How to Fund a Stadium

By now it has become clear that Quebecers don't support public funding of a downtown stadium for the Montreal Expos.
But what about a publicly funded stadium they wouldn't have to pay for?

It sounds like a contradiction, but a growing number of U.S. state governments have managed to defuse taxpayer opposition to public financing of new stadiums by approving new municipal tourism taxes to make visitors pay for the new venues.
Could the provincial government do the same for the Expos?

There was no provision for such a measure in Tuesday's provincial budget. But Premier Lucien Bouchard confirmed yesterday he plans to sit down with Expos chairman Jacques Menard this month to see whether Menard's new "business plan," as the premier put it, for a new stadium merits some form of 11th-hour government support.

In the U.S., the new wave of tourism taxes financing stadium construction usually takes the form of special levies on hotel stays and car rentals, and applies only in the metropolitan area where the stadium is situated.

They have not been found to have any significant negative effect on tourism. Houston, Atlanta, Detroit, Chicago and Seattle are among more than a dozen major cities in the U.S. where tourism taxes have been approved by state governments to cover debt servicing for new baseball and football stadiums. In the National Hockey League, the Florida Panthers owe their new $185-million arena to a Broward County hotel tax that is paying the bulk of the annual $14 million in debt servicing.
"Tourism taxes are popular with policymakers because when voter approval is needed, it is easier to persuade voters to endorse taxes that are paid primarily by visitors," says Mandy Rafool, a policy associate with the U.S. National Conference of State Legislatures.

Before leaving last night on an eight-day trip to Europe, Bouchard reiterated to reporters in Quebec that government support is politically unacceptable if it deprives the provincial treasury of potential revenue or puts an extra tax burden on Quebec taxpayers.
He added: "Within the government, we have already discussed the general parameters of what could be an acceptable business plan on the part of the Expos, but it has to be a business plan, a profitable plan capable of persuading investors to participate in the creation of a fund for profitable ends. And we haven't seen such a plan yet."

Although the Expos' spring-training facility in Jupiter, Fla., is being partly financed by a one-per-cent hotel tax in Palm Beach County, there's a practical obstacle to using Montreal hotel taxes to help finance a downtown ball park: the Montreal metropolitan area (Montreal Island and Laval, actually) already has a $2-a-night tax on hotel stays. Local hoteliers say it's like a 2-per-cent tax, given that the average hotel bill in Montreal and Laval is $100.

The tax was approved by the provincial government in 1997 as compensation for the government's having eliminated certain tax exemptions enjoyed by the hotel industry. The money is currently being used to buy foreign advertising to promote Montreal as a tourist destination, and to make up for the provincial tourism department's having cut its own advertising support and effectively downloaded promotional responsibility to the regional level.

Last year the Montreal/Laval hotel tax raised $8 million, which represents two-thirds of what the debt servicing probably would be for a $175-million stadium financed by a $125-million provincial bond issue and $50 million in private money (revenue from seat licenses).
A car-rental tax would probably raise $2 million annually, judging by the experience elsewhere, where the hotel tax has turned out to be four times as lucrative as the car-rental tax.
And another $3 million could be raised if the government were to agree to direct provincial income tax from Expos players' salaries into stadium debt servicing. (The $3-million figure is calculated assuming an Expos player payroll of $20 million U.S. The club had a $9 million U.S. payroll last year; the major-league baseball average is $55 million U.S. Players pay income taxes to the Quebec and federal governments on only 40 per cent of their salary if they don't spend the off-season in Canada.)

Although Tuesday's budget contained nothing for the Expos, sources say Menard sees tourism taxes as potentially a politically acceptable form of public financing. He's hoping to persuade Bouchard to put some offer on the table to help the Expos, as the former government of Jacques Parizeau did for the Quebec Nordiques in 1995, shortly before the club was sold and moved to Denver.

The Parizeau government, then looking at a probable spring 1996 referendum on sovereignty, was prepared to pledge some degree of public financing for a new Quebec City hockey arena, but only on the condition that the Nordiques sell 70 proposed luxury boxes - a tough sell in the provincial capital, where the private sector is very small. But the Nordiques' owners held out for operating losses to be covered by provincial lottery revenues, and Parizeau wasn't prepared to do that.

The Bouchard government, by contrast, hasn't made any offer to the Expos. Direct funding, the premier has repeatedly said, is out of the question, as are all forms of indirect funding, such as tax breaks and dedicated sports lotteries, that have the effect of depriving the provincial treasury of revenue. Given these limitations, public financing in the form of tourism taxes, buttressed with tax revenues from players' salaries, appears to be the only solution left to the stadium-project impasse. As the Canadian dollar has dropped in value, U.S. tourism to Montreal has steadily increased, and any disincentive to tourism created by tourism taxes would be more than offset by the powerful draw of the low exchange rate. But for a tourism-tax plan to work, local hotels would probably have to forgo some or all of the $2-a-night tax (unless the tax were increased), and the provincial government would have to be prepared to take back greater responsibility for Montreal tourism advertising.

Local hotels, though, would resist giving up the $2 tax, Charles Lapointe, president of the Greater Montreal Tourism and Convention Bureau, said in an interview this week. However, the tax exists by authority of the provincial government, meaning the government by itself can decide what to do with it. The idea of financing a new Expos stadium through tourism taxes isn't new to the government. Claude Brochu, Expos president and managing partner, said last fall that he brought it up with Finance Minister Bernard Landry last spring.

He said Landry had instructed him not to present the government with a specific proposal for public financing, but simply to give it a menu of options reflecting the range of ways that state governments south of the border have managed to put together public financing without upsetting taxpayers. After meeting with Landry, Brochu had two meetings with Bouchard. At a press conference last week, Brochu said Bouchard told him at the first of those meetings, last summer, that Quebec probably can't afford to help the Expos. At the second meeting, last fall, Brochu said, Bouchard told him to go away and come back with a revised "business plan."

Sources close to those two meetings say what really upset Bouchard about Brochu's proposal was that it contained no provision for the Expos ownership consortium, from Brochu on down, to put any of its own money into the stadium construction. Bouchard was left with the impression that the project "makes no sense," as he put it again last week following a PQ caucus in the Laurentians, if the owners don't believe in it enough themselves to be part of a financing partnership.

That's why it's important for Menard to be able to show Bouchard, at their meeting this month, that any new ownership consortium that ousts Brochu is prepared to make some sort of financial contribution to a new stadium.

Menard refused to comment yesterday, but said at a Montreal press conference Feb. 18 that he has investors willing to step forward with $125 million Canadian. But after buying out Brochu ($15 million), wiping out accumulated operating losses (said to be $70 million, but the club's books are confidential) and bridging anticipated operating losses before moving into a new stadium in 2002 ($40 million?), there might not be any money left for the stadium. There is still, however, something a new ownership consortium could do to do to win favour with the Bouchard government: it could pledge a backstop guarantee on stadium debt servicing. It could pledge that in the years where revenues from tourist taxes and players' income taxes fall short of debt-servicing requirements, they'll make up the difference. That's more or less the same commitment the Florida Panthers ownership made in return for government approval of tourism-tax arena financing.

If the owners who want to buy out Brochu aren't prepared to do that, then the Expos are probably toast. But if the owners are willing, then the government is going to have to ask itself whether it wants to help build a new ball park on a new basis: faisons payer les etrangers.



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