Testimony of Ed Lazere, Executive Director, DC Fiscal Policy Institute, At the Public Hearing on Bill 15-1028, the Ballpark Omnibus Financing and Revenue Act of 2004 District of Columbia Committee on Finance and Revenue District of Columbia Committee on Economic Development

Chairman Evans, Chairman Brazil, and other members of the Committee and the Council, thank you for the opportunity to speak today.  My name is Ed Lazere, and I am the executive director of the DC Fiscal Policy Institute.  DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low? and moderate?income residents.

I have reviewed carefully both the proposed contract with Major League Baseball and the bill before us today.  An analysis of these documents shows that the plan places significant financial burdens and tremendous risks on the District while providing few benefits.  The team’s owners, by contrast, would face few risks and would get nearly all of the benefits.

Under the bill, the lease payment from the team owner would represent just 14 percent of the revenues going into the ballpark revenue fund.  This means the stadium would be financed overwhelmingly with public funds.  Moreover, it appears likely that the total costs of the stadium will be more than the $440 million, and the District would be responsible for all additional costs.  In addition to the $440 million, the contract specifies that District would be responsible for:

  • all future stadium renovations and repairs (other than minor repairs);
  • all transportation upgrades needed around the stadium;
  •  all security and traffic control around the stadium; and
  • all costs if stadium construction costs more than $440 million.  The fact that the CFO has added $91 million to projected costs before one parcel of land has been bought or one shovelful of dirt has been moved makes this concern very legitimate.

It also is worth noting that the contract requires the District to pay the team for lost profits if the stadium doesn’t open on time.

The picture looks very different from the perspective of the team owners.  Their primary financial obligation will be a $5.5 million lease.  The contract specifies that the lease payment would rise just two percent per year, less than the expected rate of inflation, and the lease wouldn’t rise at all in any year following a season with low attendance.  This would make the stadium in effect the largest rent-controlled structure in the District.

Yet the team would be entitled to virtually all stadium benefits.  The team would get all revenues generated from parking, tickets, concessions, naming rights, and media rights.  And the team would be able to sub-lease the stadium on days when no games are scheduled, again taking 100 percent of revenues from that.  The District would be able to use the stadium just 12 days per year.  Even there, the team could deny a District event if the corporate sponsor conflicts with the team’s sponsorship.

This clearly appears imbalanced.  The Washington Post has noted that the city’s offer is one of the most generous deals major league baseball has seen.  The deal makes the Expos an especially attractive team to potential owners and thus boosts its likely selling price.  The team was bought two years ago for $120 million and now is likely to be sold for more than $300 million.

District voters strongly oppose this deal.  A poll released yesterday shows that two of three voters oppose public stadium financing, with especially large opposition to the notion that the District will build the stadium but allow the team to collect all the revenues.

Rather than adopting this bad deal, the DC Council should push for a fairer deal.  The costs to the city should be reduced, and the financial risks should be shared with Major League Baseball, as should some of the revenues from the stadium.

I also want to address briefly the mayor’s announcement just yesterday that he wants to create a $400 million community investment fund to address resident concerns over the stadium.  While the notion of investing in community needs is appealing, it of course does not address any of the financial risks and substantial costs in the un-balanced contract.

Equally important, it is too early to tell whether the community investment fund will have a meaningful impact or not.  The proposal cannot be evaluated because no specifics have been provided.  How big will the proposed TIF District be? Will it really generate $400 million?  When will those funds become available? What will the allowable uses of the fund be?

There also are significant financial questions about the fund.  Unlike the stadium which would be supported by new taxes, the fund would be supported by diverting existing revenues from the general fund.  We need a fiscal impact statement from the CFO to tell us just how much revenue will be diverted and whether that can be fit in the District’s existing financial plan.  Second, this would be the first time the city would use Tax Increment Financing, or TIF, for pubic facilities such as libraries.  Yet TIF is a much more expensive financing tool than general obligation bonds, which is how most public facilities are now supported.  Finally, if the community investment fund is essentially an offshoot of the District’s capital program, how do we ensure that the fund enhances the current capital plan rather than substituting for it?  If it is a supplement, will this affect the District’s debt limit?  These questions should be answered before the community investment fund is approved.

Thank you for the opportunity to speak.  I am happy to answer any questions you may have.