Articles

Where Is the Money? Detroit, Stadium Bonds, and Municipal Funding For Culture

by Mostafa Heddaya on July 31, 2013

When Michigan governor Rick Snyder recently affirmed that Detroit’s $650 million hockey stadium, to be financed with a mix of $450 million in state bonds and private moneys, won’t be derailed by the city’s economic woes, the stark contrast with the fate of the city’s beleaguered art museum could not have been more apparent. Sports stadiums have long flourished in the face of even the greatest economic illogic, popping up like fiscally perverse mushrooms on the backs of fat taxpayer-lubricated financings. This is a topic that has not escaped scrutiny in recent decades, as the public-private partnerships behind stadium deals have grown ever larger and frequently reek to high heaven of political horse trading and financial mismanagement.

That criticism has been leveled against stadium deals for some time. In a report connected with the Brookings Institution’s 1997 book Sports, Jobs, and Taxes, the think tank noted that many of the rationales presented to the public for supporting stadiums dramatically overstate financial advantages to the regional economy. Citing the campaign slogan behind the San Francisco 49ers stadium plan, “Build the Stadium—Create the Jobs!”, the authors lambaste the economic bad faith of stadium advocates writ large:

Unfortunately, these arguments contain bad economic reasoning that leads to overstatement of the benefits of stadiums. Economic growth takes place when a community’s resources — people, capital investments, and natural resources like land — become more productive. Increased productivity can arise in two ways: from economically beneficial specialization by the community for the purpose of trading with other regions or from local value added that is higher than other uses of local workers, land, and investments.

In other words, economic development only occurs when a given development plan materially evolves the local or regional economic landscape in some way — like, say, an art museum, which increases the supply of highly educated and uniquely specialized labor. Sports stadiums, unlike art museums, simply draw a few more jobs from existing economic sectors — unskilled labor, business managers, hospitality, a small medical staff, and so on. The argument that I’m extrapolating from the Brookings report is in this way different and significantly more basic than Richard Florida’s hyperbolic advocacy for the “creative class.” Once we accept, as Brookings and many economists do, that the differentiation of labor is a key feature of growth, it becomes fairly intuitive that public funding for museums and other cultural institutions is, at least theoretically, more economically desirable as a policy of urban development than building sports stadiums.

And economists have indeed argued powerfully against the value of public subsidies for stadiums. Though it may seem like funding them is just good business sense, that couldn’t be farther from the truth. Most bonds issued to finance stadiums are actually not secured directly by ticket proceeds, but rather by minuscule surcharges, fees, and rents (e.g. the case of another National Hockey League team, the Phoenix Coyotes, and their bankrupt host city). While ticket sales line the pockets of obscenely profitable national sports franchises, taxpayers are left footing the bill when other economic realities intervene. In this way, even relatively successful sports franchises can be a terrible deal for the municipalities in which they are located.

There also happens to be a small municipal bond market for museums and cultural institutions (universities, both public and private, are much larger issuers of bonds), though that market is still dwarfed by the public debt issued for sports venues. New York City, unsurprisingly, leads the way with such bonds, all issued through a central organ: The Trust for Cultural Resources of the City of New York. The TCR has issued bonds for a laundry list of the city’s greatest cultural bodies:

The Alvin Ailey Dance Foundation, American Museum of Folk Art, the American Museum of Natural History, The Asia Society, Carnegie Hall Corporation, Educational Broadcasting Corporation, The Solomon R. Guggenheim Museum, International Center for Photography, The Jewish Museum, The Juilliard School, Lincoln Center for the Performing Arts, Inc., Manhattan School of Music, The Metropolitan Museum of Art, The Museum of Television and Radio, The New York Botanical Garden, The Pierpont Morgan Library, School of American Ballet, Inc., The Whitney Museum of American Art, Wildlife Conservation Society and WNYC Radio.

The TCR notes that all the bonds it has issued that have come to maturity have been paid in full, but is careful to note that although these bonds are income-tax exempt, like municipal bonds (which is one of the main incentives for their ownership), the organization is structurally apart from the City and does not have the power to levy taxes. Some are unsecured revenue bonds, like the Whitney’s 2011 $125 million issuance, which means that they are “general obligations” of the Museum. Others, like the Museum of Modern Art’s $38 million bond issued in 2012, are secured by a pledge of Tax Equivalency Payments made on the units in the Museum’s Residential Tower (MoMA has also issued significant amounts of unsecured revenue bonds). As far as I can tell, museum debt has never been secured by specific assets, whether that be buildings or artworks, and that certainly isn’t the case with either of the aforementioned deals.

It’s worth noting that the TCR has been successful with one notable exception: the American Folk Art Museum, which remains the only entity to have defaulted on TCR-issued debt. But in general, these types of bonds seem to have done reasonably well, both in New York and elsewhere, even in the face of economic uncertainty.

Beyond the many hairy details of municipal finance, there are several key differences between sports stadiums and museums. First, sports franchises are for-profit businesses, driven by money-making rather than any sense of geographic loyalty or stewardship. (Just ask Seattle. Or Miami.) Second, sports have an easy, populist appeal, making preposterous financial deals for stadiums an easy draw for politicians — a rare opportunity to butter their bread on both sides — at once sating the businessmen who bankroll them and the hoi polloi who elect them. (Never mind that the reality of professional sports in America tends instead toward inequality, corruption, and a culture of misogyny and homophobia.)

The cynical populism of sports probably explains why politicians continue to pursue stadium deals despite the extensive evidence against their economic value. Writing in The Nation in 2011, Neil DeMause cites the economist Robert Baade as the author of the initial landmark study on the topic in 1984, in which he concluded that in 27 of 30 cities surveyed, stadium construction had no measurable economic impact. DeMause continues to note that despite the mounting evidence against the sports-municipal complex, the money spent on such projects continues to rise stratospherically (from $6.5 billion in the 1990s to $10.1 billion the following decade).

The situation in Detroit should rightfully anger any conscientious observer of politics, economics, and culture alike, and especially appall those opposed to the perpetually corrupt relationship between government and finance. But this outrage should lead to a broader conversation about how we can deploy the public coffers, and the public bond market, to creatively aid museums and other institutions. The TCR in New York has largely demonstrated that such a funding system is viable — but will voters in other cities, ever ready to look the other way when it comes to beloved sports teams, consider underwriting the expansion and preservation of something less ephemeral?

A key step toward reforming the dismal state of cultural institutions in the United States involves reframing the debate in less abstract terms. It’s easy to get angry at the boorishness of Governor Rick Snyder when he calls art an “asset” while giving the go-ahead for a major, publicly financed stadium deal in the very same city. It truly is a perverse attitude, not because it debases culture, which is something an effete elitist might think, but because it refuses decades of well-established economic realities in favor of crass pandering. Every generation sees the fractured politicking of imagined “culture wars,” but what has long been at play in American politics is something more devastating — a war against culture.

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  • SBoA

    While I agree that publicly financing private stadiums is stupid, I stopped reading this piece after this line: “an art museum…increases the supply of highly educated and uniquely specialized labor.” WTF does this mean? Part of me thinks you are conflating supply and demand, but more cynically I think you’re latching on to Detroit porn in a desperate page click grab. For shame. (Hopefully Hrag fires someone over this.)

    • Mostafa Heddaya

      “WTF does this mean?”

    • Jillian Steinhauer

      How is making an argument about the value of museums over stadiums latching onto Detroit porn?

  • Mostafa Heddaya

    You’re reading an economics term of art, “labor supply,” into a sentence that happens to contain both the word “supply” and “labor.” The argument is about increasing the diversity/differentiation of labor within a given labor region.

    • SBoA

      Um, maybe re-read the article that is the apparent impetus of your
      blog post? It is talking about labor supply in the “economics term of
      art” sense. We’re both agreed that publicly funding private sports
      stadiums is dubious. Not sure that the connection to Detroit and the DIA
      is anything other than gratuitous link baiting.

      Hilarious that you edited-by-deletion the last part of your last comment!

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