No new taxes, no hole in the state budget, and no loss of Wisconsin's professional basketball team -- or the revenue they provide.
Those were the big talking points for Wisconsin Gov. Scott Walker on Tuesday morning, as Walker outlined a plan to use NBA player tax revenues to finance $220 million in bonding for a new multi-purpose arena in downtown Milwaukee. In a short prepared presentation at the Metropolitan Milwaukee Association of Commerce, Walker noted that NBA players currently pay $6.52 million annually in state income taxes, and that the projected growth in tax collections over and above $6.52 million could finance the full $220 million in revenue bonds included in his new state budget. Central to that projected growth is the NBA's new nine-year, $24 billion TV deal starting in 2016, an agreement that will roughly triple the current $900 million in television money split among franchises. Moreover, Walker also announced that if the team were ever sold during the tenor of the debt -- whether the franchise left Milwaukee or not -- the first draw on sale proceeds would go towards fully paying off the remaining debt obligation at that time.
Details of "Bucks Will Pay Their Way" plan: No new taxes. Preserve existing tax $. Use new growth for state role: pic.twitter.com/Sl8JMBfu24— Governor Walker (@GovWalker) January 27, 2015
From 2017 on, state will lose $9.3 mil/yr if NBA moves Bucks out of WI. Here is data from WI Department of Revenue: pic.twitter.com/BbtG1sHSzt— Governor Walker (@GovWalker) January 27, 2015
Plan doesn't touch revenue currently being collected from NBA players in WI & doesn't raise any taxes. It's the fiscally conservative way.— Governor Walker (@GovWalker) January 27, 2015
Combined with the $250 million already pledged by current Bucks ownership and former owner Herb Kohl, Walker's proposed $220 million financing would put proposed project funding already in the vicinity of the $450 to $500 million estimated for a new arena. Not that anything is guaranteed: While Walker's proposal is included in the new state budget he's formally submitting this coming week, it would still require approval of the state legislature and thus will undoubtedly face challenges over the coming months.
Still, Walker's support, the packaging of the proposal and the sheer magnitude of the dollars being discussed should make this a banner day for Bucks fans. While the proposal is dependent on the league's continued growth, much of the short-term risk is mitigated by the league's new long-term TV deal, and ultimately this was always the cleanest way to use public funds without new taxes or a diversion of existing tax revenues. We wrote back in November how a "jock tax incremental funding" approach seemed the most politically palatable approach to public support of a new arena development, and that's essentially what Walker is now putting forward.
Back in November we framed the discussion using the $10.7 million for all 2012 NBA-related tax revenues estimated by the Legislative Fiscal Bureau, but Walker's numbers this morning suggest that the arena diversion would be a narrower definition limited to only player salaries ($6.5 million). Still, the state's projections include enough growth to support a significant debt number -- assuming of course that NBA player incomes and tax revenue growth continues at a steep rate. From November:
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 well in excess of inflation going forward.
Scott Walker says, "We're going to help the Milwaukee Bucks pay their own way" to new arena. NBA players currently paying over $6.5m.— Frank Madden (@brewhoop) January 27, 2015
Walker says state will put in $220 million using revenue bonds without touching existing $6.5m NBA player tax revenues.— Frank Madden (@brewhoop) January 27, 2015
Walker says "this is the ultimate, fiscally conservative approach" to arena solution.— Frank Madden (@brewhoop) January 27, 2015
Walker says that if Bucks are sold, 1st draw on sale revenues will go to paying off entirety of bond obligation...even if they stay in MKE— Frank Madden (@brewhoop) January 27, 2015
The arena, Milwaukee revitalization and keeping the Bucks in Wisconsin is "gravy"— Jon Hartzell (@hartzellNBA) January 27, 2015