Monday, April 1, 2013

Analysis of the Twins Stadium Tax

Lisa Elliott
Laura Logsdon
Nathan Miao

Nick Swaggert
David Thorpe

The Hennepin County/Minnesota Twins' proposal for Target Field was approved by the State Legislature and signed into law in 2006. The proposal allowed Hennepin County to finance its share by issuing tax-exempt County revenue bonds payable with a .15% county sales tax increase. While a general sales tax is a less equitable tax, it has been highly adequate and fairly feasible and efficient.

Tax efficiency is measured by individual behavior and overall economic performance changes. In 2006, Hennepin County calculated it would need $20.4 million annually to pay off its ballpark bonds. But in fact, the county collected more than they expected from the .15% sales tax increase: $29.1 million[i] in 2008 and 27.3 million[ii] in 2009.  The public library system and youth sports programs receive some funding from the excess tax revenue, making people question what the impact[iii] will be to these programs when the ballpark’s bond is repaid and the .15% sales tax is eliminated. Thus the tax’s efficiency may differ from the short-run to the long-run.

As a broad-based sales tax, the Twins stadium tax tends to have a low impact on behavior responses, placing the burden of the tax on consumers. General sales taxes are considered regressive because they tax all people the same regardless of income, so the effective tax rate decreases as income increases. In addition, the Legislature approved the tax increase without a voter referendum, eliminating the voice of the public on this issue. While the stadium tax is made less regressive because it does not apply to most basic goods and services such as food and clothing, it remains a less equitable type of tax than other options[iv].

Hennepin County is repaying the debt for Target Field faster than anticipated, in part due to decreases in variable interest rates. [v] Additionally, the county used conservative revenue projections[vi] for the tax which has served the county well in the recession.  Extra revenues are being saved for capital improvements to Target Field, as well as ahead-of-schedule debt service payments. The tax’s broad base and low rate contribute to its stability. Finally, the nature of the lease and contract with the Minnesota Twins helps reduce extra reliance on the tax, since the Twins’ annual rent goes to the capital improvements fund and the team operates, maintains, and makes some improvements with its own money.

Overall the stadium tax is evaluated as technically feasible. It’s low visibility and ease of collection make implementation of the tax go relatively unnoticed in the large scheme of tax obligations. However, initially there was strong public opposition to the tax making it less feasible in reality[vii].

Comparative Jurisdictions
The Minnesota Vikings occupy the same tax jurisdiction as the Minnesota Twins but engaged in stadium negotiations many years later making them a great case study to juxtapose with the Twins stadium deal.  The major source of revenue generation for the city of Minneapolis is a reallocation of the current “convention center” tax and will not include and new taxes.  The state of Minnesota plans on paying for their share of the bonds with expanded revenue through the use of new electronic charitable gambling.


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