For the past week, there’s been a lot of talk that Scott Walker’s proposed $300 million in cuts to the UW System directly coincides with his $220 million financing plan to build a new arena for the Milwaukee Bucks.
At first glance, it’s an understandable viewpoint. They were both announced on the same day and the dollar figures are relatively similar. But it’s also a false equivalence—directly associating these two is an oversimplification that ignores the practical structure of the arena proposal.
Walker’s arena plan calls for $220 million in state-issued bonds that will be paid back, with interest, from revenue generated by player income taxes. This is known as the jock tax, in which Wisconsin taxes the per-game earnings of all NBA players who come to play in Milwaukee, whether they play for the Bucks or not.
According to the Milwaukee Journal-Sentinel, the state’s current annual revenue via the jock tax is $6.5 million. All that money goes into public funds and will continue to do so, but anything generated above that $6.5 million baseline will go back toward the state bonds.
This is key. There are no new taxes on Wisconsin residents. There is no diversion of existing revenue away from public funds.
And the annual jock tax revenue will absolutely increase above that $6.5 million figure. The Journal-Sentinel expects it to rise by 25 percent in 2017. The NBA is a booming business, having just signed a massive television deal that represents a 180 percent increase from the previous media rights agreement.
Will player salaries also increase by 180 percent? Not necessarily, but according to Grantland’s Zach Lowe, the salary cap could hit $90 million by the end of the deal, which would be a 153 percent increase from the current cap. Make no mistake—player salaries are about to explode, and the jock tax revenue is going to surge along with them.
Plenty of studies show that a new arena doesn’t create additional long-term economic benefits compared to the old one. But that’s not the argument here. The Bucks’ situation is unique because the NBA will buy the team if a new arena isn’t agreed upon by 2017.
If the Bucks get to that point, consider them gone. Though the NBA seems to genuinely want the Bucks to remain in Milwaukee, it would want to maximize its profit if the team eventually became a league asset. That means an investor from Seattle or another big market would acquire and likely relocate the Bucks. The existing jock tax revenue that helps fund public projects would leave with them.
The team’s ownership hasn’t exactly disappeared and put the burden entirely on the state to keep the Bucks. They bought the team for $550 million and have pledged $150 million to arena construction. That’s a $700 million investment for a franchise that, according to Forbes, is only worth $600 million.
Add in the fact that former owner Herb Kohl has promised $100 million himself, and the Bucks have raised $250 million for a new arena via private money. Bucks games will likely only make up about a quarter of the total number of events in the new facility, yet the private sector has contributed more than half the cost.
While the owners certainly have the financial means to fund the entire project, anyone who thinks this would actually happen is living in an idealistic fantasyland. There was always going to be some form of public financing in this deal. For better or worse, that’s just the reality of how development projects work.
Now, the state of Wisconsin cannot continue to slash the UW System’s budget, especially to a $300 million extent. But to say education cuts and an arena proposal are a simple apples-for-oranges swap is flawed logic. The two are not mutually exclusive. The arena would utilize a gradual, long-term financing plan that prevents an existing source of public revenue from leaving the state.
You can hate the $300 million in UW System cuts; in fact, you probably should. But don’t blame the Bucks. Direct your frustration elsewhere.
Does Walker's arena proposal make sense? Is there a better way to finance a new facility? Email Jim at jim.dayton@dailycardinal.com to share your thoughts.
