by Chuck Hoven

(Plain Press, May 2014) Cuyahoga County voters are pondering a decision about the 20-year extension of a sin tax on spirituous liquor, beer, wine, cider, and cigarettes estimated to raise between $13 and $15 million per year to pay for repairs and upgrades at the three large sports facilities downtown. The discussion to date, by those for and against the sin tax, has largely focused on the question of who pays the tax – whether the burden should remain on those that smoke and drink alcohol or whether to shift the burden to those that actually attend the sporting events as a user fee. Scant attention has been paid to the question of whether or not the promises made when the sin tax was first proposed have been kept.

COMMENTARY

The central public policy question for this large-scale public expenditure on sports facilities should be: how does the public sector benefit? In the case of the First Energy Stadium, Progressive Field and the Quicken Loans Arena — that public benefit should be measured in property taxes paid, or Payments in Lieu of Taxes (PILOT) to support our schools, our libraries and municipal services. Despite promises made when the original sin tax was proposed in 1990, property taxes are being paid only on the value of the land under these three facilities, not on the value of the buildings.

In an article titled Watch for the P.T. Barnum Sin Tax Campaign, but don’t be fooled published online on March 16, 2014 in What’s Up in Northeast Ohio, (http://mailman.listserve.com/listmanager/listinfo/whatsup) veteran Cleveland investigative journalist Roldo Bartimole describes promises made by a pro sin tax ad placed in the Call and Post newspaper prior to the May 1990 vote. He said the supporters of the tax used a statement by Congressman Louis Stokes to make it seem that Stokes, who strongly opposed the tax, was supporting the tax.

Bartimole notes that the 1990 Pro Sin Tax ad quoted Stokes as saying “I would be willing to pay a sin tax if it would create jobs for the jobless, or homes for the homeless, or schools for our children, or healthcare for the sick or heat for the elderly.” Bartimole says, “The ad then listed the oft told lies of 28,000 good paying jobs for the jobless; $15 million a year for the schools for our children, and revenues for clinics and hospitals for the sick and energy assistance programs for the elderly.”

Bartimole goes on to point out that Alan Glazen, who helped to run the 1990 sin tax campaign, and now is opposed to the sin tax renewal, Glazen has now admitted the ads were all lies made up to sound good to voters.

The discussion surrounding the 20-year renewal of the sin tax should focus on whether or not promises made to the public prior to the vote for the original tax in May of 1990 and the extension of the tax in 1995 have been kept. This is important from a legal standpoint. While much has been made about the legal obligations to the teams inherit in the leases signed between 1) the City of Cleveland and the Cleveland Browns and 2) between Gateway and the Cavaliers and the Indians; not much discussion has occurred as to whether or not the promises made to the public in 1990 and in 1995 have been fulfilled. It would seem that if the leases are legal obligations – so too are the promises made to the public when the taxes were placed on the ballot.

Certainly when constitutional law cases are brought to federal court, those arguing before the federal courts seek information as to what the intention of Congress was when the legislation in question was passed. Similarly in the case of a referendum, the questions should be: What was the public voting on when they voted to finance the sports facilities?” Have those promises been fulfilled? Do those promises trump any promises made in the leases with the sports teams?

In articles over the years, Bartimole has pointed out the many expenditures incurred by taxpayers because of the stadiums and arena and also that the original price of the stadiums and arenas presented to voters went up dramatically.

In a March 5, 2012 article titled What to do about Browns Stadium – Sell it for 1 buck, published online in What’s Up in Northeast Ohio, Bartimole outlines the amount of taxes the sports facilities would each pay if placed back on the tax roles. “Indeed back on the tax roles, Browns stadium would be paying some $8 million a year; Quicken Arena, $3.8 million a year; Progressive Field $4.8 million a year, based on 2010 County figures. That’s more than $16 million per year regained in lost taxes, about half to the city’s schools.” (Editor’s Note: These tax figures were compiled before Cleveland voters increase the schools’ portion of the tax by 15 mills or about 50%)

Imagine all that has happened in the City of Cleveland since 1990. How would things be different if the schools, libraries and city government had millions more in revenue each year from property taxes paid on the value of the huge sports facilities in downtown Cleveland?

Perhaps we should all think back as to what has transpired since we committed millions of dollars in public money to the stadium and arena in 1990 with a promise that the schools would benefit from increased property tax and residents would benefit from the 28,000 good paying jobs promised by the sin tax supporters.

After the original sin tax was passed Mayor Michael White and Cuyahoga County politicians went down state and received a property tax exemption on the Gateway buildings. Since the stadiums went up downtown, the Cleveland schools in the area served by the Plain Press have lost the football field, track and basketball courts at West Tech; and have witnessed the demolition of the stadium, and sports facilities at John Marshall.

Despite the passage of a levy for support of the libraries to help extend their hours, many Cleveland libraries have had to cut back their hours from those originally proposed.

In the area of municipal services, garbage pickup which was once paid for by property and payroll taxes is now subject to a monthly fee tacked on to our water bills.

Conditions for Clevelanders have changed dramatically since 1990, and while it is hard to quantify how much the loss of the promised property tax payments and many thousands of jobs promised by the first sin tax helped contributed to the decline of our schools, the cutback in hours at our libraries, and the loss of municipal services, certainly more revenue would have helped. How much did this loss of revenue and services contribute to the loss of population in the city of Cleveland. In that brief time period we have lost over 80,000 residents. Our City Council has been reduced from 21 to 17 members.

Even with the recent passage of a 15-mill school levy, the Cleveland Metropolitan School District expects to have to make $5 million in budget cuts next school year. It turns out that the revenue raised by the 15-mill levy barely makes up for the cuts in state revenue to the schools. Next year most of the schools in the area served by the Plain Press will receive substantial budget cuts. Indeed, even three of the “so-called” investment schools, promised additional resources from the levy, will face cuts, with Lincoln West High School expecting a $400,000 cut, Luis Munoz Marin expecting a $201,615 cut and Walton School expecting a $300,000 cut. (Source: Cleveland school budget cuts – see new cuts by school here, Plain Dealer, Cleveland.com, April 10, 2014).

The ongoing needs of Cleveland’s school children, its libraries and the municipal services have been neglected in part because of the failure of the sports facilities to pay enough rent to the City of Cleveland and Gateway to allow the equivalent of property tax to be paid for schools, libraries and municipal services. The leases signed by the City of Cleveland and Gateway should be renegotiated to allow fairness to the Cleveland schools and Cleveland residents. The rents paid by the teams should be 2 times the cost of what the property tax would cost if it were levied on the value of the buildings and the land. In this way the rent from the teams would cover the property tax, plus the cost of repairs.

First and foremost our public officials need to renegotiate the leases to assure that the public benefits from the expenditures. Whether or not taxpayers or users of these facilities wish to help pay that cost is another issue.

The discussion around the Sin Tax renewal has also failed to address the whole reason for the public referendum in the first place — the necessity of public ownership of the stadiums in order to qualify to use federal tax exempt bonds to fund building and repairing the stadiums. In order for the owners of those bonds to qualify for federal tax exemptions, the expenditure of the revenues from those bonds must be shown to serve a “public purpose.”  Public ownership is given as the reason for exemption. Federal rules also require that no more than 10% of the revenue to pay off the federally tax-exempt bonds can come from revenue from the stadiums or arenas.  (Source: Financing Professional Sports Facilities with Federal Tax Subsidies: Is it Sound Tax Policy? by Scott A. Jenson, Marquette Sports Law Review, Volume 10, Issue 2, Article 15)

The federal rules for tax-exempt bonds lock taxpayers into paying for the stadiums rather than the payments coming from stadium revenue. There are two possible solutions to avoid this unfair public burden – instead of Cuyahoga County issuing federal bonds to pay for stadium repairs – institute a pay as you go policy – the revenue from that year’s sin taxes, user fees or rent would be used for that year’s property taxes and repairs. Funds would be secured for property tax payment prior to any repairs being made. No borrowing would be involved. If the revenue doesn’t come in, the repairs would have to be delayed.

The second possible solution would be to continue to issue federal tax-exempt bonds only if the teams agree to participate in a Payment in Lieu of Taxes (PILOT) program where they would voluntarily pay property taxes on the total value of the buildings and land they use. This is fair, because for all practical purposes, other than seeking public taxes to pay for federal tax exempt bonds for the construction and maintenance of the the stadiums and arena, the teams act as if they are the owners of the facilities.

The alternative to the City of Cleveland, the school system, and the libraries getting more revenue from the teams is the long-term continuing loss of city services, and the continuing decline of our schools. This will further diminish the City of Cleveland. It is in the interests of the sports franchises, if they plan to stay in Cleveland, to assure that the city they are located in is vibrant and able to support the teams. Without tax revenue the city and its residents will continue to decline and support of three major league teams will not be an option. On the other hand, an educated populace and a vibrant city will be able to support major league facilities well into the future. To act now is in the best interest of the public, and will serve the teams in the long run.