I encourage anyone registered to vote in Bexar County to vote for Proposition B on November 4. Early voting begins Oct. 20 and continues through Oct. 31.
This is the most important local election in my 50 years in San Antonio. Voting for Prop B and supporting San Antonio’s arena funding plan is a no-brainer. The arena will be owned and operated by the city but it will be paid for mainly by the Spurs and taxes on visitors, and it will anchor a downtown entertainment district with tremendous potential to boost the local economy and serve visitors and locals alike.
Most important of all, it will keep the Spurs in San Antonio.
Voting against it does nothing to lift people out of poverty or provide funding for basic infrastructure. San Antonio and Bexar County have many unmet needs. Voting against Prop B will do nothing to address them.
If Prop B fails, I believe the Spurs will have little choice but to leave San Antonio for a city that will give them a better arena deal than the one San Antonio is offering. The team has already made it clear that they will not play in the county-owned Frost Bank Center, widely considered one of the worst fan experience venues in the NBA, after their lease runs out in 2032.
Losing the Spurs will be an economic and psychological blow that the city and region will be hard pressed to recover from.
In a powerful, spot-on commentary in the Express-News on Oct. 16 former Mayor Henry Cisneros explained it this way: “Defeating the Spurs arena would create a downward spiral for our city. It would be national news and introduce doubt among employers, national firms, and investors. The defeat of the Spurs project would be like taking a hammer and smashing those essential parts.”
Opponents of Prop B and the city’s plans to build a downtown arena for the Spurs argue that the wealthy owners of the team should foot a greater share of the $1.3 billion cost of the arena than the roughly 40 percent contribution from the team that is proposed. Prop B opponents are, rightfully so, opposed to using local tax money to fund a playpen for the wealthy few who can afford the expensive tickets to attend games in an impoverished city with many unmet needs.
I’m sympathetic with that argument. If I could vote to “stick it to the man” without stabbing myself in the back, I’d gladly do it. Unfortunately, that option isn’t on the ballot.
What is on the ballot is Prop B, a tax on rental cars and hotel rooms. What the opponents of Prop B do not explain is how voting against this proposition enables the city and county to address the community’s many needs or lifts even one person from poverty.
The reality is that, if Prop B fails, we won’t have any more resources to meet our community’s many pressing needs than we have now (arguably, fewer), we’ll have just as many poor people (arguably, more), the taxes on visitors who rent cars and hotel rooms will be a little less than they are now and the Spurs will probably leave, quite possibly for Seattle (which has Climate Pledge Arena, which opened in 2021, ready and waiting for them).
In his commentary Cisneros posed the following questions: “Why would the Spurs consider another city? What would you do if you had just offered an arena plan that included $500 million of Spurs money, with additional investment, and voters slammed the door in your face? What would you do if you proposed a plan that involved no property taxes or general taxes to the public with only an increase in the county hotel venue tax from 1.75% to 2.0% plus a car rental tax, and the voters rejected it?”.
Cisneros likened the economic risk of losing the Spurs to; “…walking into a warehouse full of dynamite, lighting a match and then asking what could possibly go wrong?”.
I wholeheartedly agree with Cisneros. What is the point here? What possible good comes from voting down a tax on rental cars and hotel rooms? The downsides of a no vote on Prop B are many and the upsides are non-existent.
If Prop B is approved, however, the reality is that visitors and the state of Texas will pay most of the roughly 60 percent of the cost for the arena that’s not being covered by the team. And most of that money will come from taxes on visitors that cannot be used for basic services, like streets and drainage improvements.
In a perfect world the rich would pay for their own arenas for their NBA teams, like they have done in San Francisco and other wealthy cities where large corporations are based. Unfortunately, we don’t live in a perfect world. We live in San Antonio, Texas a poor, sleepy backwater with a limited corporate presence. San Antonio is extremely fortunate to have a team in one of the three major sports leagues, and we have virtually no chance of getting another one if the Spurs leave.
Details about the funding plan for a downtown arena
If voters approve Prop B the city will build a $1.3 billion arena on the site of the former Institute of Texan Cultures that could be the linchpin for a rejuvenated downtown entertainment district that could improve San Antonio’s standing as a prime destination for tourists while also serving and benefiting locals.
The funding plan for the arena is complicated and has lots of moving parts. Fortunately, or unfortunately, depending on your perspective, the only one of those moving parts that is on the ballot for voters to consider is Prop B, which is probably the simplest and most straightforward of the four primary sources of funding for the project.
If voters approve Prop B, Bexar County will extend for 30 years an existing five percent tax on rental cars and increase an existing tax on hotel room rentals, from 1.75 percent to two percent. These two taxes, paid almost entirely by visitors from outside the county, are projected to generate $311 million over 30 years, covering about 24 percent of the cost for the new arena that the city will build and own and the Spurs will be contractually obligated to lease and play in through 2063.
It's worth re-emphasizing that state law limits the use of the so-called “venue tax” to funding large-scale venues like stadiums, arenas, convention centers, and airport facilities. It cannot be used to pay for anything else (like streets, police, childcare, etc.).
It's the other 76 percent of arena funding where things get a bit more complicated, and voters will likely have no say on any of them.
If Prop B is approved the Spurs ownership group has agreed to contractually obligate themselves to contribute $500 million (38.5 percent) of the $1.3 billion cost for the arena and cover all cost overruns, a stipulation that could easily drive the team's owner's contribution north of 40 percent. The Spurs will also pay the city approximately $160 million in rent over 30 years to lease the arena and give the city $75 million over 30 years under a community benefits agreement that allows the City Council to decide how that money can be spent for community needs (for things like early childhood education). The Spurs will also give the city $30 million to buy property from the federal government near the former John H. Wood Jr. Federal Courthouse (that the city already owns and wants to convert into a music venue). The Spurs will also commit to investing $500 million in the first phase of a $1.4 billion development plan for the Hemisfair area and, in partnership with other developers, invest another $900 million over the following 12 years.
That’s a lot of numbers but, if you’ve been doing the math, you know that we’re still $489 million short of the $1.3 billion needed to build the arena, and the city will have to cover that.
About half of the city’s contribution will probably come from a state-sanctioned “Project Finance Zone” (PFZ). PFZ’s are a creation of the state legislature that allows cities to keep some of the state’s sales tax money from new hotels and hotel-related businesses in a three-mile radius of major new visitor-related improvements (i.e. the arena) that would otherwise have gone to the state. The State Comptroller has already approved a PFZ for San Antonio and has authorized using the retained state sales tax money to help pay for the new arena, and/or expansion of the convention center and/or making improvements to the Alamodome. The comptroller estimates San Antonio’s PFZ will bring in about $2.5 billion for the city over 30 years. The city staff estimate is $2 billion. Either way, it’s a lot of money, and it’s a “use it or lose it” opportunity. If the city doesn’t snag the state’s sales tax money for one of those three approved purposes, that sales tax money will go to the state. Obviously, the city would be crazy not to take full advantage of the PFZ and keep every nickel of that $2 to $2.5 billion invested in San Antonio.
However, that $2 to $2.5 billion in PFZ revenue is an estimate that has a lot moving parts to it, and the money will trickle in over 30 years, while the city will need the bulk of the money much sooner, to pay for its share of the arena. Thus, the city will have to sell bonds, pledging to service the bond debt with the revenue that is estimated to be coming from the PFZ (and, perhaps, the Spurs lease payments) over 30 years. Thus, there is some risk, and part of that risk is that using some of the PFZ tax revenue for the arena reduces the PFZ funds available for the convention center expansion and the refurbishment of the Alamodome, which are absolutely essential and will occur regardless of what happens with the arena.
The remainder of the city’s $489 million will probably come from a Tax Increment Reinvestment Zone (TIRZ). Creating a TIRZ allows the city to collect the incremental growth in property taxes from a defined area, or zone, and use it to pay for new facilities within that zone.
For a primer on how a TIRZ works, let’s say that a designated TIRZ area has a baseline tax revenue of $1 million per year. For the life of the TIRZ that $1 million in tax revenue will continue to go into the city’s general fund every year to pay for police, fire, parks, and other basic services, just like it did before the TIRZ was created. But let’s say that, due to increasing property values, the tax revenue in the TIRZ increases the following year to, say, $1.5 million. In that scenario, that baseline $1 million of tax revenue continues to go into the general fund to pay for city services, but the $500,000 incremental increase in tax revenue will not. Instead, that $500,000 of “new tax revenue” goes to the TIRZ and will be available to pay for improvements inside (and, in some cases, depending on how the TIRZ is established) outside the TIRZ.
San Antonio has already established a Hemisfair TIRZ, which largely overlaps with the proposed 25-acre sports and entertainment district around the arena. The Hemisfair TIRZ is supposed to terminate in 2037, but the city says it can be extended to whatever date is needed to provide the necessary funding to pay off the bonds.
Thus, while the baseline tax revenue currently going into the general fund from the property in the Hemisfair TIRZ will not be used to pay for the arena, the incremental increase in tax revenue in the Hemisfair TIRZ will, in all likelihood, be used to pay off the bonds that the city will (probably) have to sell to get its share of funding for the arena (that does not come from the PFZ).
There are potential pitfalls and problems that could develop with the city’s portion of the funding. The $2 to $2.5 billion estimated to be generated by the PFZ during its 30-year lifespan is just that, an estimate. If it falls short city taxpayers could eventually be on the hook to pay off those bonds and/or the shortfall could negatively impact plans to refurbish the Alamodome and expand the convention center, both of which will lean on the PFZ for funding.
Likewise, the revenue from the Hemisfair TIRZ is also based on estimates of future development that may or may not pan out.
Mayor Gina Jones has highlighted this concern and pointed out that the estimates of future development within the TIRZ (that the city staff is relying on to make its revenue projections) are coming from a consultant with close ties to the Spurs. Thus, the mayor suggests, the consultant’s estimates might have been overstated to please their client (the Spurs) and thus, if the estimates of economic development in the TIRZ are overstated, the risk to the city of a shortfall in TIRZ revenue will be understated.
The good news is that the TIRZ, unlike the PFZ, can be extended indefinitely. While it might require refinancing, which would probably increase the city’s cost, the TIRZ should be able to eventually generate enough revenue to pay off the bonds without any direct impact on city taxpayers.
That possibility of the TIRZ lingering on for decades segues nicely to another criticism of tax increment reinvestment zones…that they flatline, often for decades, the tax revenue flowing to the city’s general fund from the properties in the TIRZ while the city’s cost for providing the basic services that are paid for through the general fund steadily increases.
The counter to that argument is that, without the TIRZ and the improvements it is funding, there might be little or no increase in property values, thus little or no increase in tax revenue for the general fund.
The counter to that counter argument is that, even if that were true, the improvements inside the TIRZ will require additional city services (police, fire, EMS, etc.) while the city general fund gets no additional revenue to pay for those additional services and, as a result, the tax revenue available to fund basic services citywide will be spread thinner.
Finally, it’s possible that the city will use money from a different TIRZ, the Midtown TIRZ that includes areas around the Pearl and Broadway corridor, to purchase the land for the arena, the site of the former Institute of Texan Cultures. The city is still exploring options to purchase the ITC property, which is valued at about $60 million and is owned by UTSA. The city currently has the exclusive right to purchase the ITC property.
Bottom line, the city has a lot of good options to pay for its share of the arena and none of them require dipping directly into general fund revenues. However, all of those options come with some risk and could, if things don’t go as planned, strain general fund resources in the future.
It’s also important to remember that, when (if) the dust finally settles, the city will pay less than $500 million to own a $1.3 billion arena that has tremendous upside potential as the anchor for a vibrant new sports and entertainment district.
And, most important of all, the Spurs will be locked into the new arena, and San Antonio, until at least 2063.
I’m going to shift gears now to discuss some tangential matters that are, sort of, related to Prop B that might be confusing to some voters.
What is Project Marvel?
Project Marvel is a code name the city staff should probably not have used to describe a wide range of downtown projects and improvements, including the proposed new arena, expansion of the convention center, a new convention center hotel, converting the former federal courthouse to a concert venue, refurbishment and improvements to the Alamodome and, possibly but highly unlikely, lowering I-37 and covering it with a landscaped pedestrian platform that would create a seamless link between the Hemisfair area, the Alamodome and St. Paul Square.
Project Marvel is just a code name, a conceptual umbrella that encompasses a group of separately funded, but inter-related, projects that may or may not happen.
Project Marvel is not now, and never was, a single “project”.
The thought and hope was/is that all of those public improvements included under Project Marvel’s conceptual umbrella would, collectively, play beneficially off of one another and spur private sector development of a vibrant and transformative sports and entertainment district in the Hemisfair area. And, as mentioned above, a good chunk of that private development could come from the Spurs if the arena deal does go through.
While the loss of the Spurs and the arena would be a significant setback for the Project Marvel concept, it would not necessarily be a fatal one.
If the arena deal falls through it is not clear what would happen to the federal the land adjacent to the former Wood Federal Court House and the UTSA property that used to be the ITC (aka the intended site of the proposed new arena). My hope would be that the city could still find a way to buy both properties, possibly with money from the Midtown (Pearl area) TIRZ, and then hold the property until a new “post-arena” plan for the area can be developed.
Federal highway funding for the idea of a deck over I-37 was a relatively remote possibility under the Biden administration and is likely dead in the water under the Trump administration. I only mention it here because it was included in some of the early conceptual renderings depicting the Project Marvel concept and some readers might wonder about it.
Conversely, the improvements to the Alamodome and expansion of the convention center are critically important to the future of the city and will be funded through the city's existing hotel-motel taxes and the TRZ. These improvements will occur regardless of what happens with the arena. San Antonio is losing ground to other cities in the convention and visitor business and must expand to keep up. The NCAA has told the city that the Alamodome must be refurbished and improved in order to get any more Final Four tournaments.
If the arena deal falls through the city will likely continue to pursue the conversion of the former federal courthouse into an entertainment venue and continue to try to get another convention center hotel built on a tract of land now occupied by the SAWS chilled water plant.
What’s a chilled water plant and why is it an issue?
SAWS operates a chilled water plant on a rectangular tract of land bounded by East Commerce, East Market, Bowie and the I-37 frontage road. The plant is directly across the street from the front of the convention center and has been there for decades (it’s covered in a relatively attractive façade and looks sort of like a non-descript office building. Most people don’t notice it.).
The plant chills water and circulates it to a group of downtown buildings in a closed loop of underground pipes. The chilled water absorbs heat from the HVAC systems in the buildings that it serves and the warmer water is returned to the plant to be chilled again and redistributed.
Not only does this system improve the efficiency of the HVACs it serves, but it also saves space in those buildings because they don’t need to operate their own large, bulky chillers. The city is SAWS primary chilled water customer, using about 75 percent of the water, primarily at the convention center and the Alamodome.
The city has long coveted the rectangular tract of land where the chilled water plant now sits, viewing it as a prime location for a convention center hotel. SAWS has long resisted relocating the plant because doing so will cost at least $200 million. The city, of course, owns SAWS and, if push comes to shove, the chilled water plant will be moved if the city wants it moved (the mayor has a permanent seat on the SAWS board, and the remaining board members are appointed by the city council).
Apparently, with the latest expansion of the convention center on the horizon this matter is coming to a head.
In the long run, moving the plant will be better for everyone. It’s an opportunity for SAWS to expand the chilled water loop, serving more customers in the downtown area (including, potentially, the new arena). But it won’t be cheap or easy, and the cost for chilled water will probably have to increase to pay for it.
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