibility for this!

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  25. 19 Isle in NJ 22July 30, 2011 at 7:08 PM

    Nick ... remember when I said about 2 or 3 years ago about the dangers some of our fellow Isles fans were inviting by making the Lighthouse project a political one? I guess something this large was doomed to become a political football. What's the score?

    In the end ... no matter how much you can try and convince people outside of the fan base that it's more than the Islanders ... it's the concerts, conventions, boat shows, circus, blah blahs on ice, the civic pride etc... people will always point to the anchor tennant and owner of the Islanders as the demon here. Kate Murray did it ... now the Dems' Jacobs led by his demonic hordes are in on the Islander bashing ... Yet both Repubs and Dems in power say in the end disingenuously ... We don't want the Islanders to leave ... with their crocodile tears.

    The Yankees in the early 20s were almost booted out of NYC ... look what happened after they began playing in a brand new stadium sans the political BS they withstood by the City of NY and the NY Giants at the time.

    I could go on ... and you know I could. LOL!

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  26. The Dems tried to boot Murray from office but that didn't work out. And Jacobs is a putz for his overt and ridiculous arguments. Look, NIFA will not approve this deal. Mangano will have his wiping boy going into the elections and blame the Dems for his and Murrays failures. Mangano could care less what happens at that site. Dumb-ass wanted a casino, carseum, now they added track and field. It's like a 5 year old with a lego set and a living room floor.
    I'm not voting No because of political reasons, and anyone who knows me knows I don't kiss ass to my party, I'm opposed to the rigged vote, the cost of the vote, and lack of solid information. An agreed-upon contract should have been presented for voters to read. None of this "we'll fill in the blanks later" crap. I would oppose this with Suozzi in office too.

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