Milwaukee Bucks Arena FAQ: The who, what, where, when and how (much) of building a new home for the Bucks

Jeff Hanisch-USA TODAY Sports

Odds are you didn't become a Milwaukee Bucks fan out of a love of local politics, city planning and tax policy debates.

And yet here we are.

Looming behind the promise of Jabari and Giannis, the intrigue of Jason Kidd, and the hope of a long-awaited rebuild is the inescapable reality of Milwaukee's need for a new arena deemed worthy of NBA basketball. And while good things on the court will only help the Bucks' push for a new home, the arena debate ultimately doesn't have much to do with basketball. Instead, it's a labyrinthine topic that pushes most of us--this author included--out of our comfort zones.

So to that end we put together this document to (hopefully) serve as a one-stop reference guide to everything we know and don't know about the arena issue so far. It's a living document that we'll do our best to keep updated as new information becomes available, and feedback is always encouraged--whether it's a question we haven't addressed, information we haven't seen, or an explanation that we just missed. Don't hesitate to hit us up in the comments, via email, or on Twitter with comments and suggestions.

And in case you don't already, we strongly encourage anyone interested in this topic to follow Rich Kirchen of the Milwaukee Business Journal, Don Walker of the Journal-Sentinel, and the blog over at Save Our Bucks. For further background reading on the key parties involved in the process, also be sure to check out Preston Schmitt's excellent glossary of the arena debate at Bucksketball.

So without further ado, let's start at the top:

1) Why do the Bucks need a new arena in the first place?

NBA Commissioner Adam Silver has made it clear that a new arena is a necessity to keep Milwaukee competitive as an NBA market. Translation: the league expects a new arena to be at least in the works by the time the Bucks' current Bradley Center lease expires in 2017...or else.

Save Our Bucks summarized the fundamental issue rather perfectly on April 27:

The NBA operates the same way as the NFL and MLB. They've made a deal with the small market owners: we will revenue share with you, but you've got to pull your own weight as best you can. And if you aren't doing your part with a modern stadium or arena that maximizes your local revenue, we aren't going to be happy sending you in perpetuity a 1/30th share of all our league revenue generated world-wide.

As long as there are numerous other markets that want an NBA team, it isn't all that unfair for the league to make this request. By the way, it isn't just Seattle that wants an NBA team. Las Vegas, Louisville and Kansas City are all awaiting their opportunity should Milwaukee fumble this. The Kansas City and Louisville arenas are already built. The new Las Vegas arena breaks ground on May 1st.

And before any asks again: renovating the Bradley Center is not a viable option. Co-owner Marc Lasry noted that renovation alone could cost upwards of $200 million, and it's unlikely to create a solution that matches a state-of-the-art new facility in terms of quality, size and creature comforts. Among other issues: the BC's seating structure is "upside down," with only 7,500 of its 17,500 seat capacity in the lower bowl. Most modern arenas reverse that configuration--with closer to 10,000 seats in the lower bowl and 7,500 upper--greatly improving the fan experience and allowing for the higher ticket prices that come with it. Moreover, even without substantial renovations, Bradley Center Chairman Marc Marotta has estimated that the BC would require $100 million in capital costs to remain operable over the next decade. In short, expensive band-aids aren't an option, so let's not waste our time discussing it.

So how could the NBA actually enforce its de facto demand for a new arena? Under Herb Kohl's ownership that was never exactly clear, but the team's sale to Lasry and Edens includes the aforementioned buy-back mechanism that gives the league a clear path to moving the team should an arena solution not be in place (or substantially in progress) by 2017. The league does not want to invoke this measure, just as it does not want to move the Bucks or any other existing franchise. But the clause does give the league a nuclear option if a solution doesn't materialize, allowing the league to purchase the team for a relative bargain price of $575 million and do with it what they choose.

2) How much will an arena cost?

While there is currently no detailed plan for what an arena might look like, it's generally been suggested that a new arena would likely cost anywhere between $350 and $500 million.

During a radio interview on May 29, Bucks co-owner Wes Edens suggested a number between $350 million and $450 million, while on July 4 Metropolitan Milwaukee Association of Commerce Chairman Ted Kellner insisted that the $400 to $500 million figure was more reasonable based on studies conducted by the MMAC.

Indeed, recent NBA arena benchmarks are on the high end of this range:

Lasry and Edens were expected to meet with three to four arena developers in late June to begin the process of designing the project, with the hope of having "specifics of the arena project and location within the next few months." The MMAC previously engaged project developer Hammes Co. to study new build and renovation options, and company founder Jon Hammes has been rumored as a potential investor in the team both before and after the sale.

3) Who is going to pay for it?

Ah, the $500 million question. So far the theoretical funding breaks down like this:

  • Kohl: $100 million. At the press conference announcing the sale of the team to Marc Lasry and Wes Edens on April 16, outgoing owner Herb Kohl pledged a $100 million gift to help fund the arena. It's certainly possible Kohl could come to the table with more at a later date, but the $100 million gift on its own is virtually unprecedented for an outgoing owner. Another slow clap for the Senator.
  • Lasry/Edens: $100 million (+). At the same press conference, Lasry and Edens pledged "at least" $100 million of their own money to the project. It's not clear how much more they would be willing to offer if push came to shove, but we'll likely get a better sense of it over the next year as project details become clearer and substantive negotiations begin.
  • Additional investors? Additional funding could be provided by other private sources either as a charitable donation (a la Kohl) or as equity in the project. It depends on how the arena entity is managed, but that is a more of a detail compared to the overall issue of raising enough funds to build it in the first place. Edens and Lasry confirmed during radio interviews in late May that they factored in potential arena contributions while considering potential local investors. On June 23, Lasry suggested at least five new investors would be announced by July 15. The group of local names rumored to possibly invest in the team is long and includes the aforementioned Kellner and Hammes, Brewers owner Mark Attanasio, former Bucks Junior Bridgeman and Kareem Abdul-Jabbar, Minnesota Wild owner Craig Leipold, and Packers star Aaron Rodgers.
  • Sponsorships: $50 million? Additional private funding will be sought, including naming rights for the building, concourses, etc. Note that $18 million in funding was raised for the Bradley Center in 2012, which included renaming the arena the BMO Harris Bradley Center as well as renaming each of the main concourse entrances after title sponsors. Kohl indicated that he did not have any expectation or desire to have the arena named after him due to the sponsorship opportunities it might preclude.

    It stands to reason that a brand new building with a whole host of luxury suites and possible ancillary entertainment options could fetch significantly more over 10 or 20 years; some of us have used $50 million as an estimate as to how much that might provide, but that's really just a guess. Moreover, it's not clear how much of this amount might be available up-front for funding of construction (see sections below).
  • Public funding? Ah yes, the elephant in the room. It's been assumed that the remainder would be financed through some sort of public funding mechanism, though it's not clear how much money we'd be talking about or how the money might be raised.  However, based on the numbers above, we could be talking about as much as $200 million or more. Much more on this below.

To actually pay for the up-front cost described above, we would assume that any public funding would come from either tax-exempt or taxable municipal bonds. Below is a table showing the annual debt service in millions associated with different interest rates (tax-exempt debt is of course lower) and total funding amounts assuming either 20- or 30-year bonds are used. This was just some quick-and-dirty math courtesy of Excel's PMT function, but it gives you a general sense of how much money would need to be spent annually to pay off the public portion of the arena bill. For reference, AA and AAA-rated municipal bond yields can yield 4% or lower, though ultimately the rating of any potential debt will depend on a bunch of factors including the riskiness of the revenue stream supporting it and what kind of guarantees the issuing entity provides.

Screenshot_2014-07-10_22.46.17_medium

The private portion of the project cost could separately be debt-financed in whole or in part, though note that NBA teams are specifically limited to no more than $175 million in debt at any one time. More on this later.

4) Where would a new arena most likely be located?

The location most often discussed to date has been the vacant Park East Corridor located just blocks from the Bradley Center, though a number of other areas also expect to be considered. Rich Kirchen from the Milwaukee Business Journal offered an excellent summary of some of the potential options on June 11:

Milwaukee development commissioner Rocky Marcoux suggested in September 2013 demolishing the U.S. Cellular Arena and Milwaukee Theatre to create a site. Marcoux says he now will defer to the new Bucks owners Marc Lasry and Wes Edens.

Frank Gimbel, chairman of the Wisconsin Center District, owner of those two buildings, opposes Marcoux's concept and supports building a new arena immediately north of the BMO Harris Bradley Center just south of the Park East.

Other commercial real estate experts like sites closer to West Wisconsin Avenue or on the Summerfest/Italian Community Center parking lots east of the 3rd Ward.

The Park East Corridor was created in 1999 by the demolition of an elevated freeway spur, but development in the area has only shown signs of life over the past year. The obvious appeal of Park East is that the land is currently vacant and wouldn't require demolition of existing property.

On May 6, Wisconsin Center District Frank Gimbel proposed a joint project that would expand the WCD, build a new arena near the Bradley Center and connect the two with a pedestrian walkway similar to Chicago's Millennium Park. In early April, Gimbel suggested that any tax funding for a new arena be combined with a $200 million expansion of the the WCD, which operates the Wisconsin Center convention hall, U.S. Cellular Arena and Milwaukee Theater. Below you can see a map showing each of the most frequently-mentioned sites in relation to one another (click to enlarge):

Milwaukeearenamap_medium

Other sites will presumably be discussed once site selection begins in earnest, and Kirchen provided some interesting alternative options in a June 20 post at the MBJ.

5) How long will it take to build a new arena?

Edens and Lasry expressed hope on May 30 that groundbreaking on a new arena could happen between June and September of 2015. And with good reason: the duo's purchase agreement gave the NBA a call option to buy the team for $575 million should a new arena not be in place (or substantially in the works) by 2017. Needless to say this is not an outcome that anyone wants.

Recent arena experiences would suggest a little over two years from groundbreaking to official opening, so a summer 2015 start date would mean a chance at moving in by the fall of 2017 when the Bradley Center lease will have expired.

  • Barclays Center (Brooklyn): Broke ground March 2010 and opened September 2012.
  • Amway Center (Orlando): Broke ground July 2008 and opened October 2010.
  • Time Warner Cable Arena (Charlotte): Broke ground July 2003 and opened October 2005.

Ironically, rumors of a potential NBA lockout in 2017 could actually buy the Bucks some time to finish the arena ahead of the 17/18 season.

6) Who is working to figure out a solution?

While Lasry and Edens are now poised to take a leading role, the driving force behind the subject over the past year has mostly been the Metropolitan Milwaukee Association of Commerce, which in 2013 convened a 48-person Cultural and Entertainment Needs Capital Task Force:

The Cultural and Entertainment Capital Needs Task Force has two goals:

  1. Establish a high-level vision of how our community's signature cultural and entertainment assets will help shape the region's future as a vibrant, world-class place to live, learn, work and play.
  2. Identify one or more funding strategies that will enable our region to ensure the long-term survival of key cultural and entertainment facilities that we are currently in danger of losing.
The task force is a diverse group of 48 civic, political, business and not-for-profit leaders facilitated by the Metropolitan Milwaukee Association of Commerce. The group was established in fall 2013 in response to two developments:
  • the National Basketball Association's announcement that the BMO Harris Bradley Center no longer meets the league's requirements for an NBA team, putting the future of both the Bucks and the center in immediate jeopardy.
  • a 2013 Public Policy Forum report that found other major cultural and entertainment facilities are also at risk.

The Bucks were previously represented on the task force by Executive VP of Business Administration (and close Kohl associate) Ron Walter, but he was replaced by Sarah Watterson after Edens and Lasry took over in late May. Watterson is an associate in investor relations at Edens' Fortress investments and handled some PR functions for the new owners during the sale approval process. Walter departed the team following the ownership changeover.

The MMAC's key players are President Timothy Sheehy and Chairman Ted Kellner, each of whom has played a major role in pushing the arena dialogue going over the past year. Kellner was also mentioned as a possible investor in the team before the sale, and he may well end up as one of the local investors that Lasry and Edens bring on board this summer. Bradley Center Chairman and Foley & Lardner partner Marc Marotta has similarly been a strong advocate in favor of a new arena solution (Note: the fine folks who run the BC are realists, too).

The Wisconsin Center District's Franklyn Gimbel also wants a new arena solution, though he has an ulterior motive: nabbing his own $200 million in public funding for the WCD convention center expansion. The obvious question is whether bundling the two projects would actually help the arena project win public support; many seem to be unconvinced on that topic, but it's certainly worth watching.

The MMAC task force has published two separate reports from the non-partisan Public Policy Forum on its website:

  • "The Show Must Go On: Exploring dedicated funding possibilities for Milwaukee's cultural and entertainment assets" (March 2014: Exec SummaryFull Report)
    This report compares and contrasts funding mechanisms used to support cultural assets in Pittsburgh, Cleveland, Denver, Oklahoma City and St. Louis and then analyzes the impact of four hypothetical public funding models (variants of sales taxes, cigarette taxes and property taxes) in the context of the greater Milwaukee area:
    Screenshot_2014-06-03_23.11.37_medium
  • "Pulling Back the Curtain: Assessing the needs of major arts, cultural, recreational, and entertainment assets in Milwaukee County" (December 2013: Exec SummaryFull Report)
    This initial report assesses the operating and capital needs of major cultural assets, providing a good overview of how public and private facilities are making ends meet and their longer term outlook.

7) What kind of public support exists for a new arena?

Thus far state and regional voters have not shown strong support for state funding of new arena development, though it's not time to hit the panic button just yet. From the UW-Milwaukee Center for Urban Initiatives and Research's June 2014 report:

Screenshot_2014-06-15_12.48.01_medium

Not surprisingly, support for funding is higher in the Milwaukee metro area, while voters are more likely to support infrastructure associated with a new arena (45%) than the arena itself (34%). However, there is at least hope that the numbers are trending in the right direction, especially considering that we don't even know what a new arena plan might look like. In the fall of 2013, a similar poll from UWM found just 27% of Milwaukee metro voters favored a sales tax in support of renovation or replacement of the BC, though 62% of voters believed the Bucks had a positive economic impact on the region.

While those numbers aren't exactly encouraging, the real test will come once arena proponents have had a chance to put forth a comprehensive plan (and PR campaign) for a new arena project. Asking voters to support an ill-defined project without a location, price tag or well-defined economic rationale isn't exactly a recipe for winning over casual voters. Thus it's critical that the Bucks, the business community and public interests converge on a plan that will appeal to the broadest base possible. Voters will never write a blank check for just a Bucks arena, but a well-defined broader development project informed by stakeholder feedback and supported by significant private financing and creative public funding mechanisms (read: not a sales tax) may well be a different story.

8) Where do state and local politicians stand on the arena topic?

Most every Wisconsin politician seems at least vaguely in favor of a new arena--they just don't want their constituents to have to pay for it. That highlights the impasse between officials inside Milwaukee County and everyone outside of it. Again I'd point to Preston Schmitt's piece for an overview of the key players.

Not surprisingly, the policymakers with the most to gain and lose can be found where the arena would be built: Milwaukee County. Mayor Tom Barrett and County Executive Chris Abele both spoke at the press conference announcing the sale of the team to Lasry and Edens (see below) and were in full "rally-the-troops" mode.

However, Milwaukee officials have been careful to emphasize that a regional funding approach is necessary--and only fair--in order to make a new arena development happen. While officials in some surrounding counties have argued that a new Milwaukee arena will only draw further money into Milwaukee (and not their own counties), Barrett and others have noted that suburban counties rely on the city for jobs, entertainment and big-city attractions. Milwaukee officials also note the disparity in income between Milwaukee and its more affluent suburban neighbors. If the suburbs are wealthier and will enjoy the benefits of a new arena as well, shouldn't they also bear some of the costs?

Unfortunately that logic hasn't gone over well in bordering counties, with boards in OzaukeeRacine and Waukesha counties preemptively passing resolutions against a regional tax over the last year. Bitterness over the drawn out Miller Park regional sales tax is commonly cited as the biggest headwind facing arena proponents in these counties, though a recent Journal-Sentinel op-ed highlighted numerous other issues--both real and perceived--facing Milwaukee County officials in their pursuit of suburban help:

Milwaukee often asks for out-of-city money and then refuses any out-of-city control over the effort. If the region is paying, the region should be represented proportional to the amount it contributes (i.e. stock owners). The Milwaukee Metropolitan Sewerage District is not predominantly funded with city of Milwaukee money, yet the city has majority control of the commission and decisions. That cannot continue.

Milwaukee is important to the suburbs, but it is becoming less so every day. As more and more businesses leave the city for the suburbs (in and out of Milwaukee County), Milwaukee becomes less and less relevant to the survival and growth of the surrounding areas. The 'burbs are far from "bedroom communities" that feed employees into the city. Those days are long past, and many suburban areas are nearing the time when they will be economically self-sufficient (i.e. New Berlin, Brookfield, Waukesha, etc.).

There's been far less discussion at the state level, which makes sense given the relatively early stage of proceedings at the regional level. As with the Miller Park tax, the Wisconsin Legislature would have to approve a new sales tax or "super TIF," with the latter often discussed as the most likely compromise.

Traditionally, a tax-incremental financing district borrows money to pay for public improvements and other expenses linked to a commercial development such as an arena or hotel. Generally, property taxes from the new development pay for the financing.

In the case of the super TIF, the district also would capture state income taxes and state sales taxes generated within the district to repay that debt.

Because the proposal would take state income and sales taxes, the idea would need approval by the state Legislature and Gov. Scott Walker. At the same time, the idea of tapping state taxes could make it more palatable to opponents of a regional tax to fund a new arena.

At the state level, Gov. Scott Walker has expressed an openness to whatever plans are ultimately put forth by the city and region, but don't look for him to risk any of his own political capital in the process. Up for re-election in the fall of 2014, Walker has made it clear that any regional tax would first require referendum approval by local voters, effectively telling Milwaukee and its neighbors to sort it out for themselves.

However, Walker appeared to take a major step forward recently when he acknowledged that his staff was looking into the feasibility of tapping into NBA-specific tax revenues ("jock taxes") to provide public funding. From Kirchen's report on June 27:

Walker told me he likes the concept of calculating a concrete figure for state and local tax revenue from player salaries - Bucks players and visiting team players pay income tax for games here - as well as sales tax on concessions, merchandise and tickets.

"What's the actual amount of revenue we get particularly from income tax that are prorated for the visiting teams as well as the Bucks?" Walker said. "...Beginning with that at least as a premise, it justifies saying if we don't do anything, ‘This is the dollar amount that we'd lose.' So let's try and look at are there any solutions?"

9) So how would a "jock tax" work?

Note that the concept Walker has discussed wouldn't be a new tax, but simply a redistribution of taxes already being collected. Preston Schmitt posted an excellent analysis of jock taxes at Bucksketball, though it's important to note that a) most of the criticisms of the tax itself relate to the fairness and practicality of targeting a tiny population of wealthy, out-of-state athletes and b) erasing jock taxes would presumably just increase players' tax liability in their own state. But just as tourist taxes (on hotels, rental cars, etc) are often the first thing that politicians look to when trying to raise revenues--conveniently, tourists don't vote--visiting NBA players are a similarly convenient target who would garner even less sympathy in a debate over public funding of a new basketball arena. Politically the logic isn't too difficult to follow, even if the state would no doubt prefer to keep spending NBA-related tax revenue elsewhere.

NBA players are generally responsible for paying income tax in each state in which they play, which means that Wisconsin collects income tax on Bucks' player salaries (netting out any taxes paid to other states for road games) as well as from all visiting players for games played at the Bradley Center. The importance of that revenue stream came up while doing some brainstorming with the Save Our Bucks gang back in April, when I guessed that player income taxes could be generating at least $4 million in annual tax revenues for the state.

As it turns out, the number could be substantially higher. Let's start with total NBA salaries, which last year amounted to around $2.2 billion, or about $70 million per NBA team. Wisconsin's income tax rate varies between 4% and 7.65%, though we could estimate that the majority of Bucks players would be taxed at the max $14,765 + 7.65% while most visiting players would be taxed at the lower $1,431 + 6.27% rate (since most won't earn the $240,000 needed to hit Wisconsin's top tax bracket from a game or two in Wisconsin). Sidenote: I'm not a tax accountant and thus welcome the input of anyone who is.

Using those simple assumptions and an average NBA payroll of $70 million would bring you about $2.9 million in Bucks player taxes and $2.8 million in visitor taxes (assuming 15 visiting players per visiting team per year) for a total of $5.7 million. The Bucks' figure assumes 50% of game checks, though it could be higher if "duty days" are used rather than just games. And that figure doesn't factor in the significant growth expected in NBA player salaries over the next decade or other potential Bucks-related tax revenues from team employees, arena staff wages, and arena/merchandise sales. Indeed, MMAC President Tim Sheehy told the Milwaukee Business Journal in June that they've estimated that NBA player income taxes are already worth $8-10 million annually to Wisconsin. I'm not sure how that figure was calculated, but it's a big number (and I hope it's right).

Given the hand-wringing over how much real impact arenas and teams have on local economies, the jock tax concept is thus remarkably clean in terms of its transparency and traceability.

Whatever the exact figure is, the good news is that tapping the "jock tax" revenues could account for a major chunk of the hypothetical $10-20 million in annual debt service we ballparked above--without carrying the same political baggage as a broader sales tax. Without a new arena, there will be no NBA basketball in Milwaukee, and without NBA basketball, Wisconsin gets no tax income from NBA players. Given the hand-wringing over how much real impact arenas and teams have on local economies, the jock tax concept is thus remarkably clean in terms of its transparency and traceability. While arena opponents could still argue that state consumer spending is ultimately the root of player salaries and thus player income tax revenues, that argument is relatively flimsy compared to criticisms of broader taxes, and it ignores the fact that the NBA pumps huge amounts of out-of-state money into the Bucks through revenue sharing and luxury tax distributions.

Whatever the funding approach, we'd hope that stakeholders don't let the Bucks' mandate for a new arena narrow our thinking to merely trying to build a basketball arena. While everyone has talked about the huge potential of a mixed-use development leveraging an arena as the centerpiece of a much broader entertainment district, the cost of funding it all could scare off voters and policy-makers from realizing its full potential. But hopefully that won't be the case. Hopefully the region and its stakeholders can use the arena as a reason to think bigger than basketball.

10) What about a sales tax? Is that off the table?

Well, nothing's off the table, but it certainly doesn't look like the path of least resistance. As noted above, polls have thus far not shown much support of an extension of the Miller Park tax or a new sales tax, and there's plenty of work that would likely need to happen before it would be approved. Milwaukee officials would first have to get neighboring counties behind a joint funding approach--not easy considering Ozaukee, Racine and Waukesha have already passed resolutions opposing a regional tax. Or Milwaukee could change its mind and be willing to go it alone. In either scenario it appears that Gov. Walker and state legislators would insist on passage of a local referendum first, so it appears unlikely that a sales tax would ever happen without voters first consenting to it..

11) So other than a jock tax, is a TIF the most likely approach for raising public money?

Quite possibly. The concept was raised by business leaders back in April and studied by the Milwaukee Common Council in early May, and it's one with a long history in Milwaukee.

Since 1975, the City of Milwaukee leveraged tax incremental funding on around 70 projects, including a $73 million package approved in April for Northwestern Mutual's new downtown tower project. The obvious appeal of a TIF is that it is geographically targeted--ie it largely sidesteps the regional concerns of another Miller Park tax--and nominally enables projects to fund themselves. Still, TIFs can also go upside down on a municipality if a project doesn't deliver on its promised development, and critics will note that they have the same "handout" potential as any other type of public funding.

Another potential benefit of TIFs: in their most basic form they can be approved by the city without a public vote. From the City of Milwaukee's website:

In the City of Milwaukee, a TIF project plan must be approved by several bodies. First, the project receives a hearing before the Joint Review Board, which is made up of five (5) representatives - one each from the City of Milwaukee, Milwaukee County, Milwaukee Public Schools (MPS), and the Milwaukee Technical School System - and a citizen representative. After an initial hearing before the Joint Review Board, the Redevelopment Authority of the City of Milwaukee (RACM) holds a public hearing on the TIF project and votes on the project. After RACM action, the Milwaukee Common Council's Zoning & Neighborhood Development (ZND) Committee holds a hearing on the TIF project. Once adopted by the ZND Committee, the project is either approved or rejected by the full Common Council. Upon adoption by the Common Council, the Joint Review Board makes a final recommendation on the project and it is forwarded to the Mayor for his ultimate approval.

Avoiding a public referendum doesn't necessarily guarantee passage of course--that maze of approvals presumably would bring its own challenges--but it's nice to at least have that option given the potential controversy over public funding. Still, a public vote could be unavoidable if a "super TIF" is pursued that also includes sales tax revenue collected in the district. That's the version that's been discussed most commonly for the arena, though presumably a less comprehensive option could also be leveraged in concert with other funding.

Overall, we might imagine a solution beginning to take shape: private sources (Lasry and Edens, sponsors, new investors, etc) come up with $50-100 million in additional cash beyond the $200 million already on the table, and the remainder ($100-200 million) is covered by a combination of existing jock tax revenues and a new tax incremental financing district that could also recapture incremental sales and use taxes around the new arena (ie the "super TIF"). A sales tax is avoided, funding sources are localized as much as possible and the governor even gets to say he helped come up with the creative idea that kick-started it all. Something we can all live with?

12) What have other cities in similar situations done?

The Public Policy Forum report noted above offers an excellent summary of the approaches taken in Pittsburgh, Cleveland, Denver, Oklahoma City and St. Louis, though only one of those examples involved the funding of an NBA arena.

Sacramento expects to use future parking revenues to finance $212.5 million of its contribution to the Kings' arena, with the remaining part of their contribution coming from the sale of a downtown hotel ($10 million) and donated land ($32 million). However, the Kings are also paying much higher lease payments than the Magic in order to offset remaining gaps in the city's budget:

Using parking revenue to pay off the arena debt leaves a hole to fill in the city's general fund budget, and city officials said they have developed a plan to address that gap. The Kings have agreed to make annual lease payments to the city that will start at $6.5 million and climb to at least $18 million by the time the bonds are paid off in 36 years.

A previous plan to address the loss of parking revenue would have backfilled the money through a mix of arena profits, ticket surcharge revenue and other sources. City officials said the revised plan is safer and simpler.

The city has also decided to back away from creating a nonprofit to borrow the money and will instead issue the bonds directly.

The Magic did much better with their arena deal, conveniently struck right before the economy tanked in 2007-08:

In 2007, with the economy still booming, the coalition convinced city and county council members to approve a new 1% tax on hotel beds, half of which would go to the downtown projects. The Magic initially offered $50 million but to get votes added sweeteners like $25 million to build rec centers in poor neighborhoods, $10 million toward the concert hall and $10 million for cost overruns and bond insurance. The team is also paying $2.75 million annually to the city for 30 years.

With timing that lived up to the team's name (and infuriated many locals) the Magic broke ground in 2008 just as the bottom fell out of the local economy. Orlando is the seventh-worst city for housing foreclosures in America. Late last year Fitch downgraded the arena's $310 million in bonds to junk and warned of a 2012 default by the city. The tourism tax is providing 15% less than projected. It's unlikely that a new concert hall or football stadium is coming.

The tax-exempt bonds are now back to AA+ rated, though mostly because of the city's pledge to cover debt service shortfalls with general revenue.

The stream of tourism-tax revenue that will go toward the new bonds tallied $11.7 million last fiscal year. Yet debt service on the securities will grow to $16 million in 2018 from $11.9 million this year, according to Fitch.

Revenue from tourism taxes, which surrounding Orange County collects before remitting any surplus to Orlando, must increase to prevent the debt from straining the city budget, Levitz said.

Local officials pointed to a history of growth in tourism as visitors flocked to theme parks. The county's annual revenue from the levy has dropped only in four years since it was first collected in 1978.

13) What kind of limits exist on tax-exempt debt financing?

Aaron Kuriloff and Darrell Preston of Bloomberg wrote an excellent piece on the distortionary tax effects of the new Cowboys Stadium, which is a must-read for anyone interested in the gory details of arena financing. Among the most notable insights relates to tax-exempt municipal debt, which has been a key tool used to lower borrowing costs of publicly-funded projects.

The financing plan relied on the city’s ability to issue bonds paying interest that is exempt from federal income taxes. Almost 20 years earlier, U.S. lawmakers from both parties set out to block muni bonds for municipally financed stadiums as part of an attack on public borrowing for private businesses, according to former Senator Bob Packwood, the Oregon Republican who was chairman of the Senate Finance Committee.

"We wanted to limit it," Packwood said in an interview. "It was one of the most egregious uses of the part of the tax code that allowed for industrial development bonds. It was clearly not what the tax code had in mind when tax-exempt bonds were authorized."

The Tax Reform Act of 1986 removed sports facilities from the types of projects that could qualify for the subsidy. It required such bonds to become taxable if more than 10 percent of the debt for a facility built mainly for nongovernment use was to be repaid with revenue from a private business. The lawmakers who thought this would call a halt to tax-exempt stadium financing were wrong, according to Zimmerman, the economist.

The wording of the law encourages cities and states to offer more-favorable terms to pro teams wanting financial assistance while preventing the borrowers from using stadium revenue to pay off the bonds, he wrote. The measure functions as "an open-ended matching grant" for stadiums, he said. Cities and states borrowed more money backed by tax revenue, not less, to make sure that no more than 10 percent of a stadium’s debt payments came from a private business, Zimmerman said.

"They have to take it out of the pockets of their taxpayers," Zimmerman said. "It forces a bigger subsidy, if you’re going to use tax-exempt debt.

The key takeaway here is the 10% limit, which based on the reading above limits the extent to which an arena can effectively pay for itself through ticket surcharges and other arena-specific revenue streams. It's not to say those revenue streams can't be used--they just can't directly collateralize a large portion of tax-exempt debt. For reference, the Bradley Center raised their ticket fees in February to $1.50 for tickets $12 and under and $2 for tickets over $2, up from $1.25 and $1.60, respectively.  You can bet those figures would rise even further if/when a new arena is built, though only a limited amount of tax-exempt debt could be financed through ticket-related revenue sources.

Debt for stadium financing doesn't have to be tax-exempt of course, though the increased costs have to be offset somehow. For instance, the city of Sacramento's bond issuance will not tax be exempt, and as a result the interest rate assumed in their financing plan is notably higher than the 4% mentioned in the Cowboys deal.

Critics of the city's financing plan have already begun to raise concerns about the repayment plan for the bonds. Fehr estimated the city would pay back the debt at a 6.7 percent interest rate - roughly 1 percentage point higher than what city officials thought they would pay when a tentative financing plan was developed last year.

The increase in the interest rate is a result of rising rates nationally and because the city won't be able to use tax-exempt borrowing due to the increased contribution to the project by the Kings. Fehr said that extra contribution from the Kings will more than offset the higher interest rate.

14) Can the Bucks use private debt to finance a portion of the arena?

Theoretically yes, though the NBA does place limits on the amount of debt teams can take on. NBA teams currently have access to a league-wide credit facility providing up to $125 million in debt per franchise, typically at low interest rates and often requiring no principal payments. Teams are allowed an additional $50 million in private debt financing for a total limit of $175 million.

Like many owners, Herb Kohl had regularly tapped the debt facility over the last decade (see our story from 2011) and $125 million of the $550 million sale price of the team was used to pay off debts from the league facility. As a result, Lasry and Edens would appear to have the full $125 million facility available to them, though it's not clear if there would be any restrictions involved in using the facility for arena-related funding. They also have not specified the source of their $100 million pledge, which could certainly be funded with some form of private financing package. Keep in mind both Lasry and Edens have made fortunes through careful use of debt financing, so we can trust that they'll be on top of this.

15) How much could naming rights deals worth?

A somewhat dated list of sports stadium naming deals can be found here, with the Hawks' Philips Arena (strangely) ranked first among NBA naming rights deals at around $9 million annually. Still, it's probably more constructive to look at recent NBA arena deals in similarly sized markets to Milwaukee. On that front, Portland reached a 10-year, $40 million agreement with Moda Health to rename the Rose Garden in 2013, the exact same deal that the Pelicans struck with Smoothie King in February 2014. Meanwhile, the Kings were reportedly seeking a 20-year deal paying a whopping $6-8 million annually for their proposed arena late last year, though there's been no indication that they've found a buyer.

It'a also important to note that the dollar figures on a naming deal don't always translate into up-front cash for building the arena--at least not directly. For instance, the Magic receive all the revenue from their naming rights deal as part of their lease agreement. From Josh Robbins at the Orlando Sentinel:

Over 30 years, including an option for the final five years, the team will pay the city $1 million in rent annually, plus a $1.75 million annual fee that will increase by 3 percent each year. In exchange for that guaranteed sum, the Magic received the ability to make decisions about naming rights and keep the resulting revenue from any naming-rights deal and from signage.

"The City of Orlando made a long-term decision to secure a guaranteed amount from the Orlando Magic for the naming rights and advertising revenues," said Heather Allebaugh, a spokeswoman for the city. "There are a number of factors that could impact the ability of the Magic to secure a naming partner and advertising sponsors, including the current economy and the Magic's on-court performance. Under the agreement, regardless of these factors, the City of Orlando will ensure consistent revenues from this source."

This might seem like a convenient kickback for the team, but you really have to consider it in the context of the overall package. Because a naming rights deal might not be efficiently collateralized as debt--recall our discussion of tax-exempt debt above--ownership of the team could decide to take on the risk (and upside) of negotiating naming rights in exchange for paying for a larger portion of the arena, paying higher rent, or paying the kind of annual fee that the Magic negotiated in Orlando. And adding in another layer of complexity: Magic owner Rich DeVos also happens to own Amway, which had a right of first refusal on the new arena's naming rights after sponsoring the old Amway Arena that it replaced.

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