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California

Troy Senik
Field of Schemes
Crony capitalism is alive and well in L.A.’s pursuit of pro football.
18 October 2011

California, a state whose greatest innovation in recent years has been finding creative ways to inhibit economic growth, stepped out of character in late September: it went easy on a developer. Seated at a table outside the Los Angeles Convention Center, Governor Jerry Brown signed a bill expediting the resolution of legal challenges to—and thus speeding the construction of—Farmers Field, the stadium that, its backers hope, will usher in the National Football League’s return to the City of Angels.

This is the latest step in L.A.’s nearly two-decade-long effort to exorcise the Ghost of Christmas Past. The yuletide in question was in 1994, when both of the region’s professional football teams—the Los Angeles Rams and the Los Angeles Raiders—played their final games in the Southland on Christmas Eve. By the time the next season rolled around, the Rams had decamped to their new home in St. Louis, and the Raiders had retraced their steps northward, departing downtown L.A. for Oakland, the city that they left in 1982.

The nation’s second-largest media market has gone without a professional football team ever since, but not for lack of effort. Several plans gained early traction but fell apart later. In the mid-1990s, Peter O’Malley, then the owner of baseball’s Los Angeles Dodgers, sank more than $1 million into the development of a new stadium, only to see the plan grind to a halt when members of the city council proved unwilling to entertain the idea of a new football team’s playing anywhere other than the government-owned Los Angeles Memorial Coliseum. In early 1999, the NFL announced that Los Angeles had been awarded an expansion franchise, but canceled the deal later and gave the new team to Houston. The reason? L.A.’s chaotic bid failed to produce such basic requirements as an ownership group, a financial plan, and a stadium location. In the intervening years, other similarly half-baked proposals have fizzled.

In recent months, however, the tide seems finally to have turned. The sports and entertainment behemoth AEG received unanimous support from the city council in August for the financial plan to build Farmers Field in downtown Los Angeles. Brown signed the bill accelerating AEG’s legal process about six weeks later. A competing stadium project, helmed by billionaire real-estate developer Ed Roski and slated for the City of Industry, an L.A. suburb, has already received building permits and won exemption from the state’s onerous California Environmental Quality Act in a bill signed in 2009 by then-governor Arnold Schwarzenegger. Which NFL franchise will choose to relocate to Los Angeles is not yet clear. The city is likely to get only one team in the immediate future—though there is already talk of a second team’s coming later—so it’s a fair bet that only one of these stadiums will be built. But each is making more progress than any Los Angeles football plan in years.

Part of the reason that both projects are moving forward where others failed is that they are shunning public financing. As former governor Gray Davis told ESPN’s Arash Farkazi: “Even in boon [sic] times, Californians are very suspect of allocating public money to build a stadium. In bad times, it’s simply impossible. The state has a tradition of not spending public money on stadiums or arenas. For example, 1999 and 2000 were good years in California and even in those good times there was no appetite in spending public money.” The Southland’s would-be builders have voiced similar sentiments. At a speech to an industry group in April, AEG president Timothy Leiweke said that his counterparts should focus “on trying to figure out how the private sector can step up and formulate these visions without necessarily expecting the taxpayers to write the check.” He added, “Let’s agree that it is the private sector that must now step up and take the risk.” Roski has said much the same, pledging to build his stadium with private money.

The reality, however, is more complicated. The AEG project—widely considered more likely to materialize than Roski’s—is not, in fact, free of taxpayer commitments. Under the framework passed by the city council in August, Angelenos would be on the hook for $275 million (about 4 percent of the city’s entire annual budget) in tax-exempt bonds—this in a city that teetered on the edge of bankruptcy just 18 months ago. AEG has pledged to pay back nearly three-quarters of that money through the revenues that a new team would generate. But the hefty relocation fee that the NFL charges teams that switch markets—which, one legislative analysis estimated, may exceed $500 million—could leave the endeavor operating at a loss for years to come, thus delaying AEG’s repayment to the city. The remaining debt obligations would be financed through an accounting trick, using AEG’s lease payments and new tax revenue from the stadium—money that would otherwise accrue in the city’s general fund.

The plan even manages to debit taxpayers in other states. Los Angeles officials in February used $1 million in federal community-development grant money—earmarked for “the most vulnerable in our communities”—to move the architecture firm working on Farmers Field from Santa Monica to a location near the site of the future stadium. The highly questionable idea was that a new stadium would produce enough economic benefits to qualify as a public good, though the experiences of similarly situated cities in the past have almost universally disproved that supposition.

When Governor Brown signed the bill speeding up the AEG project, he said, “There are too many damn regulations, let’s be clear about that.” He was certainly correct about the excesses of California’s regulatory regime. But he ignored the fact that the same bureaucracy that impedes stadium projects with stratospheric price tags also chokes off prospects for much smaller businesses throughout the state. While enormous corporations like AEG and Roski’s Majestic Realty can grease the legislative skids to make their development projects viable, small and midsize entrepreneurs enjoy no similar source of relief. Removing those burdens for all Californians, at a time when the state’s unemployment rate is stuck above 12 percent, would demonstrate a serious commitment to jump-starting economic growth. Removing them for just a privileged few is nothing more than crony capitalism.

Troy Senik is a senior fellow at the Center for Individual Freedom and a contributor at Ricochet.com.

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