Ralston Residents Must Pay the Piper for Arena Woes

Ralston Residents Must Pay the Piper for Arena Woes

When local officials sold the idea of the Ralston Arena to voters, the project was presented as a way to put the city of about 7,000 residents on the map, and even reduce the city’s property tax burden. Ralston has now certainly caught people’s attention, but for all the wrong reasons.

Press accounts are referring to the over budget, debt-ridden entertainment venue as a “train wreck” and a “money pit,” which now looks to sharp tax increases and more state support to stay afloat.

State taxpayers already subsidize the Ralston Arena through a state “turnback” law enacted in 2010. The law allows Ralston to collect 70 percent of state sales taxes from businesses within 600 yards that opened two years before and two years after the Arena.[1] The city will continue collecting this turnback tax for up to 20 years or until the debt is paid off.

Ralston Mayor Don Groesser now wants to expand the turnback law to businesses within a 1,000-yard radius opening within 10 years of the Arena. Consequently, additional tax revenues would help Ralston pay off the project’s debt instead of going toward other programs funded by the state sales tax, which includes education, health care, and a small portion of state road funding.

Lawmakers justified the original turnback agreement by using the notorious “but-for” test: but for the Arena’s presence, businesses within 600 yards would not exist. Even if that business is the Menards located on that busy 72nd Street corridor.

Presently, Ralston has turned back $2.1 million to its local coffers. While these tax payments to Ralston come at an opportunity cost to the state, Ralston residents themselves will also endure a painful form of budget crowd-out. They will have to pay more local taxes for the Arena and less on other essential city services going forward.

But whatever the years and yardage, stadium-type venues tend to redirect other entertainment and leisure dollars rather than increase the total amount of local spending.[2] That makes the basis for increasing the share of turnback payments questionable at best, and a perverse incentive to repeat these mistakes at worst.

Local control must go hand-in-hand with local accountability. Local elected officials and the 80 percent of Ralston voters who approved the Arena assumed the risk that comes with investing their taxpayer dollars in a commercial project.

There was no guarantee the Arena would attract the amount of events and revenues that local officials promised, and little care was taken to mitigate that risk.

The Ralston Arena plan was poorly structured and did not include any private investment. From the beginning, economists and other city officials questioned the project’s inordinately high profit projections,[3] which Mayor Groesser now acknowledges were based on faulty assumptions.[4] Investigative reporting shows he is also now employed by the real estate company that received the Arena’s no-bid consulting contract five years ago.[5]

It would be wrong for the Nebraska Legislature to further withhold funding from schools in Chadron or roads in rural Lincoln County so Ralston can get a legislative bailout for its financially troubled Arena.

While undesirable, a local restaurant tax, or an increase in the local option sales tax above 1.5 percent would be a more appropriate funding source for this voter-approved project. And contrary to the Arena’s sales pitch, increased local property taxes seem unavoidable, at least until the debt is retired.

Though no one should take any pleasure in Ralston’s difficulties, it would impart the wrong lesson to other municipalities for state taxpayers to provide added support to a locally-approved project that has failed to meet expectations.

[1] Sports Arena Facility Financing Assistance Act, Nebraska Department of Revenue, http://www.revenue.nebraska.gov/government/sports_arena_fin.html

[2] Coates and Humphreys, “Professional Sports Facilities, Franchises and Urban Economic Development.” University of Maryland, Baltimore County, 2003. http://economics.umbc.edu/files/2014/09/wp_03_103.pdf

[3] Hansen, Matthew. “Hansen: Ralston Arena’s spiral into financial turmoil is a familiar refrain for economists.” Omaha World Herald, Sept. 9, 2015. http://www.omaha.com/columnists/hansen/hansen-ralston-arena-s-spiral-into-financial-turmoil-is-a/article_1708935f-4db7-5e9e-9719-0aac139c07a7.html

[4] Moring, Roseann. “How the Ralston Arena became a financial ‘train wreck,’ and dragged the city with it.” Omaha World Herald, Sept. 1, 2015. http://www.omaha.com/news/metro/how-the-ralston-arena-became-a-financial-train-wreck-and/article_976b8240-6677-5013-97cb-ef67f4ea7ce7.html

[5] Winter, Deena. “Ralston mayor now works for the company he picked as arena consultant.” Nebraska Watchdog, Sept. 4, 2015. http://watchdog.org/236922/ralston-arena-2/

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