Executive Summary: the public subsidy being given to the Braves
by Cobb County is much larger than that being given to the Atlanta Falcons by
Fulton County, both in an absolute total amount and a relative percentage. The current deal should be re-negotiated to
give taxpayers more protection and get more “skin in the game” from the Braves
Major League Baseball (MLB) team.
Public financing: As stated in the M.O.U. and updated on
Friday, May 23rd on the county website, Cobb county is going to borrow
$397M (M=million) towards the overall stadium cost of $672M. This number presumes estimated financing
costs of $24 million annually (a worst case estimate that could be lower
depending on the economy and other hard to predict factors) and the principal
amount of $300M. In terms of the
principal to be borrowed in the capital markets, Cobb is paying 45% of the stadium cost. Including
interest, Cobb is probably paying more (the Braves financing for their portion
of the stadium cost is unknown, making it hard to compare apples to apples.)
Down the road in
Fulton County, taxpayers are paying $200 million towards a stadium estimated to
cost $1.2 billion. That represents a 17%
share of the stadium cost. Assuming a
market rate of interest of 5% for AA rated debt, annual interest payments for
Fulton County would be roughly $10 million/year.
So in terms of both
absolute numbers and percentages, Cobb County is paying quite a bit more to
subsidize the team. You should be
asking why. Cobb County has a higher
bond rating than Fulton. The economics of both MLB and the NFL are hugely
profitable. Liberty Media recently
announced that they would be getting an extra $500 million from re-worked TV
deals, enough to almost pay for the entire stadium single handedly.
Debt service: In terms of the county budget, the bottom
line for the next 30 years will be the annual payments to service the
debt. Let’s look at those payments in
terms of their size relative to the county budget.
Note – all numbers on
Cobb County were taken from the county web site “budget at a glance” valid for
the 2013 fiscal year.
At $24M/year the debt
service for the stadium represents roughly 3% of the total county budget for
2013 ($768M.) Minus the $6.1M payment
from the MLB club, debt service is approximately 2% of the county budget. Looking at that last number relative to other
line items, the approximately $16M of annual debt service will be larger than
many line items, including the total amount spent on E911 services ($10M), and
almost as much as the total amount spent on public transit ($18M.)
Relative to total
property tax revenue ($268M) for the county, the debt service is 6% of revenue.
Let’s do a quick look
at Fulton County, which is larger than Cobb in terms of population and total
budgetary dollars ($1.2 Billion.)
Relative to total
revenue, the annual debt service of $10M represents less than 1% of the total
budget for Fulton County taxpayers.
Therefore it seems that the additional debt taken by Fulton County is
more manageable in terms of its overall impact on the county budget. If I were an investor I would stay away
from Cobb County’s “Braves bonds” in favor of Fulton County’s “Blank Bonds.” This is quite ironic given the higher bond
rating for Cobb County.
Finally, I have not
gotten into the intricacies of just how the stadium debt will be financed. Current state law dictates that revenue bonds
SHALL NOT be paid using general funds:
GA Constitution,
Article IX Section VI:
The obligation represented by revenue bonds shall be repayable only out of the revenue derived
from the project and shall not be deemed to be a
debt of the issuing political subdivision. No such issuing political
subdivision shall exercise the power of
taxation for the purpose of paying any part of the principal or interest of any such revenue bonds.
Given that the Braves
are only paying $6.1M out of the $24M in annual costs, I am not sure where the
other $18M will come from. The M.O.U.
envisions some combination of hotel/motel taxes and continuing a millage increase
passed back in 2008 to pay for parks bonds.
This sounds constitutionally dubious to me. At any rate the money will have to come from
somewhere, crowding out other budget priorities. Keep in mind that the county property tax
digest dropped by $5 billion during the last recession.
Conclusion: Given Cobb County’s relatively strong fiscal
position the excessive debt taken on by the Braves deal may initially not be a
huge problem. However, at some point in
the next 10 years there will be another recession and the debt servicing cost will
become more burdensome. The first thing
to drop off in a recession is discretionary spending on entertainment such as
attendance at pro sports. County
commissioners should re-negotiate this deal now before it is too late. The Braves aren’t going anywhere, they want
to be in Cobb County and we should welcome them but as equal partners not as a
subsidized poster child for corporate welfare.
Source: Email from Christopher
Peters, Marietta GAhttp://www.ajc.com/news/sports/baseball/liberty-ceo-reworked-tv-deals-mean-in-the-order-of/nfrfr/
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