TESTIMONY OF

DOUGLAS A. CRISCITELLO

DIRECTOR

NEW YORK CITY INDEPENDENT BUDGET OFFICE

ON

PUBLIC FINANCING OF PROFESSIONAL BASEBALL STADIUMS

BEFORE

THE NEW YORK CITY COUNCIL

COMMITTEE ON GOVERNMENTAL OPERATIONS


JUNE 11, 1998


IBO recently published a report on the justifications for publicly funding professional baseball stadiums. The report, entitled Double Play, The Economics and Financing of Stadiums for the Yankees and Mets examined the economic and fiscal implications of stadiums and discussed stadium financing options. We hoped an independent and impartial analysis of this topic would help the city to produce a fair agreement with the teams. Our analysis yielded the following findings:

Research on stadiums consistently finds that there is no basis for forecasting an economic development impact beyond that generated by the local expenditures of the team and its fans. In particular, none of the studies suggest any economic rational for assuming that building any new stadium would itself spur construction of office towers and hotels

While the economic impact on the city is likely to be very small, stadiums can have a major impact on a neighborhood. To the extent that public funds are used in stadium construction, the city should work to locate the stadium where retail jobs are needed. Many Bronx commercial establishments would probably be forced to close were the team to relocate from that area. IBO estimates that about 1000 New York City jobs result from the presence of the Yankees in the city. Many of these jobs are in the stadium or its immediate vicinity.

Two new stadiums would cause the total city output resulting from the presence of the stadiums to rise from $300 million to $411 million. Most of that output and most of the increase consists of team earnings, which we estimate would increase by about $50 million for the Yankees and $30 million for the Mets were new stadiums to be built. Total output resulting from the presence of the teams in the city amounts to less than one tenth of one percent of the economic activity in New York City.

IBO estimates that in 1996, the presence in the city of the Yankees added about $8 million to city tax revenues and fees and the presence of the Mets added about $5 million. New stadiums would be likely to increase these amounts by $3 million and $2 million, because of increased attendance and increased ticket prices. Most of the city tax revenues come from the sales taxes on fan purchases. Income taxes imposed on players earnings generated just half a million dollars from the two teams and all the visiting players because very few of the players are city residents and they are therefore taxed at the very low non-resident income tax rate.

The limited number of MLB teams usually gives franchises considerable bargaining power in their stadium negotiations. Given the tremendous media revenues available in the New York City media market, however, it is unlikely that either the Yankees or the Mets will leave the area altogether.

Because neither team is likely to leave the region, and because the economic and fiscal impacts of relocating outside the five boroughs would be relatively limited, New York City has an historic opportunity to ensure that its baseball teams are not subsidized at a level disproportionate with the benefits accruing to the city.

While most of the professional sports stadiums in use today were built with substantial amounts of public funds, the trend in recent years has been toward increased contributions from private sources, including team owners. Hopefully, New York City can follow the lead of cities like San Francisco and work to ensure that its teams have top quality facilities at little cost to the taxpayer.

While the limited economic benefits that would likely materialize may justify some expenditure of public funds, very substantial contributions from private sources¾ primarily the teams¾ would be required to make the new stadiums a fiscal winner for the New York City.

Heavy use of city funds for stadium construction would raise issues of equity, since city taxpayers would subsidize the stadium, but relatively wealthier fans from the suburbs would share in the benefit.

I would like to make one final point on a related matter. The Mayor recently proposed to fund new stadium construction through an off-budget Sports Facilities Corporation which would be capitalized with commercial rent tax revenues beginning in fiscal year 2000. Placing the Corporationís expenses and revenues off-budget would distort the cityís budget in several important ways.

First, the city tax burden would be made to look smaller than it actually would be. Total taxes shown in the budget would be hundreds of millions of dollars less than amounts actually collected from taxpayers.

Second, a skewed and incomplete picture of the allocation of resources by city government would result.

Finally, dedicating taxes for sports stadiums ties up a significant portion of the cityís general revenues. Such spending would compete with other city needs, desired tax cuts, and the need to eliminate out-year budget gaps. This constraint would become increasingly burdensome in the event of a downturn, when the city might be forced to make difficult budget cutting decisions.