Why Government Shouldn’t Pick Winners and Losers: City Council Considering Plan to Subsidize Private Arena Developer

Imagine watching an NBA game. With the Los Angeles Lakers leading the Boston Celtics 95 to 82 in the fourth quarter, the referees stop the game and award the Celtics 15 of the Lakers’ points and make the score 97 to 80 with the Celtics now leading.

That would be outrageous and unjust, wouldn’t it?

The Lakers earned their points, and it would be wrong for the supposed-to-be-neutral refs to award those points to their competitors.

Absurd as this scenario might seem, it’s analogous to what the City of Las Vegas would be doing if it moves forward on a proposal to publicly subsidize a downtown sports arena. It would be picking winners and losers in the economy by taking tax dollars from certain private businesses to subsidize their competitor.

The Las Vegas City Council recently agreed to give the Baltimore-based Cordish Companies a four-month extension on arranging financing for a future arena on city-owned land. Cordish has proposed building a $390 million arena with $151 million from the company, $187 million in taxpayer-backed bonds and $52 million from a source to-be-determined.

Aside from picking winners and losers in the economy, this agreement would put taxpayers on the hook for over $187 million in bonds plus interest, while directing profits to a single private company. This would affect taxpayers for decades to come.

The pitfalls that come with the government assisting businesses to compete with already existing companies are not hypothetical. They have been all too real in the City of Reno.

In 2009, Reno opened a new ballpark for the Reno Aces. The beautiful ballpark came with a $55 million short-term loan and a commitment from the Reno Redevelopment Agency (RDA) of a subsidy of at least $1 million a year to refinance and then pay off the new loan. When the economy and property values crashed, however, the RDA ran out of money.

Who’s making up the difference? Taxpayers.

Last year after team owners threatened to leave, the City of Reno agreed to pay $1 million in general fund monies annually for 30 years to help pay off the stadium.

Meanwhile, Washoe County officials are trying to recoup nearly $1.7 million in back property taxes from the project’s developer. Given the nuances of a public-private partnership such as this, the legal remedies to recoup public losses are limited. The developer, however, is confident he can resolve the tax debt — at which point he intends to approach the county for another public subsidy, this time for $15 million.

The problems of publicly funded arenas stretch well beyond Nevada. Communities that venture into the stadium-subsidizing business have a history of coming out on the losing end. Time and time again, government officials and bureaucrats invest the taxpayer’s money into a sports venture, only to have the grandiose promises of neighborhood revitalization and economic stimulation fall flat.

The $187 million in bonds proposed for the Cordish project are projected to be repaid through stadium revenue. But the past performance of publicly subsidized stadiums like the Aces’ ballpark shows that actual revenue almost always trails behind overly optimistic projections. Then the public is left to foot the bill.

What makes these potential subsidies worse is that the Las Vegas area already boasts several arenas, and MGM Resorts International and AEG even plan to break ground on a new and privately financed sports arena on the Strip later this year.

How could a city government justify taking money from one company and giving it to its competitor?

It can’t. Not only does history show that government subsidies to businesses are economically foolish, they’re also as fundamentally unjust as a ref awarding the Celtics points scored by the Lakers.

If we wouldn’t allow it in a basketball game, we shouldn’t stand for it in real life either.

Chantal Lovell is deputy communications director at the Nevada Policy Research Institute.