Proposal to Reduce Ballpark Fee Would Shift Up to $60 million in Stadium Costs from Businesses to the General Public

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Key Findings

• The DC Council soon may consider legislation to reduce the “Ballpark Fee” paid by businesses from the current $14 million per year to $8 million. This would save DC businesses nearly $60 million, measured in today’s dollars, over the life of the stadium financing period.

• Yet the cost of building a stadium has not changed, despite efforts to seek private financing. Reducing the Ballpark Fee thus would require a greater reliance on other financing sources and would lead to a shift in who pays for the stadium.

• This is important because the other financing sources, such as sales taxes at the stadium, could be used for basic services ‘ such as health care and public safety ‘ if they did not have to be used for the stadium. Cutting the Ballpark Fee ultimately would drain as much as $60 million in funding from other services.

• Given this effect, policymakers should consider maintaining the Ballpark Fee at $14 million per year.

The plan for financing a new baseball stadium that was adopted in December 2004 included a new “Ballpark Fee” on mid-sized and large businesses.  The fee, which is based on each firm’s gross receipts, was set to raise $14 million per year.

It is likely, however, that legislation soon will be introduced to allow the Ballpark Fee to be reduced significantly. Supporters of this action state that it is justified by the fact that the District has identified a source of private financing for part of the stadium’s cost.  Deutsche Bank has agreed to provide roughly $250 million toward the $535 million construction costs in return for receiving $18 million per year for 30 years from stadium fees and sales taxes.

Yet the Deutsche Bank plan does not make the stadium project any less expensive for the District. In fact, the cost of the new plan is virtually the same as if the stadium were financed entirely with public bonds.

Because the overall cost of stadium financing has not gone down, the proposal to scale back one financing source ‘ the Ballpark Fee ‘ will lead to a shift in who pays for the new stadium. As described in more detail below, if the Ballpark Fee is reduced, the share of stadium costs borne by larger DC businesses would fall sharply.  This, in turn, would require an increased reliance on other District revenue sources that otherwise could go to fund basic services, such as education, health care, and public safety.

• Under the current financing plan, the $14 million annual Ballpark Fee would account for roughly one-third of stadium financing sources.

• Under proposals that have been discussed, the fee would fall to $8 million, and the share of the stadium financing coming from this source would fall to 21 percent

• The reduction in the Ballpark Fee would save DC businesses about $60 million over the life of the stadium payment period, when measured in today’s dollars.

• Reliance on other financing sources ‘ the stadium lease payment from the team, sales taxes generated at the stadium, and a utility tax on businesses and the federal government ‘  would grow by roughly $60 million.  This shift is significant because the funds from these other financing sources could be used to support other services if they did not have to be devoted to stadium financing.

The proposal to reduce the Ballpark Fee also is noteworthy because the leaders of Washington’s business community strongly supported the stadium proposal and had agreed to finance a large share of the stadium construction costs.  The initial financing plan proposed by Mayor Williams, which was supported by the leading business associations, included a $24 million annual Ballpark Fee, covering more than half of stadium financing costs.  That amount was lowered to $14 million in the financing legislation that was adopted.[1]  The new proposals would lower the fee even further.

It is worth noting that the stadium financing legislation adopted last year required DC’s finance officials to seek private stadium financing, with the explicit goal of reducing the Ballpark Fee on businesses.  The Deutsche Bank plan meets those criteria.  It is not clear, however, that the intent of this provision was to reduce the Ballpark Fee if it simply meant shifting costs to other public sources.

It is more reasonable to assume that the intent was to find a financing method that reduced overall stadium costs, thereby allowing for a reduction in the Ballpark Fee.  The Deutsche Bank Plan does not do that.  The findings of this analysis suggest that DC policymakers should consider maintaining the Ballpark Fee at the current $14 million level, given the adverse impact on general services that would result from lowering the Ballpark Fee.

The Current Stadium Financing Plan

Stadium financing legislation adopted in December 2004 authorized the District to issue up to $535 million in bonds to support construction of a stadium.  The bonds will be repaid from four sources of revenue:

• $14 million annually in a new tax on businesses with gross receipts of $5 million or more.

• $6 million annual lease payment from the team owners

• $12 million in annual sales taxes from tickets, concessions, and parking at the stadium;

• $12 million annually from an increase in utility taxes for all businesses (regardless of gross receipts) and the federal government.[2]

Together those taxes and fees would raise $44 million per year.  This is about $10 million more than the $34.4 million needed for annual payments on stadium bonds at current interest rates.  The excess revenues ‘ which the District would collect as an assurance to investors that the stadium bonds would be repaid ‘ could be used to pay down the stadium bonds at a faster rate.  With these additional revenues, the city would pay the stadium bonds off in 19 years, rather than their full 30-year term.

Proposal to Reduce Ballpark Fee

Under the proposal to reduce the Ballpark Fee, the District would continue to collect the full $14 million Ballpark Fee each year ‘ and total revenues for the stadium would remain at $44 million ‘ but a portion of the funds not needed to cover the $34.4 million in debt service would be rebated at the end of the year to businesses that paid the Ballpark Fee.  Under the proposal most commonly cited, the rebate would aim to rebate $6 million, reducing the net annual Ballpark Fee from $14 million to $8 million.

Reducing the Ballpark Fee in this way would mean that the District would have fewer funds available to pay off the stadium bonds early.  Instead, the bonds would be repaid over about 25 years, rather than over 19 years under the existing financing plan.

Reducing the Ballpark Fee Shifts the Costs of Building the Stadium from Businesses to the General Public

From a public finance perspective, extending repayment of capital debt is not necessarily disadvantageous, particularly if the interest rate on the debt is low and the debt is used to support a facility with a long life span.  The fact that stadium repayment would take 30 years if the Ballpark Fee is reduced, rather than 19 years under current plans, thus is not in itself problematic.

The plan to reduce DC’s Ballpark Fee is notable, however, because it would shift the burden of who pays for the stadium.  Under the current plan, the $14 million Ballpark Fee would represent 32 percent of the $44 million in annual revenues devoted to stadium financing.  If the Ballpark Fee is reduced to $8 million, the fee would represent 21 percent of the $38 million in annual revenues devoted to stadium financing.

Moreover, as noted, the Deutsche Bank plan does not lower the overall cost of financing the stadium.  This means that a lower Ballpark Fee ‘ which would provide a substantial benefit to mid- and large-sized DC businesses ‘ requires the District to increase its reliance on other stadium financing sources.  This, in effect, will consume resources that otherwise would be available to support basic services.

• Under current plans the Ballpark Fee of $14 million would be in effect for 19 years.  Under the expected alternate proposal, the Ballpark Fee would fall to $8 million, but would extend the payment period to 25 years.  When these two payment streams are converted into today’s dollars, the proposal to reduce the Ballpark Fee would save DC businesses nearly $60 million.[3]

• Under current plans, the District will devote $6 million in lease payments from the team owner and $12 million in sales taxes generated at the stadium to pay off the stadium debt.  Again, these payments would be required for 19 years.  After that point, these revenues could be directed to the District’s general fund and used for other services.  If the Ballpark Fee is reduced, however, the $18 million from these two sources would have to be devoted to stadium financing for 25 years.  The funds that would have to be devoted to ballpark costs between years 19 and 25, when measured in today’s dollars, total $37 million.  In other words, the proposal to reduce the Ballpark Fee would require using $37 million in funds that otherwise could be devoted to general services in the future, such as education, public safety, and health care.

• Similarly, the utility tax on all businesses and the federal government would raise $12 million per year to repay stadium expenses over a 19-year period under the current Ballpark Fee schedule.  After 19 years, this special tax could be eliminated or the funds could be directed to other services. Under the plan to reduce the Ballpark Fee, however, this tax would be extended to 25 years, at a cost of $22 million in today’s dollars.

In short, the plan to reduce the Ballpark Fee is beneficial to the mid- and large-sized businesses that will pay it but is disadvantageous in other important ways.  The findings of this analysis suggest that DC policymakers should consider maintaining the Ballpark Fee at the current $14 million level, given the adverse impact on general services that would result from lowering the Ballpark Fee.

End Notes:

[1] The reduction in the Ballpark Fee from $24 million to $14 million occurred because a new financing source — a utility tax on all DC businesses and the federal government — was adopted.  The businesses subject to the Ballpark Fee will pay a portion of this $12 million utility tax, but it is not clear what the share is.

[2] These figures presented in this analysis represent rough estimates as provided by the DC Chief Financial Officer.   More detailed figures are not available.

[3] In this analysis, the revenue streams under various payment options are converted into today’s dollars using a “net present value” calculation.  The net present value was determined using a 4.8 percent discount rate, which is the rate the District would pay on public stadium bonds.