A legislative session really confirms the Old Testament assertion that “there is nothing new under the sun.” Stadium funding, tax gimmickry and property developers’ shameless raids on the public purse resurface each session just like the Capistrano swallows return to California.
Stadium subsidies are distressing to economists but entirely predictable to political scientists. The process reminds us of the “curious and characteristic solution” Winston Churchill saw in the naval arms race a century ago. “The Admiralty demanded six ships, the economists offered four and we compromised on eight.”
Starting in the 1990s, the Twins and Vikings demanded replacement of the Metrodome. Economists, civic groups and many legislators argued against any new publicly financed stadium. We now seem to be compromising on three.
The economic arguments against stadium subsidies that mostly enrich team owners are as sound as ever. But the political process proves Mancur Olsen’s “logic of collective action” argument. When a few people stand to benefit greatly from a measure that will hurt many people slightly, the small, highly motivated group usually wins out.
The costs to society as a whole from publicly subsidized sports facilities exceed the benefits. These benefits accrue instead to team owners, hospitality businesses that will benefit from a new facility, property developers and hard-core fans. The cost will be borne by some millions of people who will pay higher taxes for decades.
Stadium deals also validate the arguments of Nobel Prize winner John Nash and other early game theorists whose work described how an organized entity — like a professional sports league — can bamboozle isolated and uncoordinated cities with the threat of moving beloved teams.
Stadium financing also validates the work of a more recent Nobel-winning game theorist, Thomas Schelling. He argued that perceived credibility of threats is key in negotiations. Sports experts might argue that the threat of “if you don’t build us a new stadium we will move to Paducah” is a hollow one. But it scares some of us Twins fans enough to mute any objections we have to being extorted.
Real estate taxes are a case of déjà vu all over again. House Republicans want immediate “relief” that involves sending every homeowner a check a couple of months before the fall election. Senate Democrats insist on long-term reform or nothing.
Both are reacting to an ephemeral improvement in state finances caused by a prosperous economy. Neither group wants to tackle the harder challenge of smoothing out state and local finances over the longer term.
Six months before an election, many Democrats are loath to admit that the economy is doing pretty well, thank you. Some Republicans would sooner die than acknowledge that we still have a structural deficit built into state finances.
Yes, the apparent deficit has abated with increased tax revenues from businesses and households. But no one has yet abolished the business cycle. We are going to have another recession sooner or later, and it is going to put governments back into large deficits.
As a nation, we face continued high oil prices. We have an unsustainable federal budget deficit feeding a matching unsustainable deficit in the current account portion of our balance of payments. The Federal Reserve correctly is slowing growth of the money supply. There is considerable uncertainty in the Middle East. All these factors point toward eventual economic slowing.
The U.S. economy has been growing for five years. It might continue to grow, but a recession inevitably will set in. When it does, Minnesota state and local governments will be back in budgetary crisis. That is easy to ignore in an election year, however.
Developers’ pleas for subsidies would be laughable if there was no chance the Legislature would respond. The developers of the Mall of America have asked for an additional $200 million in state-authorized tax exemptions to finance further expansion.
This request demonstrates how the adjectives “brazen” and “shameless” apparently have lost any negative connotation in U.S. society. The rationale given is that without further subsidies from taxpayers, the owners will not be able to expand their facility as much as they would like.
Large public subsidies would no doubt help the machine shop in Chandler, the grain elevator in Westbrook and the hardware store in Pelican Rapids to expand faster than otherwise. But the owners of such small businesses simply don’t have the political clout or the cheek to beg for large handouts.
One hopes that both major parties have the courage to tell these developers just what to do with their subsidy request. History, however, warns us to expect the worst.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.