When I moved to Las Vegas, I knew full well that there was a 0% income tax. 0% Corporate tax here too. I also knew that the state used a combination of gas, sales, and hotel/casino taxes to fund its operations.
Every state in the union figures out a way to get its money.
For example, the headline income tax rate in Texas is 0% too. Sales taxes and gas taxes are low. But, property taxes there are pretty high.
You have to figure out your all-in tax costs when you start to calculate how much money you will save from moving out of a high tax state to a low tax state.
I see a lot of misunderstanding of taxes in places like Chicago and Las Vegas. Hopefully, this blog post can help correct that misunderstanding. I am going to use an example that is happening right now in Las Vegas. In my old hometown of Chicago, the Chicago Bears are moving to Arlington Heights. There will be a debate about how to finance the new stadium there. In other cities, the same drama is played out as teams look to leverage their popularity to get a new stadium. I assume someday, the Vegas Golden Knights will build their own stadium instead of renting T-Mobile Arena. If every other team gets government bennies, why not them?
The Oakland A’s want a new stadium. They have pestered the Oakland politicians for years and are at the end of their rope. They recently put an offer on a piece of land near the Las Vegas Strip to build a brand new ballpark and become the Las Vegas A’s.
The Oakland/Los Angeles Raiders shopped like a lady of the evening to any town willing to pay for them. They successfully lobbied Nevada politicians, especially current governor Steve Sisolak, to increase taxes so they could move to Nevada and build a new stadium. They built what Raider fans fondly call “The Death Star”. The name might be more appropriate to the bill Nevada residents are receiving as the result of building it. Certainly, the Raiders aren’t intimidating on the field.
It’s a pretty cool stadium and I hear on the inside it is pretty great. I haven’t been in it yet. One of the reasons is the Raiders aren’t worth paying to see but the other is the stupid mandatory vaccination policy they have. The Raiders can’t play football but their management is pretty dumb as well.
But, the economic analysis behind building it with public money was bastardized analysis.
Now the Oakland A’s want to eat at the same table the Raiders did.
Here is the thing, as University of Chicago economist Allen Sanderson and other economists have shown with objective research, publicly financed stadiums never pay for themselves.
The academic literature on this point is nearly unanimous. Brad Humphreys, who has done a number of such studies as an economics professor at West Virginia University, told me bluntly that a new stadium brings “no economic benefit.” All it does is move spending to a football game that was otherwise being spent somewhere else.
But why? You will hear that if a city gets a “Super Bowl” or “Final Four” it injects $XX million dollars into the local economy. Turns out, those estimates are almost always wrong. Sort of like Covid modeling.
You hear similar arguments for attracting things like the Olympics. Olympic cities always lose money on the stuff they build. Always.
Municipalities don’t want to tax residents directly to pay for the albatross. No, no, no. Can you imagine if your property tax bill went up by .0x% to pay for a pro sports team that the city has no ownership stake in?
Here is how Nevada and Las Vegas gifted the stadium to the Raiders:
raising the county’s sales tax rate (one-tenth of one percent)
hotel tax increases (.88%)
The Raiders kicked in $500MM. The franchise is worth over a few billion now that they own their own stadium-the public doesn’t participate in that increase in equity but the Davis family does.
The increases financed $750 million in bonds for the stadium to be paid off in 33 years or 2049.
It’s the largest public contribution ever toward an NFL stadium, although the public’s share of the total costs - 39 percent - is on par with stadiums in other similarly-sized cities.
Remember, stadiums are NOT public goods like water pipes and roads.
What happens when the stadium needs to be updated? Who’s going to pay for that? Already there are big issues with parking. Who’s going to pay to fix that?
These things always have political constituencies that benefit for the short or long term. The Laborers Union got 25,000 construction jobs. Now that it is built, those jobs are gone. The unions that staff the stadium got jobs. The Raiders play 10 home games a year. There are other events, but not 356 days a year.
The job assumptions swayed many Democrats. “They said it would take 25,000 people to build it, when it is usually more like 3,000,” Roger Noll, a Stanford University sports economist said not 25k jobs, but more like 3000 would be “created” to build it. The highly biased study set up by the biased commission panel “studying” the stadium claimed it would add 40,000 permanent jobs. Noll said, “No sane person would believe a number like that. Reminds me of political candidates “listening tours”. Ha.
Noll turned out to be correct.
All the big corporate interests in Las Vegas, especially the casinos, wanted the stadium, which was intended to lure the Raiders. Why weren’t they willing to pony up the cash for it? Because the powers in both political parties caved and gave them something for free.
By the way, these public stadium financing schemes always hurt poor people the most. There are fewer public resources available to them. There is less money for things like policing and education which will make them safer and increase their standard of living.
But, what about the tax money?
Already, the city and state have had to dip into funds that they wouldn’t have to pay the interest on the $750MM in bonds. Objectively, it had to be done because Covid shut down the travel/tourism industry. But, when you issue bonds for projects that aren’t public goods and economic shocks happen, you still owe the money.
Also, what is a tax with bonds really? It is a tax on the future income of all citizens. That money just doesn’t get created out of thin air. It comes from somewhere. Public stadium financing is really where the concept of “Their ain’t no such thing as a free lunch” (TANSTAAFL) gets driven home. What are the opportunity costs to diverting revenue from potential public projects to giving a gift to one private citizen?
All that tax revenue could go to build a library, roads, bridges, or other infrastructure. It could go to building a health center for indigent people. There are hundreds of uses for it in the public good space.
But, in order to get money for those things, taxes will have to go up again.
Here is another thing people don’t think about. How many tourists balk at the new price scheme? All those tax increases aren’t eaten by the tourism industry. They are passed along.
The tax increases sort of ignore the elasticity of supply and demand. Tourism is a competitive market. How many tourists balk at eating one more meal out because of the increase? How many choose to eat at a more pedestrian restaurant rather than a higher-end one because of the tax increase? How many choose a different destination, or shorten their stay because of it?
Since the sales tax was increased, it’s 8.25% one of the highest in the US, how many local residents have curbed spending by a little?
That’s super hard to quantify but because taxes are incentives that drive behavior it is happening.
If Nevada residents are paying for a tax increase, shouldn’t they share in the benefit of that tax increase? Only the Raiders are benefitting. The public didn’t get equity although the late Sheldon Alderson kicked in $650MM. He didn’t do it for free, and he shouldn’t have. The unions got a short-term benefit that bought votes for one election. But, Nevada residents get to say they have an NFL team. Big deal.
Besides, if this was such a positive net present value project, shouldn’t private financing be rushing to get into the deal? It’s not as if our economy is starved for cash. It certainly wasn’t in 2016 when this deal was on the table. Why couldn’t the Raiders strike a deal with casino owners and do this amongst themselves?
Look at some alternatives. The Chicago Cubs own Wrigley Field and get the benefit of all the cash flows from it. The team invested over $500MM of private money, no tax breaks, into the stadium and surrounding area. The neighborhood, city, county, and state benefits. On the South Side of Chicago, the White Sox have a publicly financed stadium. The surrounding neighborhood is mostly dismal and the stadium generates very little cash flow compared to Wrigley. It’s a stark contrast.
The A’s should move to Vegas because they will generate a lot more cash flow here than they will in Oakland. But, they ought to finance it themselves in a private deal. I am sure the casino owners will be happy to help. Will the A’s be okay with some concessions? Coase theorem says we don’t care.
The construction vs. maintenance reminds me of NU Ryan Field where about 4 full time workers struggle to get the stadium ready for a game, while literally hundreds of contractors are pulled into do deferred maintenance after the season. And thousands will be pulled into do a rebuild.
Maybe if they had 5 full timers, they could do without some of the major maintenance, but some pinhead would be saying...'Why did we have a 25% increase in headcount this year? We are going to need to cut staff to make ends meet'