In Cleveland, Questions Over Facility Upgrades, Taxes has partnered with LexisNexis to bring you this content.

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Crain's Cleveland Business

It's likely that Cuyahoga County voters will be asked May 8 to decide whether to extend the taxes on cigarettes, beer and liquor that have been used to pay the cost of building and maintaining the playgrounds of Cleveland's three major league sports teams over the last 24 years.

Sin tax opponents ask a fair question: Why should the county's smokers and drinkers bear the cost of the region's major sports facilities rather than the wealthy team owners?

But it is not the most relevant question in the debate over extending the tax for another 20 years to pay for capital improvement at Progressive Field and Quicken Loans Arena and to assist the city of Cleveland in paying for improvements at FirstEnergy Stadium.

The better question is: If not the sin tax, then what?

Without passage of the tax, which could raise as much as $13 million a year for the next 20 years, the city and the county could be forced to cover improvement costs from their general funds. Or, they simply could reject the teams' requests for the upgrades and risk legal efforts to break their leases and move the teams.

Cuyahoga County Council is expected to vote as soon as this Tuesday, Jan. 28, to send the issue to the voters. Neil deMause, author of the book, "Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit," and a frequent critic of public financing of sports facilities on his blog,, said he sees the responsibility for some public money here. However, he wonders if the tax as it exists isn't more than the Cleveland community should support.

"If I were a voter, I would feel a lot more comfortable with a third of that much money," he said.

But rejecting the tax would be a risk, Mr. deMause said, because teams may bolt if their needs aren't met. He referred specifically to a current situation in St. Louis, where the Rams football team is mulling its plans after local officials refused to approve $700 million in improvements to the team's home, the Edward Jones Dome. The team can break its lease after the 2014 season if certain improvements aren't made.

'For better or worse'

Briefly, at a public hearing on the sin tax's renewal last Tuesday, Jan. 21, mention was made of alternatives to the tax. Among them: spreading the tax to residents of surrounding counties, because people in those towns value the sports teams as much as residents of Cuyahoga County, or asking the teams to pay for the improvements themselves.

Joe Roman, president and CEO of the Greater Cleveland Partnership, the city's chamber of commerce group that will lead the push for the sin tax, responded to a question from County Councilman Dan Brady by saying the mechanism does not exist in state law to create a multicounty tax.

Mark Rosentraub, a professor of sports management at the University of Michigan, was a member of the Gateway Economic Development Corp., which oversaw development of the arena and ballpark, from 2004 to 2009, when he was a dean at Cleveland State University. He said last week in an interview that the history of the deal supports the obligation to continue the public spending on the sports facilities.

"For better or worse, the leases that were originally negotiated were extraordinarily advantageous for the teams," said Dr. Rosentraub, who has written several books on sports teams and their relationships with their home cities.

Dr. Rosentraub said those leases were renegotiated in 2005 after Dan Gilbert bought the Cleveland Cavaliers and the Dolan family bought the Cleveland Indians. Dr. Rosentraub, who was a part of those negotiations, said the new owners agreed to spend $1 million or $2 million a year in expenses that until then had been Gateway's responsibility.

In exchange, the teams gained naming rights to the exterior of the buildings.

Timothy Offtermatt, an investment banker with Stifel Financial Corp.'s Cleveland office who is chairman of the Gateway board, declined in an interview to speculate on what might happen if the capital investments on the teams' wish lists aren't made.

Mr. Offtermatt said specific expenditures and the timing of those expenditures will be negotiated between Gateway and the teams. He doesn't expect any substantive conversations to begin until after the tax renewal vote.

GCP's Mr. Roman said none of the Cleveland teams have threatened to leave if the public spending doesn't happen, but he noted that other cities - Houston, Montreal and Seattle among them - have lost pro sports teams in similar circumstances.

'Silly' requests?

Under terms of the leases of the Indians and Cavaliers, any capital investment of more than $500,000 is the responsibility of their landlord. That's technically the Gateway nonprofit.

Len Komoroski, CEO of the Cavaliers and Quicken Loans Arena, told Cuyahoga County Council during last Tuesday's public hearing that the building likely would need a capital investment of between $55 million and $65 million over the next decade.

The Indians' executive vice president, Dennis Lehman, said the baseball team foresees a similar amount for Progressive Field.

The Browns' situation is somewhat different because FirstEnergy Stadium is newer and is owned by the city of Cleveland, not Gateway. But future improvements there are expected to come in part out of the sin tax if it is renewed.

In addition to scoreboards, the Cavaliers and Indians are expected to ask Gateway over the next decade or longer to replace building roofs, components of heating and air conditioning systems and sound systems and to make major concrete repairs and replacements.

Opponents of the tax believe the operators of the sports teams should pay the cost of the buildings they occupy, not smokers and drinkers, many of them low-income people. They particularly object to the plan to use public money to bring new, high-definition scoreboards to the buildings, which is high on the teams' to-do lists.

"You are now taking a silly step and jeopardizing the economic standing of many people with this regressive tax," said Roldo Bartimole, a columnist for the Cleveland Leader and Cool Cleveland websites and a longtime opponent of subsidies to sports teams, at the County Council hearing.

"I hope there are enough members with the sense to realize what you are doing," Mr. Bartimole said.

Mr. Bartimole recalled failed promises made by Gateway proponents when the six tax first was presented to voters in 1990. He offered to council members a copy of an ad used to sell the 1990 ballot issue that said the Gateway complex would create 28,000 jobs and millions in new property taxes.

Job creation fell far short of that claim, which tax supporters do not dispute. Mr. Bartimole also noted that before the complex opened, the Legislature exempted Gateway from paying property taxes on the new buildings.

It then fell to Mr. Roman to defend a yes vote in May on the tax, which expires in 2015.

"We obviously have a lot of educating to do and we plan to do it," he said. "These are facilities you own; that means we own them as Cuyahoga County residents. We've made investments. Let's keep them competitive and let's do it in a way other cities are envious of."


January 30, 2014


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