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The Steelers should pay for expanding Heinz Field

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By Jake Haulk & Frank Gamrat
Saturday, Nov. 17, 2012, 8:57 p.m.
 

With all three Pittsburgh professional sports teams playing in fancy new digs, taxpayers could be forgiven for thinking they are through subsidizing the teams. But there is a high probability they will be asked to pay even more money for Heinz Field as the Pittsburgh Steelers eye adding 3,000 seats at the southern end zone.

The NFL franchise, valued at more than $1 billion, is invoking a clause in its stadium lease with the Sports & Exhibition Authority (SEA) to force it to pay most of the costs of the expansion.

The lease stipulates that “the parties agree that the Lessee shall be responsible for one-third (13) the cost and the remaining two-thirds (23) of such cost be paid by the Authority.”

The estimated cost of the expansion is $39 million. It includes not only the 3,000 seats but a video scoreboard at the northern end of the stadium.

Two-thirds of $39 million would be $26 million, leaving the SEA $20 million short in the capital fund and responsible for using outside sources to close the gap. Presumably there is a possible avenue in this legal language for the SEA to pursue to reduce its obligation: The scoreboard might not qualify as covered expansion under the lease.

Indeed, the scoreboard should be the sole responsibility of the Steelers.

Keep in mind that the SEA is a joint Pittsburgh-Allegheny County venture and any bonds floated to pay for this expansion will ultimately be repaid by securing additional revenues or pledging the diversion of existing revenue.

The Steelers have offered a solution for the SEA — place a $1 surcharge on tickets and $2 to $3 on parking to pay for these bonds. And if those sources are inadequate, the SEA would have to find other sources. Consider that while the demand for Steelers tickets is highly inelastic, the demand for parking is not. An increase in the price of parking around the stadium could push patrons to find alternatives to get to the stadium.

A better answer is for the team to pay for the expansion. Forget the legal issues — this is a moral issue. Why don't the Steelers, who have seen their value rise astronomically after Heinz Field was constructed, figure out how to use in-stadium charges to pay for the expansion? They could use increased income from personal seat licenses, ticket surcharges, higher ticket prices, higher concessions prices or a boost in luxury box rents.

If the additional seats cannot pay for themselves through additional revenue the team can raise from charges imposed on the new seats, they should not be built. There is no justification for asking anyone but the users of the seats and the team to bear this cost. Surely, the team can borrow at favorable rates and terms whatever it needs to do the project.

The Steelers claim they have generated sufficient tax revenue at Heinz Field-related activities that “it is on track to pay for the public money that was invested in the project.” Let's examine that statement.

If the stadium were privately owned (and not by a public authority) and paying property taxes on the full cost value (including the land), the tax bill would easily come to $12 million or more per year.

Or if the Steelers were paying rent to a private owner at anything like the price of what a structure of the value represented by Heinz Field would fetch, $25 million a year would be reasonable.

And as far as the other taxes being paid by activities related to the stadium, it is important to bear in mind that what matters is how much tax revenue is being collected over and above what would have been generated at Three Rivers Stadium.

And how much have the Steelers benefited from sharing development rights on the North Shore?

How much rent does the team pay to its landlord, the SEA? According to the lease, the team is responsible for three payments of $25 million every 10 years — $2.5 million per year. But the team can use credits for taxes paid to lower their rent payments, including any corporate income taxes, personal income taxes from employees (including players) and any sales and use taxes paid to either the state, county or city.

For the first 10 years the team was allowed to take the sum of taxes paid and multiply it by 7.5 and, in following years, by a factor of 10. Thus, the Steelers have been living essentially rent free in this heavily taxpayer-subsidized stadium. Now they are demanding more from the SEA.

The Heinz Field lease truly is a sweetheart deal for the Steelers and they certainly have reaped huge financial rewards. It's now time for them to step up and do the right thing by paying for the planned expansion from their own pockets. After all, they are the ones who stand to gain.

Is there no limit to what the team can demand and get? The lease is a legal document and the SEA might well lose in court. But there are times when good judgment and common decency require us not to gain a victory on legal grounds simply because we can.

Jake Haulk, Ph.D., is president of the Allegheny Institute for Public Policy. Frank Gamrat, Ph.D., is a senior research associate there.

 

 
 


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