I mean, don’t get me wrong, home ownership is awesome for some – even for many – but I don’t think we talk enough about whether it’s such an unimpeachable good thing that it deserves quite so many subsidies.
We traditionally have subsidized home ownership in myriad ways.
A quasi-government guaranty (followed by a $800 Billion assumption of liabilities in 2008) of mortgage guarantors Fannie Mae and Freddie Mac.
Federal FHA/VA loan programs for first-time home buyers and veterans to encourage home-purchasing with as little as a 3% down payment.
Mortgage-interest tax deduction ($200 Billion in foregone tax revenue).
And yet, the benefits and effects of such subsidies are questionable
We do not have an appreciably higher percentage of home-owners in the US vs. other countries that lack such subsidies
3% to 10% down-payment mortgages default more frequently (50% more frequently) than 20% down-payment mortgages, serving both home-buyer and bank poorly.
Americans tend to react to the mortgage interest subsidy by buying bigger homes, rather than saving the money.
The mortgage interest tax deduction is regressive, in the sense that it primarily benefits folks with incomes higher than $100,000, and a household with a larger home and mortgage benefits more than a household with a more modest home and mortgage.
Houses, which often constitute a high portion of household net worth, are a very illiquid investment.
Housing, as a sector, tends to add volatility to the economic cycle – making booms more manic and busts more depressive.
Surowiecki summarizes nicely: Given the extraordinary subsidies aimed at the sector – compared to other worthy areas of subsidy – is it all worth it?
But more importantly, in financial terms, it’s a horrible idea. Like a $500 million horrible idea for taxpayers.
Here’s the logic
Picture yourself for a moment as Mark Davis, the owner of the Oakland Raiders.
The city of Oakland will not build you a shiny new stadium.
But that doesn’t seem fair, because you really, really want a city government to give you a subsidized place for your team to play. And anyway, that’s the reason why your dad Al Davis moved the Raiders from Los Angeles to Oakland in 1995.
As some of you other billionaires out there may know, rent for your privately owned business can be darned expensive!
Anyway, the way you get a public entity to provide hundreds of millions of dollars for your private business is to pretend that you are willing to move your team, especially if a different city is willing to pay you those hundreds of million dollars, in the form of free or reduced rent.
You don’t really want to leave, but on the other hand, there’s always a price, right?
But, the big question is, what’s the price?
Well, these things can be estimated, within a reasonable range.
The price depends on the cost of building a new stadium, the amount of public money offered (that’s your tax dollars at work!) and the relative attractiveness of a city’s media market.
The taxpayer price
According to a study done by the Minnesota Vikings, in the last ten years five NFL stadiums have been built at an average price of $871.5 million, with an average public subsidy of $327 million. Of course, that’s just an average.
For reasons I’ll explain below, I think the public subsidy in San Antonio will need to be larger than the recent average.
Public funds supported Jerry Jones’ privately-owned business through $444 million of Cowboy-stadium subsidy, while Indianapolis supported Jim Irsay and his Colts to the tune of $619 million in stadium subsidy. Averaging those, we’re talking around $500 million. That seems about right for San Antonio.[2]
The difference in media markets
The difference in media markets accounts for why San Antonio taxpayers would have to pay the high end of the range of subsidies to bring the Raiders to town. That’s because ‘national revenue’ through media deals, sponsorships and broadcast rights typically make up a significantly bigger proportion of an NFL team’s earnings than ‘local revenue’ like ticket, concession and merchandise sales.
Please forget the oft-repeated and misleading claim that “San Antonio is the seventh largest city in the United States.”[3]
No owner of an NFL football team would ever willingly downgrade the value of his franchise by moving from the fourth largest media market (San Francisco/Oakland) – or forgo the opportunity to play in the second largest media market (Los Angeles, which still doesn’t have a team) – to play in the 36th largest media market in the US (San Antonio), unless he was buried in public money to induce him to make that choice.
Burying Mark Davis in stadium money might work
Would Davis give up Oakland – or the chance at LA – for that?
Is that clear? If former Mayor Henry Cisneros and his backers get his way, San Antonio taxpayers should be prepared to pay, and pay bigger than any city has ever paid before.
Economic impact
I understand this column will immediately be rebutted with folks carrying consultants’ economic impact analysis[4] showing that building the Raiders a shiny new stadium will bring many millions of dollars into the San Antonio economy – providing “good jobs” and “revitalizing neighborhoods” along the way.
I have two responses to those critics.
First, we’ve all heard the theory of stadium-driven neighborhood revitalization. Have you visited the Alamodome and AT&T Center lately? I live right near one, and I have visited the other frequently. The expected stadium-driven economic development and neighborhood revitalization is still – let’s politely say – in the “potential” stage.
Second – and this is a personal rule of mine – I don’t support public subsidies for individual businesses, as worthy as Mark Davis’ Oakland Raiders may appear to some. Public subsidies and public funds should go toward broad benefits in this city of extraordinary needs – public safety, schools, roads, libraries, parks, housing, and poverty alleviation all come to mind as high priorities.
Subsidizing the private business of a billionaire owner with up to $500 million in tax breaks tends to be a low priority for me.
[1] And I don’t mean horrible for the following reasons: I don’t mean horrible because the Raiders are the worst team in the NFL, by a good margin. I don’t mean horrible because of the terrible lives led by brain-damaged and injured survivors of an NFL career. I don’t mean horrible because of the pattern of domestic abuse by players and the false ‘We’re so shocked!’ pretend-reactions of the NFL leadership from Commissioner Roger Goodell on down. I live with all that hypocrisy already, as I enjoy watching my team on Sundays. (Brady, Belichick, Arizona-bound baby! Woohoo!)
[2] Needless to say, nobody deserves half a billion dollars worth of private business subsidies more than upstanding gentlemen like Messrs. Jones and Irsay. Please don’t mention the sexual harassment and DUI charges personally leveled against those two gentlemen-owners, as that would be both impolite and not financially relevant to the discussion. Let’s focus instead on the half a billion dollars that Mark Davis will expect in public subsidy to move his Raiders to San Antonio.
[3] For the vast majority of you readers who do not live in San Antonio, that particular “7th Largest City” chestnut is something San Antonians tell themselves (and actually say outloud, and in print) on a regular basis. It has to do with the measurement of population within a metropolitan area, while the boundaries of that metropolitan area can be redrawn outward every few years in a seemingly limitless sprawling suburban way. I know, it’s embarrassing. But you can Google it and see where San Antonians get the idea.
[4] That’s a post for another time, but lets just say, the public sector could build a giant hole in downtown San Antonio, then immediately cover it up with dirt, and get a consultant to write a report claiming massive follow-on economic impact effects of the “Downtown Giant Hole and Fill” project. Think of all the ‘shovel ready’ jobs!
