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Wednesday, November 30, 2016

Amid Credit Problems, County Asks Tourism Board to Help Fund Quicken Loans Arena Improvements

Posted By on Wed, Nov 30, 2016 at 1:12 PM

[image-1] The question of how to gather public tax dollars to fund renovations at Quicken Loans Arena is a recurrent theme in Cleveland politics. This week, the latest iteration: Cuyahoga County Executive Armond Budish is asking Destination Cleveland, the publicly funded local tourism agency, to ship some of its collected "bed tax" revenues to the Q for exterior improvements.

The Cavs and CEO Len Komoroski, as Mark Naymik reports today, insist that some $140 million in exterior upgrades are necessary to keep the Q competitive among other NBA arenas and major event venues (think political conventions, concerts, etc). The improvements include a broader "footprint" and a glass exterior. Komoroski has pitched the idea that the team and the county split the cost.

For nearly two years now, the county has balked at the request. A recent Center for Community Solutions report shows Cuyahoga County carrying more than $1 billion in outstanding debt.

"Our credit card is maxed out," Budish said last fall. "The borrowing well is dry."

Hence the request to use Destination Cleveland tax revenue. (Note also that Komoroski sits on the board of Destination Cleveland.)

Now what of the sin tax?

The sin tax, which renewed alcohol and cigarette taxes in 2014, is used to fund certain capital improvements at Cleveland sports arenas. The county issued bonds last year to cover those costs, and will recoup the money through sin tax revenues over time. The renewal of the sin tax allowed that financing structure to work, and those bonds account for a mere 6 percent of county debt. Still, one could almost literally hear the county's belt snap under the budgeting pressure at the time.

Sweeping exterior renovations like the stuff the Cavs are seeking don't fall within the sin tax bounds nor Gateway's deal to provide certain upkeep at the facilities.

And so a decreasing pool of public funds lies in the middle of ongoing discussions about how to fund, e.g., the things that keep Cleveland hip in the eyes of the country and, more importantly, keep people coming here to live, work and play. That's where the bed tax comes in (also called a hotel tax).

Destination Cleveland received around $15 million in bed tax revenues this year, Naymik reports. Because of the nature of hotels, this money comes mostly from out-of-town sources and is used to fund the things that bring out-of-towners here to spend that money. It's a cycle, and it's the thing makes all those Cleveland hot takes exist.

In 2014, county leaders voted to extend the bed tax through 2034. It's never been earmarked for anything terribly specific, but county legislation cites the following: "Capital Improvement Bed Tax Proceeds shall be used for the direct and indirect costs of capital improvements, including the financing of capital improvements. Examples of such capital improvements include, but are not limited to, capital improvements through Positively Cleveland or other local organizations for the following: major political and/or other large conventions, Rock and Roll Hall of Fame Induction ceremonies and/or events, and/or the support of tourism and/or other events." (That ordinance immediately followed the announcement that the RNC would be held in Cleveland and the announcement that LeBron James would return to Cleveland, so you can sort of see some of the initial connections there.)

The question is one we and others have asked before: What obligation does the city and county have when it comes to forking over tax money to billionaire team owners? And as the county sits in a tight financial situation — MetroHealth will borrow $1.25 billion to finance its own transformation project, despite being linked inextricably with the county, for example — does it make sense to bend over backward and blindly fork over millions and millions to the Cavs when we have no idea what their private financial situation is? In other words, without opening their books, why feel the need to give another handout? And with the county strapped for cash, why not just say, "We'd love to, but we're broke"?

No word yet on what these stakeholders think of how these improvements may or may not get done.

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