It's a widely accepted maxim of New York politics that no mayor can afford to be remembered as someone who stood by helplessly while the Yankees, the Big Apple's oldest and most beloved sports franchise, abandoned the city. Rudy Giuliani happens to be a lifelong Yankee fan who clearly relishes every moment he spends in team owner George Steinbrenner's box at Yankee Stadium. So it's understandable that this particular mayor would be even more attentive than most to Steinbrenner's warning that he's about to leave town unless New York City gives him a brand-new ballpark with lots of luxury boxes and other expensive amenities.
Even so, Giuliani's determination to use a half-billion dollars of taxpayer money to build a glittering new field of dreams for the Yankees on Manhattan's West Side is a terrible idea. It is a dismaying retreat from the pledge of lowering taxes and reducing government intrusion into the economy that helped get the mayor elected in the first place. Make no mistake: this is not just one more in a long list of business-retention deals involving tax breaks for corporations with clout at City Hall. With a price tag that could reach well over $1 billion—in hard cash, not tax concessions—the Manhattan stadium project would be the most expensive publicly funded facility in the history of professional sports. More significantly, it would create the precedent of city government trying to make investment decisions in the private market by transferring tax revenues directly from one group of Manhattan businesses into the coffers of a more favored business. That's the exact reverse of the fiscal policies Mayor Giuliani needs to be following to help the city achieve real economic growth—the biggest unmet challenge of his otherwise successful administration.
With New York's politicians debating just how much government should do to help out the private business called the Yankees, it seems almost quaint to recall that the House that Ruth Built 75 years ago was financed entirely by the then owners of the team. That private investment paid off handsomely as the Yankees flourished. George Steinbrenner's original 1973 investment of about $10 million has also been returned umpteen times over, and, according to recent press reports, Steinbrenner and Cablevision have been discussing a sale of the franchise for a figure in the range of $500 million.
For the past several years, however, Steinbrenner has been arguing that Yankee Stadium has become obsolete. He has complained loudly that the run-down neighborhood in the southwest Bronx where the stadium is located makes it impossible to attract enough paying customers to keep the Yankees competitive. Never mind that even playing in the déclassé Bronx, and in its allegedly outmoded stadium, the team remains the richest franchise in baseball—indeed, in all of professional sports. Although the Yankees only came in fifth in stadium revenues during the 1996 world championship year, the club's total revenues were $129 million—$26 million more than the amount earned by the next-closest franchise and more than twice the average of all major-league teams. What makes the difference is the media revenue the team derives from being in New York City—$70 million in 1996. Steinbrenner, or whoever owns the Yankees, will ultimately have to think twice or three times before deciding to leave the most lucrative media market in the country.
With professional sports leagues continuing to enjoy protected monopoly status, and with more and more cities competing with one another for an artificially limited number of franchises, the owners have usually found themselves in the driver's seat when bargaining with government officials over stadium deals. As a result, public subsidies to professional sports teams are now costing the country's taxpayers about $500 million per year. In the 1990s, states and localities built six major-league baseball stadiums, but the owners of the respective teams contributed only 13 percent of the total costs. Paul Allen, the co-founder of Microsoft and the third-wealthiest man in America (net worth: $17 billion), recently offered to buy the Seattle Seahawks football team, but only on condition that the city of Seattle pay 75 percent of the estimated $425 million cost of a new stadium. In 1982, the state of Minnesota and the cities of Minneapolis and St. Paul built a brand-new, state-of-the-art domed stadium for the Minnesota Twins. The Twins' owner, Carl Pohlad, is now insisting that the 16-year-old stadium is obsolete. Threatening to move the Twins, he is demanding that Minneapolis build him another brand-new, baseball-only stadium at a cost of several hundred million dollars.
Very few elected officials at the state or local level have been willing to call the team owners' bluff and say no to this mug's game. Thus, we have a situation neatly summed up in a study entitled "Sports Stadium Madness," issued by the Heartland Institute, a Chicago-based conservative think tank: "The U.S. is in the grip of a massive taxpayer-financed spending spree on sports stadiums."
In this climate, it's not hard to see why George Steinbrenner figured that he, too, could get a brand-new stadium at the city's expense. Despite enjoying a sweetheart lease for the current Yankee Stadium (the city has collected just a few million dollars in rent from the Yankees over the past two decades, while the value of the franchise has gone up 50-fold), Steinbrenner believes, not unreasonably, that he can get more. Much more.
The first public suggestion that Steinbrenner's problems in the Bronx might be solved with a brand-new, taxpayer-financed stadium on Manhattan's West Side came from onetime Cuomo administration officials Vincent Tese and Meyer Frucher in the early nineties. The Cuomo administration had just finished building the $2 billion Javits Convention Center on the same West Side—complete with huge cost overruns, sweetheart deals with the construction industry, mob control of the facility, and, most significantly, never-to-be-realized promises of further economic development on the West Side. Now Tese, former UDC head, and Frucher, head of Battery Park City, were at their state capitalist endeavors again—promising big economic returns for the city if it built a stadium on a platform over the abandoned rail yards located just a few blocks from the Javits Center. (At the time, Frucher happened to be a top executive of the giant Olympia and York real estate firm, owner of a large parcel of land next to the proposed stadium site.)
Studies conducted for the city in 1996 by the KPMG accounting firm and the Hellmuth, Obata & Kassabaum architectural firm concluded that a baseball-only stadium on the West Side would cost at least $850 million. However, given the experience of cost overruns on similar, publicly financed construction projects in the past, including the infamous Javits Center, the final figure could easily reach as high as $1.5 billion—or about three times the amount spent on the most costly new stadium in the country. It was obvious that the Yankee owner—even if he were so inclined—wasn't in a position to finance something that would cost about three times the value of the entire Yankee franchise and about 12 times the team's annual revenues.
Unfazed by the vastness of the project, the Giuliani administration jumped on the West Side stadium bandwagon. In a stunning reversal of his previous pledge to eliminate the commercial rent tax, the mayor decided that if the city kept this onerous levy going for three additional years, it would generate $500 million that could be used to finance the stadium. City Hall would then be forcing all the businesses south of 96th Street in Manhattan to pay the capital costs of a facility from which one other business would receive the primary benefit. Such benefit as the city's economy might receive would be extremely indirect, since the players who receive the lion's share of the team's revenues aren't New Yorkers and spend almost all their money out of the city.
Meddling in the private capital market was characteristic of the failed economic policies of the Carey and Cuomo administrations, which soaked taxpayers for such megaprojects as the Javits Center and Battery Park City. These government-initiated developments made a small group of contractors, real estate firms, bond houses, and law firms very rich, while doing little for the overall economy—though at least most of the money stayed in New York City. In the meantime, the state's debt mounted. William J. Stern, a chairman of the Urban Development Corporation under Cuomo (and now a City Journal contributing editor), has described this policy as "state capitalism." It is based on the almost universally discredited idea that government bureaucrats are better equipped to allocate capital for the city's economic expansion than the private capital market is.
That's not the policy that those who voted for Rudy Giuliani expected. The Giuliani agenda, supporters thought, included reducing the outsized role of city government, lowering taxes, and encouraging the private economy. Giuliani seemed to be honoring that commitment two years ago when he proposed eliminating the commercial rent tax, perhaps the most counterproductive of the many taxes that the city imposes on its business base and a perfect embodiment of the wrongheaded economic policies previous city administrations followed. For Giuliani to renege now on the promise he made to the business community sends a clear message that his administration is not as serious about reducing the cost of doing business in the city as he led supporters to believe, and that businesses can't take his economic promises seriously enough to incorporate them into their financial planning.
Like the Cuomo administration, the Giuliani administration has tried to justify its venture into state capitalism as an economic boon for the city. Stung by criticisms about the enormous cost of the stadium project, the administration engaged in some dubious economic forecasting. Last spring the mayor's office asked the City Planning Department and the Economic Development Corporation to provide it with estimates of the economic impact on the city of the various alternative stadium proposals. In April, Joseph Rose and Charles Millard, the commissioners of the two agencies, replied with a five-page memorandum.
Were the projections in the memo to be believed, one could only conclude that the city ought to be in the permanent business of building sports stadiums and other entertainment facilities. According to the two commissioners, the taxpayers' investment in the West Side stadium will be returned many times over. Their memorandum stated that the "total annual economic impact" of building the new stadium would be $1.12 billion, representing an increase over the economic activity generated by the current Yankee Stadium of $1.03 billion.
The major source of this huge amount of additional economic activity, according to the memo, would be the "2.25 million square feet of additional development" on the West Side that the stadium would spark. "For example," said the memo, "this development might include two 600-room tourist hotels, new restaurants, a mix of mall-type retail stores, one or more anchor stores, a multiplex cinema, and three 200,000-square-foot office buildings." Based on this projection, the commissioners also calculated that the city would take in $46 million per year in additional taxes.
And how did the two Giuliani commissioners come up with the exact numbers to justify this prediction of a West Side commercial boom? Calls to their offices produced no answers. Nor did a call to the city consultant on the stadium financing, Philadelphia-based Public Financial Management, produce any further enlightenment. According to an official at PFM, the city never asked the company to do any economic projections of so-called ancillary economic development that the West Side stadium might produce. The same official noted that the projected costs of the West Side stadium are so high because of the presumption that anything built in New York will be 40 percent more expensive than it would be anywhere else in the country. Reasons: the highest tax rates in the country, featherbedding construction unions, and excessive city and state regulation of private economic activity.
Unable to back up the less-than-weighty Rose-Millard memo, the administration is now saying that it intends to commission another study to support its projections on West Side economic development. One can only wait and see.
In the meantime, what we have on the table are dozens of reputable economic studies and analyses that argue that sports stadiums, whatever other reasons cities may have for building them, cannot reasonably be justified by expectations of increased economic activity. This consensus runs almost across the board, from economists on the right to those on the left.
Last spring the city's Independent Budget Office, New York's recently established municipal version of the federal GAO, released a professionally done study that raised serious questions about any general economic payoff to the city from the new stadium. While conceding that such a facility would greatly increase attendance and revenues for the Yankees and create enough new jobs to increase city tax collection by about $5 million, the study debunked the notion that there would be a broader economic dividend for the city economy. "Research consistently finds," the study concluded, "that new stadiums do not produce economic growth in metropolitan areas. . . . Stadiums do not lead to increases in tourism, nor do they serve as a significant attraction to non-retail establishments."
The administration often argues that the IBO is politically tainted. But consider the aforementioned Heartland Institute. It has taken the position that "the net economic benefit of professional sports for a host city is usually negligible, and may even be negative," and it has recommended fan and taxpayer revolts against "sports stadium madness." There is also the free-market-oriented Pioneer Institute in Boston, which has strongly argued against government-aided stadium projects, because "publicly funded convention and sports facilities almost never generate enough revenue to return any of the capital invested." At a conference the institute ran several years ago about a proposal to provide public subsidies for a sports/convention facility in Boston, a representative from the World Bank stated that if Boston were a developing country, the bank would recommend against this project.
The liberal Brookings Institution recently published Sports, Jobs & Taxes, a collection of academic studies on the economic impact of new stadiums. "The overwhelming consensus of opinion in these studies," Brookings concluded, "is that the local economic effect of a sports facility is between nonexistent and extremely modest."
Despite all this evidence, elected officials sometimes succeed in convincing the public that sports stadiums are worthwhile investments in local economic development. That's because new businesses do sprout up around relocated stadiums. No doubt, a new stadium on the West Side would attract new souvlaki stands and souvenir shops, new bars and restaurants, and possibly even a new hotel. Because attendance at Yankee games would increase—including attendance by fans from New Jersey, Westchester, and Rockland—some of the revenue these new businesses would generate might come out of the pockets of out-of-towners who might not otherwise have spent their money in the city. But a substantial amount of the revenue, Brookings' studies of Cleveland and Baltimore show, would represent merely a shift of entertainment spending from one part of the city to another.
More important, when arguing that a new stadium will have a "multiplier effect" in stimulating new business start-ups, public officials conven-iently ignore the "de-multiplier" effect, which works as follows. When government decides to take money, in the form of taxes, from one group of businesses in favor of another business, the city loses the potentially productive investments that the taxed businesses might have made with those funds. In the case of the West Side stadium plan, no one has asked the following question: What if the tax money spent on building the stadium were left in the pockets of the Manhattan businesses and used in the private market? The evidence is overwhelming that a substantial percentage of that $500 million would be reinvested in business expansions and start-ups. This would result in far more economic growth than any economic activity induced by the stadium, since private businessmen have an overwhelmingly better record as investors than government bureaucrats.
In a highly publicized visit to Camden Yards last spring, Mayor Giuliani gushed about the beauty and comfort of the new stadium, built with the help of the city of Baltimore and state of Maryland in 1992. He also took the opportunity to repeat the claim made by some Baltimore boosters and baseball people that everyone benefited from the public expenditure on the new stadium. According to the currently popular version, the Baltimore Orioles received more revenues and so could sign up more top players. As a result, the team moved up in the American League standings, drawing in still more fans to the stadium. Meanwhile, the people of Baltimore and Maryland not only had a better team to root for, but they also enjoyed expanded economic activity and jobs in the waterfront area near the stadium. In turn, city and state government received more taxes because of the higher revenues accruing to the Orioles, as well as from the expanded economic activity the stadium encouraged.
Parts of this version of the "Camden Yards miracle" are certainly true. Immediately following the construction of Camden Yards, average attendance at the stadium increased from 28,000 to 45,000. Most of the increased revenues to the team went to player salaries. In a few years, the Orioles went from being perennial also-rans to garnering division championships and getting into the post-season playoffs.
However, several recent definitive economic studies have demolished the myth that building the stadium led to overall economic betterment for the city and state. After a detailed cost-benefit analysis of the new stadium, Johns Hopkins University economists Bruce W. Hamilton and Peter Kahn reached the following conclusion: "Even at Camden Yards, public expenditure on the baseball stadium cannot be justified on the grounds of local economic development." The authors actually put numbers on the alleged economic payoff to Baltimore and Maryland residents: "We estimate that baseball at Camden Yards generates approximately $3 million in annual economic benefits to the Maryland economy, at an annual cost to the taxpayers of Maryland of approximately $14 million." Though economic activity increased considerably in the spruced-up waterfront area near the stadium, much of this represented a relocation of businesses from other parts of the city. And while it was true that Orioles fans were spending a lot more money in and around the new stadium, this too, was money that was shifted from expenditures in other Baltimore entertainment venues. Baltimore was an economically troubled city before the building of the new stadium. It still is.
In light of the mountain of negative findings in other cities, City Hall's vision of new hotels and office towers rising on the West Side as a result of a new stadium is as dubious as it is unsubstantiated. Such wild projections of general economic benefits accruing from publicly financed facilities were characteristic of the flawed economic development strategy of the Cuomo administration. It's a strategy that helped push the state's debt almost to the breaking point yet didn't succeed in taking New York's private economy out of the economic doldrums.
Anyone who has visited Rudy Giuliani's office at City Hall can testify to the depth of the mayor's passion for the Yankees. His anteroom, a shrine to Yankee supremacy, is lined with historical photos of the team's great moments, along with a newspaper headlining Babe Ruth's 60th home run. Growing up as a Yankee fan in Dodger-loving Brooklyn may be one of the sources of the mayor's legendary tenacity in the face of opposition; it certainly helps explain why he is so determined to get his way on the stadium. Nevertheless, his preoccupation with this issue has not served his administration or the city well.
When the mayor put the proposal to use the commercial-rent tax funds into the budget, City Council Speaker Peter Vallone was easily able to defeat the budget item in the Council. Vallone also got the Council to approve a referendum on this fall's ballot that would have allowed city voters to voice their preference for keeping the Yankees in the Bronx. In a countermove, the mayor then trumped Vallone by appointing a City Charter Revision Commission, whose proposals, under city law, will push any other referendum item off the ballot. But the mayor's hastily put-together Charter Revision Commission was so widely derided as a transparent ploy that he suffered a political setback. In a recent poll, 70 percent of New Yorkers indicated a preference for keeping the Yankees in the Bronx.
This doesn't mean that the politicians opposing the mayor's stadium plan are right, either, in their campaign to keep the Yankees in the Bronx. They have adopted a populist stance for crass electoral advantage. Peter Vallone, for example, is running for governor, and it would have helped him to have a stadium referendum on the ballot to bring out a larger vote in the Bronx. Much of the political opposition to the stadium project has focused on the "social justice" consequences of any move by the Yankees to Manhattan. Taking the Yankees out of the Bronx, it is said, would have a devastating economic effect on the city's poorest borough and thus hurt its predominantly poor and minority residents. Some have even argued, laughably but inevitably, that helping Steinbrenner move from the Bronx would constitute a form of racism.
In the midst of all this, few have noticed that all the counterproposals for keeping the Yankees in the Bronx would also involve the use of a substantial amount of city tax funds either to build the Yankees a new stadium or rehabilitate the old one—$535 million in the case of Bronx borough president Fernando Ferrer's recently-announced scheme. Speaker Vallone has never voiced any objection to a concurrent proposal that the city pay part of the cost of a new stadium for the Mets in his home borough of Queens.
In the ideal case, a mayor of New York ought to put his foot down and cut through "sports stadium madness." While making a reasonable offer to keep the Yankees in New York (including offering infrastructure and transportation improvements around the stadium and perhaps even some minimal tax incentives), such a mayor would make it clear that the overall goal of improving the economic prospects of all New Yorkers is more important than the so-called public good that comes from the presence of the Yankees. Such a mayor would also improve his bargaining power with the Yankee owner by warning New Jersey of serious repercussions from an offer to move the Yankees to the Meadowlands. (And where would Steinbrenner go if he could not swing a sweetheart deal with New Jersey? Charlotte?)
Given Giuliani's personal history, perhaps this is too much to expect. But at the very least, the mayor and the city would have been better served had he agreed to a referendum on the issue of using substantial taxpayer funds for a new stadium, regardless of where it was built. By allowing the taxpayers who would bear the financial burden of building the stadium to have some say on the matter, the mayor might have avoided the political fiasco of the Charter Revision Commission and, more important, gained more leverage to cut a reasonable deal with the Yankee owner. As precedent, there is the case of San Francisco: after a public referendum, in which the people of San Francisco turned down a proposal to offer heavy city subsidies to build a new stadium for the Giants baseball team, the owner of the team relented and agreed to come up with almost all the money for a more modest stadium.
But referendum or not, no mayor should allow the people of New York to believe that there will be a nickel's worth of economic benefit to the city in building a new stadium. Indeed, the mayor should be explaining that the price of any new New York stadium would include a 40 percent premium over the cost of one anywhere else in the country, because of the enormously high costs of doing business here, and that one of the principal causes of those high costs is a counterproductive tax system that includes such levies as the commercial rent tax.
Throughout the entire stadium imbroglio, Mayor Giuliani seems to have forgotten the central idea that has made his administration so successful and has helped capture the imagination of the country. The idea is that local government should focus its energies on the things it does best—for example, making the city safer and improving education—while cutting taxes and otherwise reducing the burden of government regulation on the local economy. That idea is still the best strategy for improving the lives of the people of Manhattan and the Bronx—whether either borough ends up having a major-league baseball stadium or not.
Mayor Giuliani is entitled to try to move the mountain a little to keep his beloved Yankees in the city. What he ought not to be doing in the process is to undermine his own political legacy and further impair the city's economic prospects.
