The Football Stadium is Going To Cost Taxpayers a Lot
Posted November 9, 2018
The football stadium proposed for Shannon Park is said to need a subsidy of $10-$11 million per year. It would be much higher.
The process going forward calls for Maritime Football Limited Partnership to provide their business case to the municipality, after which the Chief Administrative Officer, Jacques Dubé, will provide an evaluation and recommendation to Halifax Regional Council.
The current estimate of construction costs is $170-$190 million, most of which would be borrowed. The subsidy is what is required to service that debt.
The money to pay for that would come in part from a tax on car rentals and an added tax on hotel rooms, yielding an estimated $4-$5 million per year. As has been said in this space and elsewhere, the availability of that tax for municipal services is entirely independent of whether a stadium is built.
The second proposed source, for $5-$6 million per year, would be property taxes on commercial buildings built in a designated area near the stadium. Of course, those buildings will need the same municipal services as others in the municipality, so if the taxes are being diverted to service the debt on the stadium other taxpayers will have to pay for those services.
More to the point, if there is demand for commercial buildings, they will get built somewhere whether or not there is a stadium. If there is no demand, new buildings beside the stadium will create excess supply that drives down assessment values, and therefore tax revenue, everywhere. That is what happened with the office component that was supposed to pay for the Convention Centre.
All of the above assumes that everything will proceed as planned. It usually doesn’t. Here are the risks:
- Construction takes longer, and costs are larger than expected. Toronto’s Rogers Centre, costing $570 million, was originally estimated at $150 million. Montreal’s billion dollar Olympic Stadium was originally estimated at $134 million. The Mosaic CFL Stadium in Regina cost $278 million.
- The revenue from the hotel and car taxes proves to be less than expected. Revenue from the property taxes in the designated area are slow to build to the expected level, and never reaches what was expected.
- Interest rates rise. They are currently anticipated to be 3.5%. A 1% increase between now and the date mortgage financing closes would add more than $1 million to the annual financing cost.
- The football team folds. This has happened in much larger cities. Montreal was without a team from 1987 to 1996. Ottawa was without a team from 1997 to 2001 and again from 2006 to 2013.
- Revenue from sources other than football sources disappoints. Dalhousie and St. Mary’s very rarely have events larger than their own facilities can handle, and if they do, the 6,000-seat pop-up stadium at the Wanderers Grounds is much closer to their campuses.
Experience in other CFL stadiums shows that outdoor concerts will be rare.
Dubé insists that the proposed arrangement will not leave the municipality at risk for construction costs or financing. But he is not willing at this stage to say who will be assuming the risk if the various tax sources are not enough to fund the subsidy.
We should take no comfort from the assertion that someone else will own the stadium. Observers of the privately owned Yarmouth Ferry will have noticed that taxpayers are picking up all the unexpected bills.
Lenders would be reluctant to lend to such an uncertain enterprise. It is likely that the promoters of this project have neither the courage nor the financial stamina to provide adequate guarantees. In the absence of other backing, any loans will be at junk bond rates, not 3.5%.
The promoters will look to governments for support on the debt. The municipality has already ruled itself out, and the federal government does not participate in sports stadiums. That leaves the McNeil Liberals, who have thus far largely avoided unacceptable investment risks.
They and the municipality are also expected to shoulder the bill for associated infrastructure—water, sewers, roads, and transit (including a proposed high speed ferry). The CAO cannot make an informed recommendation to council unless the province has made its position clear on support for infrastructure and debt guarantees.
All of this for ten or fewer football games a year and very little else.
To this point Dubé has sounded more like a cheerleader than a dispassionate judge. Let’s hope that his next report is more balanced.
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