Isn't it ironic that at the same time Baltimore Ravens players complain to their union of being worked too hard, taxpayers who financed their stadium don't have enough work?
Official unemployment in the team's hometown stands at about 10 percent. Unofficially, it's probably double.
The anonymous complaints would be just one more example of juvenile behavior from wealthy players if they were the ones who paid for their stadium. But they are an insult to taxpayers when year after year the Maryland Stadium Authority, charged with building and operating the stadiums for the Ravens and for the Orioles and financing convention and entertainment venues, loses millions under the guise of economic development.
Where is the justice, much less the sanity, in this arrangement? The state has been under-funding pension and health care benefits for state employees since 2002, and the city faces catastrophic cuts to services or higher taxes if it can't restructure health and pension payments for its employees. The state may also have to cough up an extra $389 million for Medicaid that it thought was a sure thing from the federal government. Yet state and local taxpayers still subsidize the millionaire owners and players of professional sports?
A May audit from the Department of Legislative Services found that the MSA did not pursue more than $812,000 in back rent owed to the agency by the Orioles. The audit also found that the MSA wrote off $158,000 in debt without proper approval and did not try to collect $124,000 of debt owed for months and sometimes years.
Over the years, taxpayers have bailed out various MSA tenants at Camden Station to the tune of millions as well as funded studies "proving" its economic benefit even as the city lost thousands of jobs in the past decade. Its 2009 annual report, the most recent, showed an operating loss of $10.5 million. Total state and local subsidies for the year were $21 million. And the Orioles pay rent based on how much revenue the team generates each year. Try finding a mortgage where payments fluctuate based on personal income. The MSA has since resolved the rent issue, but the bigger issue is why the MSA should exist at all given the agency's poor stewardship of scarce resources.
An overwhelming majority of economists, save those hired by the MSA and similar organizations around the country, think stadiums are a bad investment that suck resources away from projects that do pave the way to growth, like roads.
In a 2008 review of economic literature on stadiums, University of Maryland, Baltimore County sports economist Dennis Coates and Brad Humphreys of the University of Alberta cited a poll of American Economic Association members from 2005 showing 86 percent of those surveyed thought governments should eliminate subsidies to professional sports franchises. It was one of 20 issues in the survey but the only one achieving such consensus.
And as Dennis Zimmerman, a public finance specialist at the Congressional Research Service, testified before Congress in 2007, the tax-exempt bonds financing stadiums also mean less money for the federal treasury and disproportionately benefit the teams, select businesses and fans who gain from a stadium's existence.
Then there are the hidden costs of state financing by taxpayers. The MSA entered into complex financial arrangements called swaps meant to hedge against interest rate changes to help finance a football stadium for the Ravens. It received a premium of about $19 million in cash up front as part of the deals. Public debt analysts say the deal likely boosted the fixed interest paid by the MSA by a percent or more compared to a deal that had not been structured to provide cash up front, raising the cost of the $220 million stadium. The counterparty on the largest deal was AIG, the insurance giant being bailed out by federal taxpayers to the tune of $182 billion and whose bankruptcy could have caused serious financial pain to the agency — and state taxpayers.
David Raith, chief financial officer of the MSA, says the agency "is constantly monitoring all the companies involved with each swap deal. Back in the fall of 2008, MSA elected to change the swap counterparty to the football and Convention Center deals because of a rating downgrade by the rating agencies."
He also said, "MSA will not enter into any more swap deals."
Good. Swaps in and of themselves are not bad, but their complexity means few in or out of government understand them. And they are one of the reasons many municipalities around the country are unable to pay their bills.
The bigger question, however, should be why taxpayers are on the hook for funding enterprises that do not boost business growth and jobs in the state, reduce federal tax revenue, and pad the lifestyles of the uber-wealthy in a city that only survives by handouts. What do you say Gov. Martin O'Malley and Robert Ehrlich?
Marta H. Mossburg is a senior fellow at the Maryland Public Policy Institute and a fellow at the Franklin Center for Government and Public Integrity. Her column appears regularly in The Baltimore Sun. Her e-mail is email@example.com.