Scott Walker expected to include "jock tax" proposal for arena funding in state budget

The Bucks have yet to announce the specifics of a new arena's location, but it looks like they're about to get a huge boost in their quest to secure public financing.

Citing "sources close to the situation," Rich Kirchen of the Milwaukee Business Journal reported on Friday that Wisconsin Gov. Scott Walker is expected to include a provision for using "jock taxes" to partially fund a new arena in his next state budget proposal.

Walker is likely to announce the arena-funding plan before his budget address [on February 3] because the arena issue would otherwise be a distraction to his main budget messages, an influential Republican legislator told the Business Journal Friday. Walker has been hearing from the MMAC and other Milwaukee-area business executives who support the arena project.

"Ninety-five percent of what (Walker) puts in the budget stays," the influential Republican legislator told the Business Journal Friday. "It would take a lot of momentum to get something out of the budget."

Another source familiar with the arena push said that while the "jock tax" will get Walker's support, the specifics of how the income tax would be applied to arena funding has not been finalized.

Walker's camp first floated the idea of diverting NBA player taxes towards arena funding last June, so in that respect it's not surprising to hear the recently-reelected Walker still prefers the jock tax concept. Still, it's a big deal for Walker to be leading on this issue, particularly with the team yet to offer much of any detail on its development plans and Milwaukee Mayor Tom Barrett seemingly more focused on his controversial streetcar project. Kirchen's story alludes to Walker's announcement likely coinciding with a major announcement by the team -- presumably an arena site, some design concepts, a cost estimate, and some suggestion of how to pay for it all -- which would be the obvious precursor to Walker supporting anything.

Needless to say there's plenty we don't know about how an arena project will look and the hurdles it will face over the coming months, but you'd be hard-pressed to find a more critical ally going forward than Walker. While Bucks owners Marc Lasry, Wes Edens and Jamie Dinan have long been known for their Democratic ties, they've made fast friends with the right-leaning elements of the Milwaukee business community, working closely with the Metropolitan Milwaukee Association of Commerce, adding a number of minority investors with close ties to the state's Republican power structure, and reportedly beefing up their lobbying presence in Madison as well. That won't guarantee an easy path to state funding of a new arena development; you can expect opposition from both sides anytime you're talking about spending public money on sports arenas. But the continued support of Walker and the business community would represent a massive first step to getting a deal done, with the jock tax concept emerging as the cleanest solution involving public money. Pitching the project as a much larger development involving residential and retail spaces in addition to an arena will certainly help as well.

It's not to say a jock tax would have to stand on its own -- it could be paired with a local tax incremental financing district as well -- but from a state funding perspective it would seem to be the only feasible solution. The state's Legislative Fiscal Bureau announced in November that NBA-related income taxes could support $150 in state bonding, a figure calculated using 2012 tax receipts of $10.7 million. But a $24 billion national TV deal means NBA player salaries are set to skyrocket starting in 2016, suggesting the mere increase in tax receipts could support a fairly significant amount of arena funding. Here's what we wrote in November about a hypothetical "Jock Tax Incremental Financing":

First, set a budget baseline for the amount of tax dollars the Bucks bring in -- for example, the $10.7 million figure calculated for 2012 -- and then allow any amount above that to be funneled towards debt service for an arena project. Conceptually it's similar to the notion of a traditional tax incremental financing using a property tax baseline and paying debt off the amounts added to it, though this would obviously be coming from a completely different revenue pie.

The obvious appeal to opponents of public funding is that it doesn't blow a hole in the budget, allowing the bean counters to continue penciling in the same state tax revenue they had previously received from NBA-related taxes. But given a huge projected spike in NBA-related revenues on the horizon, that still leaves plenty of potential upside for arena proponents to leverage for an arena development over the long term. Consider that while the NBA's salary cap for the 11/12 and 12/13 seasons was south of $60 million, the cap could swell to upwards of $90 million starting in 2016. League salaries of course don't track exactly with the cap (which most teams exceed), but you get the idea.

Tack on the Bucks' recent staff hiring spree and ballooning Bucks corporate profits, and there's a good chance the state's $10.7 million in NBA-related tax collections could similarly rise 50% or more by the time an arena is being constructed -- and continue to grow in excess of inflation going forward. For instance, if that excess revenue amounted to $6 million in JTIF revenues, then at 4% interest over 30 years you could hypothetically support $100 million in debt, which depending on the ultimate amount of private investment could get you most of the way towards funding a $450 to $500 million project. If you assumed a 20-year term, then the number would be around $80 million.

Bottom line: This is really encouraging news for arena advocates, though it's just the latest bit of news in what's been a busy week on that front. Some more mandatory reading:

JS: Seattle mayor not expecting Bucks relocation after NBA meeting
Don Walker writes that Adam Silver and league officials told Seattle Mayor Ed Murray this week that they do not see the Bucks relocating. So that's good, eh?

In an interview with the Seattle Times, Murray said he believed the Bucks might be a relocation candidate if the Milwaukee franchise can't get a new arena deal. The Bucks are facing an NBA-imposed deadline of the fall of 2017 to have an arena in place.

But after meeting with Silver, Murray told the newspaper that the commissioner shot down any chance of moving Milwaukee.

"They were very clear that they see them staying," Murray told the newspaper.

"Their official line, and I think they're being straightforward with me, is a city grabbing a team or a new (expansion) franchise at this point is not, in their mind, something they see happening,'' Murray told the newspaper Thursday. Murray met with Silver and other league officials earlier this week.

Save Our Bucks: Arena location options narrow
Another really good read from the Save Our Bucks gang on the arena situation, this time taking stock of the fizzling Journal Square negotiations and why a return to the vacant Park East corridor might be the team's best bet going forward.

We are frustrated that it has come to this, but unfortunately Milwaukee is again showing its problematic side as it relates to development. We've got too many buildings people deem "historic", too many areas deemed "environmentally important" and the legitimate issue of the heart of downtown being built on a swamp. The fact the City just spent $76 million dollars to renovate City Hall, only to find out the building may have sunk one to two inches due to deteriorating pilings, is disheartening for everyone.

So the Park East remains the path of least resistance. We don't know the results of soil studies there, but assume the ground conditions are sufficient to handle significant development and not require major soil support nor environmental cleanup (which is why the lakefront and certain 3rd ward locations were apparently ruled out early in the process). The property is also available. We'd assume the County would sell the land cheaply or provide it for free as their contribution to the project. It is conceivable that you could have a groundbreaking there as early as next fall, assuming the funding debates in Madison would be brief.