Acceptable Terms

2015-04-17

An initial proposal has been made to the city of Providence and state of Rhode Island to keep the PawSox in Rhode Island and move them to a new stadium along the river in Providence.

The team is proposing that they privately finance all of the construction costs of the stadium while the land remains state (or city? I am not clear) owned. The state will lease the land underneath the stadium (the real value) with an option to buy for 30 years at $1 a year. The state will also pay $5,000,000 rent for the stadium itself annually for 30 years. The PawSox will then lease back the stadium at $1,000,000 per year. The net result will be the stadium is built and Rhode Island pays the PawSox owners $4,000,000 a year for 30 years.

The Good

Privately financing the upfront cost of the stadium puts risks of construction delays and cost overruns on the PawSox. Already they are underestimating the cost of moving a gas line below the park grounds. Whatever the cost of construction, whatever the impact on the team of a late opening, the costs to the state are fixed. There is essentially no risk in this plan for taxpayers, defining risk as a technical term for uncertainty. We know what this deal means: $120,000,000 over 30 years.

The interest rate is pretty low. Basically, although the risk is privatized, we should view this stadium as the PawSox providing the state of Rhode Island a loan of $85,000,000 which we will pay back at a rate of approximate 1.15% 1. Now just because the interest is low doesn’t mean we should buy…

The stadium design is largely attractive, even if the incorporated lighthouse is drawing ire. I don’t mind it, but I do like the idea of replacing it with an Anchor has some Greater City Providence commenters have recommended. Overall, I think the design fits with the neighborhood. It’s easy to get caught up in pretty renderings.

The pedestrian bridge remains and is accessible. As someone who lives in Downcity, I am very much looking forward to this dramatic improvement to my personal transit. I think the bridge’s importance for transit is underrated, although admittedly we could make Point Street Bridge friendlier to pedestrians and bike riders instead.

Brown University seems interested in hosting events, like football games, at the stadium. The plan also seems to give the state a lot of leeway in holding various events in the space when it’s not used for the baseball season. It could really be a great event space from mid-April until early November each year.

The Bad

Even the team’s own economic estimates only foresee $2,000,000 in increased tax revenues. Although they claim this estimate is conservative, I would take that with a huge grain of salt. You do not lead with a plan that straight up says the taxpayers will be out $60,000,000 over 30 years unless you don’t have a better foot to put forward. I am going to go ahead and assume this estimate is about right. It’s certainly in the ballpark. (Ugh.) But what that means is that Rhode Islanders should understand this is not an investment. This is not like building transit infrastructure or tax stabilization agreements to spur private construction. This deal is more akin to building schools. We do not, in fact cannot, expect that the economic impact makes this project a net positive for revenues. With $12,000,000 expected in direct spending, the project could be net positive for GDP, but even then it is obvious this is not the best annual investment to grow the economy. It is easy to come up with a laundry list of projects that cost less than this that could create more economic activity and/or more revenue to the state and city. Therefore, the project should be viewed primarily on use value. Will Rhode Islanders get $4,000,000 a year in value from the pleasure of using (and seeing) this stadium and its surrounding grounds? In school construction, we expect the benefits to be short term job creation, long term impacts on student health and well-being, ability to learn, and our ability to attract quality teachers. But most of those benefits are diffuse and hard to capture. Ultimately, we mostly support school construction because of the use benefits the kids and teachers see each year.

The time line is crazy. If they’re serious about a June decision, they’re nuts. We have a complicated budget process ongoing right now. We have a teacher contract in Providence to negotiate. We have a brand new I-195 Commission trying to make their mark and get cranes in the sky. There’s no way a negotiation in good faith can be completed in 60 days unless they agree to every counter. If this is a “final best offer”, essentially, due to time line, then it is disingenuous.

What happens in 30 years? We don’t have any guarantees of being whole in 30 years, and the same threats and challenges posed by the PawSox today will come up again in 30 years. Are we committed to a series of handouts until the team is of no monetary or cultural value?

Other cities are likely going to come into play. The PawSox don’t have to negotiate a deal that’s fair for Rhode Island. They just have to negotiate to a deal that’s comparable to an offer they think someone else will make. Rhode Island’s position is weak, provided that anyone else is willing to make a deal.

The Strange

The PawSox are asking for a 30-year property tax exemption. There’s a lot to think through here. First, there are at least two parcels that were meant to be tax generating that are a part of this plan— the land Brown’s Continuing Education building currently sits on and the small develop-able parcel that was cut out from the park for a high value hotel or similar use. The stadium wants both of these parcels in addition to the park. I think City Council President Aponte is being a bit silly talking about being “made whole” over this deal, unless he’s talking about those two parcels. The park land was never going to generate city tax revenue and was actually going to cost the city money to maintain. Part of my openness to any proposal on this park land is my lack of confidence that the city will invest appropriately to maintain a world-class park space along the waterfront. There’s very little “whole” to be made.

It is also possible that Providence will have to designate additional park space if the stadium is built. If that’s true and it’s coming off the tax roles than the PawSox absolutely should have to pay property taxes, period. There’s one possible exception I’ll address below…

I also feel very strongly about having a single process for tax stabilization across all I-195 land that is not politically driven but instead a matter of administrative decision. Exceptions for a big project breaks the major benefit of a single tax stabilization agreement ruling all the I-195 land, which is our need to send a signal that all players are equal, all developers are welcome, and political cronyism is not the path required to build. While some of those $2,000,000 in tax benefits will accrue to Providence through increased surrounding land value, many costs associated with the stadium will as well. There are police details, road wear and tear, fire and emergency services, and more to consider.

My Counter

I don’t think this deal is dead, but I am not sure that the PawSox, city, or state would accept my counter. I have struggled with whether I should share what I want to happen versus what I think a deal that would happen looks like. I would be tempted to personally just let the PawSox walk. But if Rhode Island really wants them to stay, here’s a plausible counter:

  1. The PawSox receive the same tax stabilization agreement all other developers get from the city of Providence. Terms for a fair valuation of the property are agreed upon up front that are derived from some portion of an average of annual revenues.
  2. The lease terms should be constructed such that the net cost (excluding the anticipated increase in tax receipts) is equal to the tax dollars owed to the city of Providence. Therefore, the state essentially pays for the $85,000,000 of principal and the city taxes. This could be through a PILOT, but I’d prefer that amount go to the PawSox and the PawSox transfer the dollars to the city. It’s just accounting, but I prefer the symbol of them paying property taxes. I don’t think it’s a terrible precedent for the state to offer PILOT payments to cover a gap between the city TSA in I-195 with a developer’s ask, if the state sees there is substantial public interest in that investment, but still better to actually get developers used to writing a check to the city.
  3. If the city has to make additional green space equivalent to the park we are losing, I foresee two options. First is the PawSox paying full load on whatever that land value is. The second is probably better, but harder to make happen. Brown should give up the Brown Stadium land to the city. They can make it into a park without reducing the foot print of taxable property in the city. If they did this, Brown should essentially get free use of the stadium with no fees (except police detail or similar that they would pay for their games on the East Side) in perpetuity. They should get first rights after the PawSox games themselves.
  4. The stadium itself will be reverted to ownership by the Rhode Island Convention Center Authority if the option to buy the land is not exercised in 30 years. This way the whole stadium and its land are state owned, since the state paid for it. The possible exception would be if Brown has to give up its stadium to park land, in which case I might prefer some arrangement be made with them.
  5. The PawSox ownership agrees to pay a large penalty to the state and the city if they move the team out of Rhode Island in the next 99 years.
  6. PawSox maintenance staff will be responsible for maintaining the Riverwalk park, stadium grounds, and the green-way that has been proposed for the I-195 district. Possible we can expand this to something like the Downcity Improvement District (or perhaps just have them pay to expand the DID into the Knowledge District). This will help ensure this creates more permanent jobs and reduces costs to the city for maintaining its public spaces that contribute to the broader attractiveness of the stadium.
  7. There should be a revenue share deal for any non-PawSox game events with the city and/or state for concession purchases and parking receipts.
  8. The stadium should not be exempt from future TIF assessments for infrastructure in the area.

I am not sure that I would pay even that much for the stadium, but this would be a far better deal overall. I can absolutely think of better ways to spend state dollars, but I also realize that the trade-off is not that simple. Rhode Island is not facing a windfall of $85,000,000 and trying to decide what to do with it. A stadium that keeps the PawSox in Rhode Island inspires emotion. The willingness to create these dollars for this purpose may be far higher than alternative uses. The correct counterfactual is not necessarily supporting 111 Westminster (a better plan for less). It is not necessarily better school buildings. It is not necessarily meaningful tax benefits for rooftop solar power. It is not lowering taxes, building a fund to provide seed capital to local startups, a streetcar, dedicated bus and/or bike lanes, or tax benefits to fill vacant properties and homes. The correct counterfactual could be nothing. It could be all of these things, but in much smaller measure. It is very hard to fully evaluate this proposal because we are not rational actors with a fixed budget line making marginal investment decisions. Ultimately, with big flashy projects like this, I lean toward evaluating them on their own merits. Typically, and I think this case is no exception, even evaluating a stadium plan on its own merits without considering alternative investments makes it clear these projects are bad deals. Yet cities and states make them over and over again. We would be wise to look at this gap in dollars and cents and our collective, repeated actions not as fits of insanity but instead as stark reminders of our inability to simply calculate the total benefits that all people receive.

In my day job, I get to speak to early stage investors. There I learned an important tidbit— a company can name whatever valuation they want if an investor can control the terms. That’s my feeling with the PawSox. The cash is important, it’s not nothing. But any potential plan should be judged by the terms.

Here’s hoping Rhode Island isn’t willing to accept bad terms at a high cost.


  1. \(A = P(1 + \frac{r}{n})^{nt}\) where \(A = $120,000,000\), \(P = $85,000,000\), \(n = 1\), and \(t = 30\). I’ll leave you to the algebra. 

This entry was tagged as pawsox I195 development

Jan 23, 2015

A PostgreSQL Cheat Sheet for OSX and R

I keep this on my desktop.

Install:

brew install postgresql
initdb /usr/local/var/postgres -E utf8
gem install lunchy
### Start postgres with lunchy
mkdir -p ~/Library/LaunchAgents
cp /usr/local/Cellar/postgresql/9.3.3/homebrew.mxcl.postgresql.plist ~/Library/LaunchAgents/

Setup DB from SQL file:

### Setup DB
lunchy ...

Jan 11, 2015

Taking Control

Severing My Daemon

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The Power Of Sound

It has been said a thousand times before, but I feel the need to say it again. So much of what Star Wars got right was creating a fully realized, fascinating world. As much as stunning visual effects that have largely stood the test of time were a part of ...

Nov 28, 2014

Amazon Creating A Services Marketplace Online

A few thoughts:

  1. This is a very interesting way to take advantage of a number of existing Amazon technologies—primarily their payment processing and review system.
  2. Services are an increasingly important part of the economy and is less subject to commoditization. This is Amazon dipping into a massive growth area ...