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How tourism taxes will fund the new Rays Stadium

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Public financing for a new stadium, in either county, will come from tourism taxes.

A new Rays stadium will most likely get built with a cocktail of public and private investment, with the exact ingredients and proportions still (we assume) under discussion.

Professional stadium and arena projects such as that proposed for Ybor City often make use of tourism taxes, which in many states can be used to pay down bonds floated for construction costs.

As the December 31, 2018 deadline for the Rays to confirm their intention to leave Tropicana Field approaches, we have been digging deeper into the finances behind a new Rays stadium.

This article provides a bit of background about tourism taxes and stadium development. You can learn more about some of the tax incentives potentially available to private investors here.

Head in Beds: A history of the tourism tax

Every state in the US has some means of taxing hotel stays. A few have state hotel taxes, others — such as Florida — levy regular sales taxes on hotel room charges and then allow local governments to add their own hotel-specific tax.

Florida adopted this so-called “local option” hotel tax in 1977 and by now it is collected in almost every Florida county. The “tourist development tax” is actually a bundle of several taxes; the highest tax total is 6%, with high tourism volume counties permitted to charge the most.

Such taxes tend to be popular because they target visitors, not residents. In other words, elected officials can tout them as “free” money. Hotel owners have accepted them, although not without complaint, because the legislature has ensured that they are dedicated to efforts that will increase tourism.

The lion’s share of tourist taxes in most counties supports the visitor’s bureau and its marketing efforts. These taxes also build and market convention centers, in those counties that have them. They can also be used to support tourism-focused events and organizations, and, in some case, are used for beach replenishment. While there are occasional pleas to use these funds for essential items such as schools or public safety, the legislature has held firm (for the most part) that tourism taxes must pay for tourism-relevant items.

Back in the 1980’s, the state legislature made it clear that the tourism development tax could be used to build professional sports facilities. The connection between professional sports and tourism is at best tenuous; it’s not clear that many tourists travel to Florida to attend a football game or a hockey match. But stadiums and arenas can become sites for tourism attractors like bowl and All-Star games.

Since that time, arenas and stadiums across the state have benefited from public financing supported by the hotel tax (which is now levied on vacation rental homes/apartments as well as hotels).

Pinellas County and St. Petersburg have funds to pay for a new Rays stadium, but the team is considering a move across the bridge, which is what brings this tax into particular focus.

In the recently ended fiscal year, Hillsborough County raised $34 million with this tax, up over 25% in just two years.

Would Hillsborough County be able to support a new stadium using this revenue stream?

A great deal of the current tax dollars are, currently, promised to other projects.

Most of the money funds the Visit Tampa Bay initiative for marketing and promotion, and there are ongoing financial commitments to pay off the debt service on the convention center.

Hillsborough County has also committed $13 million (over a number of years) to renovate the Yankees local minor league facility Legends Field, and recently committed $61 million to Amalie Arena upgrades. The Straz Center for the Performing Arts also gets a (smaller) cut of the funds, as does an amateur sports complex recently completed in the eastern part of the county.

The continued increase in tax revenues does give the Tourist Development Council, which makes recommendations for the use of tax revenues, some ability to take on new spending, but for the purpose of borrowing money, the county can’t just hope for continued surpluses.

There must be a dedicated commitment of revenues that would pay off bonds for a new stadium, and the best hope for that to happen would be if the county chose to increase the tourist development tax from 5 to 6%.

Florida counties are allowed to collect a 6th cent of tourist tax once they pass the threshold of $30 million a year in tourism taxes; Hillsborough passed that threshold last year but has not yet voted to increase the tax.

It would be possible to increase the tax and dedicate that extra penny to stadium construction debt, generating approximately (if current tourism figures hold) $6 to 7 million a year. That revenue stream could leverage somewhere between $60 - $100 million in upfront costs, depending on interest rates and other factors. This is not enough to fully fund the likely-public portion of a stadium, but still an important ingredient of the cocktail.

Normally this cent increase would be an easy case to make, but this past November, Hillsborough County voters approved two referenda to increase sales tax by 1.5% to fund transportation and school improvements. Since these sales taxes are also imposed on hotel stays, there could well be push back from hotel interests concerned that the combination of higher sales taxes and higher hotel taxes could chase visitors away from Hillsborough County.

I would note most academic studies don’t find that slight variations in tax rates have much impact on tourism demand, but local hotel owners might not want to risk losing business to neighboring counties.

Nevertheless, increasing the hotel tax and dedicating the proceeds to stadium costs is probably one of the least complicated or politically fraught way of finding public funds toward a stadium.

Boston Red Sox v Tampa Bay Rays Photo by Mike Ehrmann/Getty Images

What could go wrong?

It’s important to realize that funding a stadium with hotel taxes can still carry risks for local government and tax payers.

Tourism in the Tampa Bay region has been strong and revenues have generally held steady or increased in recent years, but it’s not too hard to imagine a situation where tourism drops for a year or longer and that 1 penny tax no longer collects enough to meet that year’s debt obligation.

A bad hurricane season; red tide; a Zika outbreak or a national recession are all events that have impacted Florida tourism numbers in recent years — see this discussion of the feared impact of the Zika epidemic on Miami tourism-backed bond solvency. Those bonds need to be paid off, so who makes up the difference?

This is a key point of negotiation between public officials and the teams who want them to fund stadiums. A deal leaving Hillsborough County responsible for all costs in such an instance could force the county to dip into general revenues to cover debt service just when finances are stretched for other pressing needs.

Tropicana Field, of course, was largely funded by county tourist development taxes. Since there was no local baseball team when the stadium was built, it was funded entirely with public money, and the tourist development tax covered most of it.

Should the Rays decide to stay in St. Petersburg, as noted above, their options for public funding through the tourism tax would be much better. Pinellas County collects more each year than Hillsborough – even with red tide cutting into 2018 revenues. This past fiscal year the county collected nearly $60 million, in part because they have already raised their levy to 6%.

Pinellas also has fewer big ticket capital obligations. TDT funds support the Clearwater Aquarium and are helping build a new American Craftsman Museum in St. Petersburg. Coming up, the funds will also help renovate Spring Training facilities for the Toronto Blue Jays and (still under discussion but let’s assume) the Philadelphia Phillies, but that’s about it. Pinellas has no costly ever-expanding convention center, and the bonds for Tropicana Field have been retired.

Pinellas County would likely be able to dedicate a full two cents of its tax revenues for a new stadium without breaking a sweat or cutting back on any other tourism expenses, worth more than twice what Hillsborough tourist taxes could contribute, but alas what Pinellas has in tourism it lacks in population, which brings us back to the possible move to Ybor City.

In truth, tourist tax revenues would likely be an important and relatively easy to access source of public financial support for a Hillsborough County or Pinellas County baseball stadium. Hillsborough has less funds from TDT to spend, but could easily follow Pinellas County’s lead and put the one-cent tax in place to help bridge the gap.