The “Cheaper to Keep Them” Argument Uses Flawed Assumptions

Monday, July 6, 2015 at 8:03 PM by

The Governor’s Math Uses the Wrong Numbers and Wrong Question

As the legislature nears a vote this week on using taxpayer dollars to help build a new Bucks arena, the Governor’s primary argument for subsidizing the Bucks continues to be the contention that it’s “cheaper to keep them.” That isn’t exactly an uplifting slogan, but it seems to be the strongest argument the Governor can muster. With that in mind, let’s review the arguments about the cost-effectiveness of public subsidies for the proposed arena.

There have been a number of excellent columns, blog posts and other commentaries about the arena issue. Among those, my favorite is a critique of the “cheaper to keep them” argument by Republican Representative Dean Knudson.

In a guest column he wrote in mid-June, Knudson skewers each of the three major points that the Governor and others have made to support the argument that the proposed public subsidies will be less expensive than the costs to be incurred if the Bucks leave Milwaukee:

1) Current income tax paid by players would be lost – This argument is one of my pet peeves, so I was very happy that Knudson effectively summarized a counterpoint that economists often make about the fallacy of assuming all the spending and related income tax revenue will simply dry up. As Knudson explained:

“If the team moves, the dollars spent each season on the Bucks will instead be spent on other forms of entertainment, movies, travel, restaurants, tourism, advertising, etc. This redirected spending will be spread among thousands of businesses in the state, generating sales tax, income tax and property taxes, significantly offsetting the income tax no longer paid by NBA players.”

2) NBA income tax growth would be lost – A key part of the Governor’s case is the argument that new TV deals are going to sharply boost NBA players’ salaries, which Walker projects will jump to $149 million in 2020, $260 million in 2030, $450 million in 2040 and $610 million by 2046. Knudson points out that “NBA player salary increases are difficult to predict,” and he notes that published reports put the NBA team salary caps for the 2018-19 season at $100 million, which is well below the amount the Governor has been assuming in 2020.

3) State taxpayers would be responsible for $120 million in maintenance and debts on the Bradley Center – Rep. Knudson argues that the cost of “deferred maintenance” referenced by arena promoters “has been exaggerated.” He points to an estimate of “$16 million in needed repairs to the current arena,” and he adds:

Wisconsin law is very clear that state taxpayers have no liability whatsoever for the Bradley Center, for its maintenance or its debts. Legislative attorneys confirm this interpretation.”

To Rep. Knudson’s cogent rebuttal of the three primary parts of the Governor’s calculations, I would add that if you don’t limit the equation to just the state share of costs, some of the analyses haven’t fully counted all the local subsidies.

With all of those points in mind – I think it’s very clear that the math used by the Governor is wrong because key numbers used in the calculations are far off the mark. But since it isn’t totally clear what the correct numbers are that should be plugged into the formula (especially with respect to the boost in players’ income from increased TV revenue), I’m not able to answer the question of whether it would be more costly to let the Bucks leave the state.

For a longer discussion of the “cheaper to keep them” claim, see this June 18 PolitiFact column. It also points out a number of the flaws in the Governor’s assertion, but unlike most PolitiFact commentaries, it doesn’t rate the claim.

In closing, I think the question of whether it’s “cheaper to keep them” is definitely a relevant part of the debate about the arena plan, but it’s not the most important question. I believe a much more pertinent question now is whether helping finance the arena plan is the most cost-effective use of those state and local tax dollars.

I don’t want to see the Bucks leave Wisconsin, but at a time when spending is being cut from public education and many state and local services – I think there are higher priorities for using public dollars to invest in Wisconsin’s future.

Jon Peacock

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