A New Stadium Owned By Entrepreneurs and Taxed by the State

ANTHONY J. BARBERA

January 21, 1991|By ANTHONY J. BARBERA

The debate over whether to construct new baseball and football stadiums at Camden Yard has essentially come to an end, and for good reason. Virtually all the land has been purchased by the state; the baseball stadium is under construction; there is a new long-term lease with the Orioles, and Baltimore is in a good position to land an NFL franchise.

If Baltimore is awarded an NFL team, the Stadium Authority will probably have to return to the legislature and get more spending (and borrowing) power. Yet the political realities are such that the authority likely will have little difficulty getting what it needs.

TC One outstanding question, however, has not been settled. Indeed, to my knowledge it has not even been raised in a public forum. So I am raising it now as food for thought and debate. Should the stadiums and the property upon which they sit continue to be owned by the state of Maryland, or should the property be sold, under appropriate conditions, to private investors?

This question is not merely of academic interest. A strong case can be made that selling the stadiums and the surrounding property to private investors will improve, however marginally, the economic wellbeing of Baltimore, and save the taxpayers of Maryland considerable money without jeopardizing the long-term ties between the Orioles and the state.

Baltimore will be better off because the new owners will be taxpayers while the state is not. If the state were able to sell the entire package for, say $200 million, the sale would amount to an infusion of property-tax revenue to Baltimore of approximately $6 million. In contrast, the city stands to lose somewhere between $4 and $5 million per annum under present arrangements, from a combination of lost property taxes, lost rental at Memorial Stadium, and the $1 million annual contribution that Du Burns, Baltimore's previous mayor, so graciously offered the state to cover part of the operating deficit of the baseball stadium.

The state gains by selling the property because a sale will reduce state indebtedness and taxpayer liability in future years. Right now, the state has incurred a debt of approximately $200 million plus. Even if the state received only $100 million for the property, it would still gain from the sale since its debt obligations would be reduced by 50 percent. Thus, selling at a loss does not discredit the idea of going private.

And the sale to private investors should not in any way jeopardize the long-term lease that the authority has negotiated with the Orioles. At a minimum, the new owners would be legally obligated to honor the existing lease. Even if they were not so obligated, however, they would happily honor the lease anyway because, without the lease, the baseball stadium would be virtually worthless.

Indeed, the new owners and the Orioles' management might even consummate a much longer and mutually beneficial lease agreement since it would be in both their interests to do so. (It would also make sense for bidders to have discussions with the Orioles' ownership well before they place their bids. These discussions would probably be an important factor in determining the ultimate bidding prices.)

But why would investors be interested in Camden Yard? There are two major factors. First, a bidder will see that, for at least the next 15 years, there will be a guaranteed stream of revenue coming from Oriole baseball games. It is a fairly straightforward calculation to determine the market value of the baseball stadium that is consistent with this revenue stream and bidders would be expected to base their bids on such a calculation. We know that the stadium's value is less than the costs incurred in building it; but far greater than zero.

The second factor prompting an investor to make a serious offer is access to the vast spaces that would remain for development. The baseball and football stadiums will cover approximately 10 acres each. The state plans eventually to purchase roughly 85 acres. Thus, three-quarters of the land would be available for further development. Private investors would undoubtedly find the most valuable uses for the property, uses that would generate greater revenue for them, provide plenty of parking for sporting events and yield much more tax revenue to Baltimore and Maryland.

No one would seriously argue that Harborplace or The Gallery should be owned and operated by the state. Nor does anyone suggest that the state rather than HarborView Properties Development Co. should own and develop the $600 million HarborView Community on Key Highway. So too with the baseball and football stadiums, and the surrounding land.

It is clear that some level of subsidization by the state is necessary to get the stadiums built. The key service that our elected officials can now perform is to find a way to provide the subsidy at minimum public cost while furthering the public purpose.

We should explore the option of involving private investors as much as possible by putting the property up for sale. No one is compelled to make a deal if the terms are not attractive. Bidders may offer interesting and lucrative alternatives that no one has yet considered. Let's open up the process and see what happens.

It would be a way for the sports fans to get what they want without suckering the taxpayers into footing the entire bill.

Anthony J. Barbera, an economic consultant, lives in Catonsville.

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