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Soccer Denying Impoverished City Shows Stadium Risk: Muni Credit

June 21, 2012

Soccer Denying Impoverished City Shows Stadium Risk

In Chester, 15 miles south of Philadelphia, public funds covered about 71 percent of the cost of the stadium for the Union, which is in ninth place in the league’s 10-team Eastern Conference. Photographer: Chris Gardner/Getty Images

Chester, Pennsylvania, the state’s oldest city and where 35 percent of residents live in poverty, has found that hosting an 18,500-seat Major League Soccer stadium doesn’t guarantee economic success.

Four years ago, former social-sciences professor John Linder questioned why promoters wanted to “bring soccer to a basketball town.” As mayor since January, he’s been trying to make the $122 million PPL Park, financed mostly with county and state funds, generate enough money to meet the city’s costs.

Linder, 64, who taught at Delaware County Community College in Media, Pennsylvania, may levy parking and amusement fees on mostly out-of-town fans. He also wants Major League Soccer’s Philadelphia Union to make a $500,000 payment in lieu of taxes that it missed in 2010. The team says it’s negotiating the fee.

“What they’re paying us doesn’t cover our expenses,” Linder said in a telephone interview. “I have a mandate to my citizens that we persevere to get the best bang for our buck.”

From Glendale, Arizona, to Harrison, New Jersey, officials have learned that promises of economic gains tied to sports venues can fizzle, burdening taxpayers. At least $10 billion in municipal debt backs venues for professional sports, data compiled by Bloomberg show.

Ninth Place

In Chester, 15 miles (24 kilometers) south of Philadelphia, public funds covered about 71 percent of the cost of the stadium for the Union, which is in ninth place in the league’s 10-team Eastern Conference. Related residential projects and a convention center haven’t been built, leaving the city of 34,000 in a program for distressed communities that it entered in 1995. Chester’s poverty rate is almost triple the state average.

The team has created 650 jobs at the stadium and has donated to community organizations, Nick Sakiewicz, the Union’s chief executive officer and operating partner, said yesterday.

“It’s hundreds of thousands of dollars that we’re kicking back into the city,” Sakiewicz said in a telephone interview. He said further development, stalled by the recession, is now hung up because of the mayor’s fee proposals.

“No one wants to build in an uncertain tax climate,” Sakiewicz said. He said the team would look for alternatives to hiring city police if that’s a burden on the community.

Penalty Rate

Investors have been penalized. Surrounding Delaware County sold $28.6 million in general-obligation debt in 2009 to help cover the stadium’s cost. Bonds maturing in July 2039 traded yesterday at an average yield of almost 3.5 percent, or about 0.4 percentage point above AAA debt, Bloomberg Valuation data show. When the securities were issued in January 2009, they yielded about the same as top-grade bonds. The bonds have a AA rating from Standard & Poor’s, third-highest.

The county in 2010 raised its hotel-occupancy tax to 3 percent from 2 percent to help pay off the debt.

“Stadiums tend not to be good neighbors at developing the areas around them,” said Victor Matheson, who teaches sports economics at the College of the Holy Cross in Worcester, Massachusetts. People are often “grasping at straws” when they turn to such venues in hopes of spurring economic gains in depressed communities, he said.

Communities from Minneapolis to Santa Clara, in California’s Silicon Valley, are betting that investing public dollars in facilities for professional sports teams will unlock economic fields of dreams. Yet in places such as Glendale, jobs are being cut to help cover costs.

Coyotes Deal

Glendale, home to the National Hockey League’s Phoenix Coyotes, fired 49 workers in May and on June 12 raised the city sales tax by 0.7 percentage point. Combined with county and state charges, the total levy is 10.2 percent, among the highest rates in the U.S. The move followed passage of a 20-year, $324 million lease accord for a potential Coyotes buyer, including yearly payments to the team of as much as $20 million to run the arena.

Chester, whose high school boys’ basketball team has won eight state championships, has been trying to rebound from the departure of shipbuilding and manufacturing industries.

The stadium was proposed as an anchor in a $500 million development plan. It was projected to generate $69 million a year in economic activity, producing $19 million in annual tax revenue, according to a 2008 application for a state grant.

Pennsylvania provided $45.5 million for the project, said Steven Kratz, a spokesman for the state Community and Economic Development Department. The Delaware River Port Authority, which collects tolls on Philadelphia-area bridges and trains, kicked in $10 million. PPL Park opened in 2010.

Payment Plan

Under the project agreement, the team is supposed to provide $500,000 a year in payments in lieu of taxes, Linder said. Chester has only received the money for 2011, he said.

Sakiewicz, the team’s chief executive, said he’ll make this year’s payment if the city will send a bill for the money. He said it is negotiating an agreement for the 2010 obligation.

Linder said he’ll send a bill for the 2012 payment, if that’s what it will take to get the funds. No bill was needed before the team sent its 2011 payment, he said by telephone.

Harrison, the New Jersey home of the soccer league’s New York Red Bulls, sued the team for money it says is due. A tax- court judge in Newark ruled that the team owed Harrison property taxes that went unpaid 2010 and 2011.

Chester has to pay expenses related to policing its venue, which has averaged 18,400 fans per Union game this year. Income taxes paid by residents working at the stadium on game days are sparse, the mayor said.

If proposed parking and amusement fees, or some other revenue alternatives, aren’t set up, fire services may be curtailed, he said.

“I wish there would have been better monitoring built in” to ensure costs were covered, Linder said about the stadium deal.

Following are pending sales:

LONG ISLAND POWER AUTHORITY plans to issue $500 million of tax-exempt revenue bonds as soon as next week, according to data compiled by Bloomberg. Proceeds will be used for capital projects and to refund debt. (Added June 21)

NEW YORK STATE THRUWAY AUTHORITY plans to issue $1.1 billion in tax-exempt revenue bonds as soon as next week, according to an offering statement. Proceeds will be used to fund capital projects. On June 12, S&P lowered its outlook on the agency’s debt to negative from stable and assigned the securities an A+ rating, fifth-highest. (Updated June 21)

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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