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Wednesday, December 14, 2016

Everything You Need to Know About the Quicken Loans Arena Transformation

Posted By on Wed, Dec 14, 2016 at 12:03 PM

click to enlarge COURTESY: CLEVELAND CAVALERS
  • Courtesy: Cleveland Cavalers
At a jubilant press conference Tuesday afternoon, representatives from Cuyahoga County, the city of Cleveland, Destination Cleveland and The Cleveland Cavaliers announced a "creative" "collaborative" funding structure that will facilitate major renovations at the Quicken Loans Arena. We did it, our leaders bragged. We made this work.

Roughly $140 million will be bonded by the County — the very same county with a "maxed-out credit card" — and repaid over 18 years using a variety of revenue streams. The final repayment costs will be roughly double the initial price tag, which is why you might have seen the $282-million figure at Cleveland.com. Tim Offtermatt, recent Chairman of the Gateway Board, advised during a Q&A that the final costs are at this point unknown. They could be even higher than $282 million, and will depend on "market conditions."

(If it helps, when the County talks about "bonds," just substitute the word "loans." They're taking out massive loans.)  

Both County Executive Armond Budish and Mayor Frank Jackson promised that all of the revenue streams that will be used to pay off the renovations already exist. No new taxes will be created and neither the city's nor the county's general funds will be affected.

But the Tuesday announcement nonetheless scanned, once again, as propaganda. Sparkling images of the proposed new facade cycled on huge hi-def TV screens on either side of the speaker platform. The comments themselves focused on the region's recent success, and on the Q as both motor and Mecca. The Q as "Cleveland's living room" was the recurring metaphor.  

Far from apologizing for yet another instance of a weary tax-paying public subsidizing billionaire sports owners, Armond Budish spent most of his remarks praising the generosity of the Cavaliers' organization.

"The Cavaliers offered to pay half of the [$140 million] cost," Budish said in opening remarks, "which I will tell you is very unusual in these types of projects, especially in a publicly owned facility. We knew that the deal was crucial to continuing the great momentum that the city and county are experiencing and we recognize that the Q is the largest economic driver for our region."

Though the Cavaliers and city leaders continue to say this sort of stuff, the prevailing view among economists (in fact, the consensus) is that "sports subsidies cannot be justified on the grounds of local economic development, income growth or job creation." That's just for the record.

Nevertheless, a bouquet of fawning comments ensued from the roster of suited male executives — Budish, Frank Jackson, Destination Cleveland's Board Chair Dan Walsh, Cavs CEO and Destination Cleveland Board Member Len Komoroski — about the changing narrative of Cleveland (for God's sake), about the glorious potential of new and bigger events (what?), and about the peerless "public friendliness" of the financial arrangement already in place; Dan Gilbert's mantra of "doing well by doing good," was also lauded.]

Here's how the public portion of the funding shakes out:
  • ADMISSIONS TAX: There is expected to be a continuation of the existing portion of the eight percent tax on every ticket sold at Q events. It's not clear how much this will generate, but the $88-million figure has been provided, which includes taxes on playoff games from 2024-2034. The Cavaliers have promised to pay any shortfalls on the predicted tax revenue.
  • SALES TAX: This is the amount generated over and above the existing 1.25 percent County sales tax proceeds on all taxable purchases at the Q.
  • COUNTY BED TAX: A portion of the county bed tax, which funds Destination Cleveland, will generate $44 million over 18 years.
  • COUNTY DESTINATION FACILITY RESERVE: About $16 million in resources dedicated for the Hilton Hotel project, but were unused, will be re-allocated to pay down the renovations bonds.    
  • No sin tax dollars may be used for the renovations, as that money is earmarked for maintenance and operation.
It was Fox 8, during the Q&A, who asked city leaders to defend this arrangement to taxpayers. What would you say to folks, a reporter asked, who don't think we should be contributing to stadium renovations at all?

But it was none other than Fred Nance — big-shot lawyer and Believeland talking head — not an elected official, who walked from the front row to the dais to deliver what must have been perceived as a knockout punch:

"For those of us who have lived in Cleveland for some time, we recall what happened here in 1995," Nance thundered, and the press corps rolled its eyes. "Which is that if we don't take care of the facilities in which our professional sports teams play, we are at risk of losing them."

The risk of losing the Cavs must be almost zero, given the lack of viable markets elsewhere, the team's enormous profitability, and Dan Gilbert's web of local investments, and the Cavs contend that they've never brought up the possibility. But it's a risk — a threat, really — that looms ever more ominously whenever sports teams ask for public money. And it was a threat advanced by Cleveland.com in their exhaustive coverage of the announcement Tuesday, coordinated ahead of time to coincide with the press conference.

The possibility of losing the Cavaliers, the very team that has "restored Cleveland to credibility," is the philosophical dilemma that "hurts most to contemplate," they said.

We are supposed to be grateful that the Cavs — "doing right by doing good," remember — have extended their lease for seven additional years, guaranteeing that they'll remain in town until 2034.

Cleveland will also host an NBA All-Star game. That was part of the announcement as well. The NBA has promised (we were told) that if renovations are complete, Cleveland will land the coveted weekend at some point during the next seven years. There are no specifics of course. (It was not mentioned that an All-Star weekend is small potatoes for a venue that just hosted the RNC before costly renovations.)

There was no mention, either, that the Cavs will be wanting to build a new stadium long before the bonds for these renovations are paid off. Projecting taxes on playoff games more than a decade in the future presupposes that the team will remain competitive after LeBron James retires, and that the Cleveland Cavaliers will still be playing professional basketball in the current Quicken Loans Arena. Those among us skeptical of long-term financing deals can foresee a situation in which existing or new taxes on tickets at a new stadium will still be paying down interest on bonds for renovations on a facility that may have been demolished years ago.

But this is how we roll.

click to enlarge COURTESY: CLEVELAND CAVALIERS
  • Courtesy: Cleveland Cavaliers
Destination Cleveland's budget will be cleaved into, as well. A tight-lipped David Gilbert, Destination Cleveland's boss, answered a direct question from WKYC's Tom Beres about the impact to his organization's operating budget. Gilbert danced around with some balletic financial mumbo-jumbo but ultimately said it won't matter a lick:

"Throughout the process, we've actually taken a hard look at our budget, where our competitive set is," Gilbert said. "And in this process we've also had the ability, with the total dollars, to smooth it out so there's far less of an effect on the front end, and back-loading it as the bed tax grows. In the end, we are still very confident we are going to be able to perform our mission and do all the things that the organization is charged with doing."

It's also worth noting that City Council appears to have been kept in the dark on this (once again). Council members were outraged when they were blindsided by the Browns financing agreement back in 2013, and they'll presumably be outraged this time, especially after they were kept in the dark about the Public Square decision. This is the city's legislative body, (!!!) and no one's bothering to include them in the city's major financial decisions. The ball can't even begin to roll on these renovations until council approves them, after which the construction is projected to last two years, during which the arena will remain fully operational.

Council President Kevin Kelley sent an email to his colleagues one hour before the press conference, saying he didn't have all the details, but that council would "thoroughly review any proposed plan before approval."

To sweeten the pot, Len Komoroski announced that the Cavs would be donating 15,000 tickets to Quicken Loans events each year to folks who otherwise might not be able to afford them — 10,000 of them will be for Cavs games. Well in THAT case!

All of this comes less than a year after County Executive Armond Budish advocated restraint on county spending. We're a fat billion in debt. The "maxed-out credit card" is his oft-quoted line, and Scene asked whether or not these new bonds represented a contradiction of his earlier remarks.

"Not at all," Budish said. "What I've said is we want to continue to move the county forward. We want to continue the momentum and looking for creative ways to do that. We can issue bonds as long as we have a way to pay for them. As you've heard, we've been able to work with the city and Destination Cleveland and our own sources to come up with a way to pay for these bonds without impacting city or county social services."

We'd be remiss if we didn't note that the energy and creativity expended to scrape every last available dollar for renovations at the Q might have been expended on worthier causes. Where is the county's innovation and creativity in helping solve the financial perils of public transit? Where is the city's creativity on infant mortality and lead poisoning? What if leaders bent over backwards to find money to solve, you know, actual problems?

But hey: At least the city income tax increase, lately passed, should lessen the blow of all the money the city would have received (from the Cavs' rent on the publicly owned arena, ~$5 million per annum, from the admissions tax, from the sales tax) which will now go back into the renovation pot.

And just so we're clear on the merits of this "public-friendly" "public-private partnership":



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