Kansas City found a $7M-a-year way around voters for new stadium

If you can’t beat ‘em, go around ‘em. That’s the new plan from Kansas City leaders on how to build the Royals a new ballpark.

That plan involves the city avoiding a public vote on the publicly funded stadium deal by using a significantly more expensive financing option while denying voters another say in the process after they broadly rejected another way to finance it.

“This is complicated, and it is unnecessarily complicated, and it’s intentionally been made complicated, so it’s hard to understand,” J.C. Bradbury, professor of economics at Kennesaw State University in Georgia, told Straight Arrow.

The project is estimated to cost roughly $3 billion in total, with taxpayers footing 60% of that bill.

How the bill is paid

How this works comes down to the bonds that would finance the stadium.

In terms of good governance, bonds are seen as a prudent way of paying for a public project over the life of the plan instead of forcing taxpayers to front the total cost immediately. The city plans to use bonds to get the money to help pay for a stadium. They’ll then repay that debt over a number of years with interest that’s typically lower than what someone would get from a bank.

The money for those bonds comes from investors like wealthy individuals, businesses, even retirement and pension funds.

“The way the law is structured right now is that cities and states can issue bonds where the holders of the bonds can exclude the interest earned from their federal taxes,” Austin Drukker, an economist with the Federal Trade Commission speaking on his own behalf, told Straight Arrow. “So that’s a tax-exempt municipal bond. That’s typically how it’s done. And what that results in is a lower interest rate compared to if it was a taxable bond.”

Those interest rates can fall further if their repayment is tied to a guaranteed revenue stream such as a new or extended sales tax increase. That was the original plan for the stadium, but voters overwhelmingly rejected it just two years ago.

Not to be deterred, the Kansas City Council voted for a $600 million ballpark subsidy anyway. However, it’s unclear where the money will come from to pay back that large price tag.

Without that assurance, bondholders are a little more wary of lending their money to the government. That means the interest rates on those bonds are higher, reportedly 1.475% higher.

Essentially, the city will be paying an extra $7 million per year in repayments just to avoid a public vote.

“Shame on every single representative who votes for this,” Bradbury said.

The new plan to pay that money back has largely not been fleshed out, but the money will reportedly come from general tax revenue, putting it in competition with funding for most of the city’s services.

The hope is the new stadium and surrounding businesses generate enough additional tax revenue to cover these payments. Otherwise, they have to hope city fire and trash trucks don’t break down too often.

“You can essentially make claims about the financing of it that aren’t really true about how it’s going to be a good thing for small businesses and a good thing for restaurants and a good thing for hotels and a good thing for all the people who work in those areas because they’re going to get they’re going to get rich off of the fact that there’s a stadium,” Roger Noll, professor emeritus of economics at Stanford University, told Straight Arrow.

The mayor’s office did not respond to a request for comment.

Avoiding a vote

Taxpayers are already pushing back. The city clerk in July certified a petition with 4,500 signatures that would require any public funding spent on a new stadium be approved at the ballot box.

However, city officials may have found a way to make sure that petition means nothing, and those 4,500+ voices aren’t heard. They argue that the petition and even a possible vote may not be able to stop a deal that’s already been executed.

“They are intentionally rushing this through, so they do not have to go to voters,” Bradbury said.

At least one lawsuit is already attempting to block this plan, although it focuses more on the property rights of a nearby condo building.

For the rest of the some 500,000 people of the city and the metro area population of roughly 2.2 million, Drukker said there’s a pretty good chance this will rub some of them the wrong way.

“If you ask them, they might be upset that they didn’t have a say in whether these bonds are issued because ultimately it’s their taxes that go toward any bond,” he said.

“That requires them getting enough information that they actually have an informed opinion about what its economic or financial impact would be, and that requires an organized opposition,” Noll added.

Politicians can face consequences in these situations.

Just ask Tim Lee, the former Cobb County Commission chairman in Georgia who championed the new Atlanta Braves stadium that opened in 2017.

Like the current situation, Lee and other leaders did not allow taxpayers a vote on the new stadium even though polling showed they would have approved it.

In 2016, Lee lost his primary race to Mike Boyce, a man who’d never held public office and who used the stadium deal heavily in his campaign against Lee.

In Nashville, the lone mayoral candidate in the 2023 race to vote against a stadium deal for the Tennessee Titans won the race while the incumbent dropped his reelection bid. That publicly funded stadium deal was not popular and, once again, voters were not given a chance to weigh in.

Publicly funded stadiums

Kansas City Mayor Quinton Lucas and other politicians have said this stadium will essentially fund itself and bring economic benefits to the area.

“Kansas City continues on its three-decade journey to build America’s finest urban core, bringing millions more tourists, tens of thousands of jobs, and billions of dollars of investment to the heart of the region,” Lucas said after the council vote went through.

But is that really the case when cities build new stadiums?

“The answer to this is an unambiguous no,” Bradbury said.

Decades worth of research backs Bradbury’s response.

Essentially all that research shows public spending in and around stadiums just replaces spending that would’ve come elsewhere. Meaning there’s very little economic benefit to these often expensive projects.

“Economists are generally agreed that these sorts of public expenditures on a sports stadium do not increase the economic activity of a city or state that’s creating them,” Drukker said.

Part of the reason these deals tend to be unpopular with taxpayers is that they’re seen as subsidies for the ultra-rich.

Kansas City Royals owner John Sherman is reportedly worth roughly $1.3 billion and stands to benefit from this new state-of-the-art stadium since it’s an asset of the team he owns even if they don’t own it directly.

This plan is the complete opposite of what happened in Los Angeles, where Rams owner Stan Kroenke essentially financed the building of Sofi Stadium himself.

Kauffman Stadium, the current home of the Royals, is the fifth oldest stadium in Major League Baseball. Despite that, it’s still widely recognized as one of the nicer parks in the league.

“They have a perfectly fine stadium to play in right now,” Bradbury said. “There’s no rush on this, so this deadline is purely artificial, and it is done to circumvent the will of the voters. And to me, and I say this not as an economist but as someone who values good government, it’s unethical.”

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