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Friday, August 20, 2004

More on $200 figure...

Colleague Darren Grant suggests that my $200 figure for determining whether a household should vote YES or NO is a bit misleading. He suggests that with the 1/2 cent sales tax, the $200 would require approximately $40,000 in total expenditure in Arlington.

Point taken - most households in Arlington spend less that $40k per year in consumption.

My point, however, was that the $200 is a worst-case scenario. The bonds have to be paid off, or more debt floated to service current debt. The sports authority cannot default or the reputation of Arlington takes a hit, and therefore the city will do all in its power to preclude defaulting on the loans. Thus, it is possible that the equivalent of $200 or so will be required to finance the debt - whether it is gathered through sales taxes, property taxes, or alternative means (regardless of its "legality" at the moment).

Moreover, the non-pecuniary benefits of a stadium are probably very low. Previous research estimated that Pittsburgh Penguins fans had a willingness-to-pay of $5 per YEAR to keep the team in the city. I would be surprised if the per-capita value of the Cowboys was much larger than $5-$10, but I have no hard evidence of that.

The upshot of the proposed stadium financing plan is that the city might ultimately be on the hook for much more than $325 million. This is because the Cowboys can ask Arlington to sell bonds, give the money to the Cowboys to pay for the team's portion of the costs, and the team will then pay back these bonds with the sales tax on the tickets and the parking tax. In other words, the team gets a subsidized loan (at least two or three points lower than they would have to pay on the open market) and pays back the loan with "tax dollars." I wish I could get a similar deal for my home mortgage.

I have a feeling that the proposal will pass with substantial support, although closely reading the proposed plan indicates that the city will take it on the chin. Will Arlington go out of business? No. But it is likely that property taxes will increase, the reduction in disposalable income caused by increased sales taxes will have an impact on some consumers and firms, and in the end Jerry Jones and the Cowboys will make a lot of money off the new stadium.

I would buy stock in the Cowboys, if it were available.

Oh well...another example of diffused costs and concentrated benefits coupled with economic illiteracy and myopic behavior.

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