Avoiding Direct Accountability for the Stadium

Insiders will find the levers that they have to pull.  As public opinion in Rhode Island pushes back against one proposal to build a new minor league baseball stadium after another, those insiders bury their intentions one layer after another under complexity.

The most straightforward approach to funding a new baseball stadium with public subsidies would be to put a bond initiative on the November ballot, seeking voter approval for the funding.  Because that process would serve as a referendum, controversy would end as soon as it passes (if it does), and because the bonds would have the full and explicit backing of the state, the cost would be lower.  Presumably, the insiders don’t trust the public to vote as they want.

The next approach is that of the legislation proposed first in the Rhode Island Senate.  Using the accounting trick of simply authorizing a quasi-public agency to take out debt premised on future revenue, the state government skirts the constitutional requirement to receive voter approval for new debt.  The bill explicitly lays out who is responsible for what debt and investors could expect the state and city governments to consider themselves to have a “moral obligation” to pay the debt, just as they did with 38 Studios.  This makes borrowing a little more expensive, but that’s a small price to pay for skirting public disapproval.

Then there’s the legislation backed this week by Democrat Speaker of the House Nicholas Mattiello that moves the debt obligations one step farther into legal haze in order to avoid the public’s expressing its disapproval by voting him and his allies out of office.  It’s difficult not to read the bill as an elaborate trick.

Like the Senate version, this PawSox stadium proposal estimates the total cost of building at $83 million and attributes $45 million of that to the PawSox organization itself — $12 million in direct investment and $33 million in debt premised on future revenue for the team.  The central feature of the new approach, however, is simply not mentioning where the other $38 million will come from.  The bill describes, in general terms, what revenue the state and city will commit to providing, but all of the details around that revenue and the debt would be worked out after the fact.

The bill may attempt to hide the public backing of the debt by not writing it down, but laws that aren’t expressly rewritten have to be followed, and here the legislation finds it necessary to admit that the bonds must be “issued… in accordance with the provisions of chapters 31, 32 and 33 of title 45 of the general laws.” Those statutes deal with quasi-public agencies, and they make the Pawtucket Redevelopment Agency a creation of the City of Pawtucket.

While the legal language quickly becomes a web of insinuations about when the city has to approve debt and when it might not have to, most people would understand this to mean that the city ultimately backs the agency, at least to the extent that it wants to be able to do what the agency allows it to do in the future.  In other words, even if there is no statement anywhere in law or contract stating that the City of Pawtucket has some sort of responsibility to back the loans, if the PawSox deal were to undermine the fiction that quasi-public agencies have public backing, investors wouldn’t be as keen to risk their money on that fiction in the future.  Even more:  This new skepticism will spread well beyond Pawtucket and even Rhode Island.

That puts the city and the state in the position, on the one hand, of needing to ensure that a quasi-public never defaults on a loan and, on the other hand, of having sworn across the state that there isn’t even a “moral obligation” for them to provide that support.  That’s where the rest of the legal language (and the trick) comes into play.

The revenue from the city and state are defined in the legislation as follows (paraphrasing):

  • City Economic Activity Taxes: existing tax revenues from activities at McCoy Stadium and incremental tangible asset taxes, hotel taxes, food and beverage tax revenues and non-real property assessments generated in and around the Downtown Pawtucket Redevelopment Project
  • City Tax Increment Revenues: incremental real estate property taxes, special assessments on real property and betterment fees generated in and around the Downtown Redevelopment Project
  • State Economic Activity Taxes: existing tax revenues realized from activities at McCoy Stadium and tax revenue in the Ballpark District of the Downtown Pawtucket Redevelopment Area (includes sales and income taxes)

The “Ballpark District” and the “Downtown Pawtucket Redevelopment Area” will both be defined by the Pawtucket Redevelopment Agency, exclusively.  If this legislation passes, the state government will be allowing the agency to set the boundaries for an area in which any tax revenue for the city or state will go straight to paying the bonds.  Moreover, there is no language saying that the agency is stuck with whatever boundaries it initially sets.  If the revenue is coming in too low, the agency could theoretically expand the district to encompass the entire City of Pawtucket, and state and local taxpayers would have to make up for that lost revenue somehow.

This mechanism sheds a different light on the new eminent domain provisions of the law, as well.  Under the draft language, eminent domain powers would be expanded for the ballpark project to include not only buildings or properties that are “blighted,” but also any building or property in the area.  That includes residential and every other type of property.  It would also allow the agency to take property by eminent domain and then trade it for other property that would be too expensive or difficult to take.

These new powers are so broad that one can only speculate about the motivation and consequences.  But imagine a circumstance in which the agency is coming up short on its bonds.  It could expand the Ballpark District to include a residential neighborhood, trade that property to a business that owns commercial property elsewhere in the redevelopment area, give the original property to another private business, and potentially count all of the taxes and fees from both businesses as “incremental” revenue to pay off the bonds.

To be sure, the agency would never risk doing these things without the back-room approval of state and city officials, but the key feature of the trick is hiding the risk to taxpayers.  If anybody even notices that the Pawtucket Redevelopment Agency is doing these things, politicians can brush aside responsibility by pointing to the law.  If the public outrage begins to threaten their careers, the politicians can hold show hearings as the voice of public outrage, and then legislation to change the law could quietly die a “further study” death or the legislature could find some other way just to make direct payments to pay off the debt.

All of these new arrangements are undertaken — at least in public statements — in order not to lose revenue from the PawSox.  However, the city and state will be giving up that revenue for 30 years, anyway, as well as any new revenue within an area defined by a quasi-public agency of a single city.

The scheme to build a new baseball stadium gets more risky and harmful every time the public rejects a version.  The public should therefore reject each new version more strenuously, and elected officials should give deep consideration to the rifts and ill will that will permeate state politics for decades to come if the insiders manage to push it through anyway.

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