Testimony of Ed Lazere, Executive Director DC Fiscal Policy Institute at the Public Roundtable on the Baseball Stadium Lease District of Columbia on Economic Development

Chairman Ambrose and other members of the Committees, 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.

Like many other Washingtonians, I am concerned about the rising cost estimates for a baseball stadium.  The recent offer of $20 million from Major League Baseball, while helpful, covers only a fraction of the overruns.  For this and other reasons, I believe the stadium lease should not be approved.

There has been a great deal of confusion in the past week over what should be included in the estimate of stadium costs and thus over the ultimate cost of the stadium.  The answer to that confusion is the District’s independent Chief Financial Officer, who has the job of setting the official “fiscal impact statement” for every piece of legislation before the Council.  Last year, the CFO determined that the cost of building a stadium would be $535 million.  That figure included not only basic construction costs, but also costs of related infrastructure ‘ such as Metro upgrades ‘ and bond issuance fees.  The CFO reasonably determined that these elements must be considered as part of the total cost of a stadium.

Just yesterday, the CFO released an updated fiscal impact statement indicating stadium costs are now $667 million.  The new estimate has the same components as the $535 million estimate.  This means the stadium is now $132 million, or 25 percent, over the cost estimate of just a year ago.

Last week, Mayor Williams and stadium officials argued that they would adhere to the original budget of $535 million, but they can meet this target only by excluding items that the CFO had determined must be counted and by greatly undercounting infrastructure costs that the CFO had identified.  Clearly, the latest cost estimate from the CFO, our official scorekeeper, makes it clear no one should refer to a $535 million stadium anymore.  It is a $667 million stadium.

More recently, the Mayor and stadium officials have argued that any costs above the $535 million in bonds will be covered by the federal government, private funds, or other sources outside of the general fund.  This claim also is misleading.  The federal government has not offered any funding, and the only private contribution is the $20 million offer from Major League Baseball that was included in the lease.  The rest of the financing will have to come from the Ballpark Revenue Fund, the same pot of public financing sources that was established to cover the $535 million budget a year ago.  To date, no other funding source has been identified or authorized.

The CFO has noted that the Ballpark Revenue Fund will collect more in revenues than is needed to meet annual bond payments, and that the extra revenue can be used to meet costs above those covered by the $535 million in bonds.  The fact that the District thus can stick to $535 million in bonds does not mean, however, that the stadium has run over its budget nor that the $142 million in cost overruns is irrelevant.  If the stadium budget were held to $535 million, all additional revenues could be used to pay off the bonds more quickly.

Similarly, the Mayor and stadium officials have noted that funds from private developers could help cover costs above $535 million.  Yet if the stadium budget were held to $535 million, funds from developers could be used to reduce our reliance on bonds, to pay off bonds more quickly, or for other non-stadium city purposes.

In short, there is no getting around the common-sense notion that a $667 million dollar stadium will cost the District more than a $535 million stadium would.

As I have noted before, DC’s stadium deal is relatively unique in that the city has agreed to absorb the entire risk for cost overruns.  In most other stadium deals, the team has covered some or all overruns.  The $20 million contribution from Major League baseball reduces the District’s cost to $647 million.  It covers only one-seventh of the current overruns ‘ and only three percent of total stadium costs ‘ and it offers no protection against further overruns.

The stadium lease offers an even nicer stadium than was conceived a year ago, with 3,800 club seats rather than 2,000. Given that and the fact that most cities are not held liable for stadium cost overruns, it seems reasonable that the District should seek a greater contribution from Major League Baseball, such as contributions for all costs above the $535 million budget set last year.  This would result in a stadium deal that is more consistent with deals in other cities, though still very generous to Major League Baseball.  MLB then could join the city to find savings that would enable the stadium to be built as close to the $535 million budget as possible.

The stadium lease agreement is the last opportunity the Council has to stem the costs of the baseball stadium.  If the current lease is approved, the District will be responsible for $647 million in stadium costs and any further cost overruns.  It is unreasonable to expect the new team owner to contribute anything once the lease has been approved.  Rejecting the lease would allow the city to seek more shared responsibility for rising stadium costs with the Major League Baseball.

Thanks again for this opportunity to speak.  I am happy to answer any questions you may have.