CLEVELAND, Ohio – Gov. Mike DeWine wants to increase the sports betting tax to seed an ongoing statewide stadium fund. The Browns instead have asked the state to borrow $600 million up front to help pay for their new stadium.
The math says a combination of both ideas could work.
Though not formally proposed yet, cleveland.com ran the numbers as the debate over stadium funding for both the Cleveland Browns and Cincinnati Bengals works its way through the legislative process in Columbus.
Our question was: Instead of waiting for the money to come in from DeWine’s gambling tax idea, could the state borrow the money up front – paying it back over 10 years, as the gambling tax money does arrive?
The answer appears to be yes, short of a significant uptick in borrowing rates or a big drop in sports gambling.
And here’s the bonus: There could be enough money available to eliminate the need for some of the local taxes the Browns are asking for to help cover the cost of their proposed $2.4 billion stadium in Brook Park.
Let’s step through the process.
What’s proposed
The Browns want to build an enclosed stadium in Brook Park – offering to pay for half, $1.2 billion, plus any cost overruns. The county and state, under the team’s plan, would each borrow $600 million to be paid off mostly by projected tax proceeds from the stadium site.
The Ohio House went along with the plan for the state’s share, and sent the proposal to the Ohio Senate, where it now is being considered.
But the governor has a competing idea. He wants to double the tax paid by the operators of sports gambling in Ohio from the current 20% to 40%. This would be far higher than the tax charged in some places like Nevada, but lower than in other places like New York.
DeWine said the money from this increase could be used to cover up to 40% of big stadium projects, while also having money left over for smaller projects and youth sports.
DeWine said in making his proposal that this tax increase could generate up to $180 million a year beyond what is now collected by the gambling tax. In the fiscal year that ended last June, the state took in $159.5 million from the current gambling tax, a tax department spokesperson said.
The governor is still pushing for his plan to replace the Browns’ proposal in the budget that must be approved, under law, by the end of June.
But the fate of both the Browns’ plan – approved by the House – and DeWine’s proposal are uncertain in the Ohio Senate.
One potential shortcoming for DeWine’s proposal for a stadium plan is that, as described to date, the money would not be available up front.
Combining the two ideas
Compromise often happens during budget discussions. What if the two ideas were combined – going with DeWine’s idea for the increased tax while borrowing based on those proceeds to provide the stadium money up front?
Using the interest rate of 3.876% – or yield, in bonding terms – the treasurer’s office said the state received in borrowing for a collection of projects across Ohio last month, about $73 million a year for 10 years would be needed to cover the $600 million ask of the Browns. That’s well below the amount DeWine’s gambling tax proposal is expected to bring in annually.
But the Browns aren’t alone in asking for state help. Hamilton County recently asked for $350 million from the state toward an $830 million renovation of the county-owned stadium used by the Cincinnati Bengals – Paycor Field.
Add together the $600 million for the Browns and the $350 million for the Bengals, that’s a total of $950 million. About $115 million a year would be needed to cover the cost of borrowing this much money over 10 years.
Again, there would be plenty of money left over for other projects from the gambling tax increase – as the governor has proposed.
But let’s take it a step further. In announcing his plan in February, as noted earlier, the governor suggested the increased gambling tax could cover up to 40% of the cost for a sports stadium.
Forty percent of the $2.4 billion Browns stadium is $960 million. If the Browns received this much from the state, theoretically, the ask for city and county taxes could drop from the current $600 million to $240 million. The Brook Park city admissions tax being sought could alone cover that as projected by the team, without the need for city parking tax money or an increase in the countywide bed tax.
Forty percent of the Cincinnati renovation is $332 million. Add $332 million for Cincinnati and $960 million for the Browns together, and that’s a shade under $1.3 billion.
If the state borrowed $1.3 billion for 10 years at 3.876%, it would cost about $156 million a year in payments. That still is under the high-end estimate of $180 million for the new tax.
But a more conservative estimate for doubling the tax may be to tie it to what historically the existing 20% gambling tax generated – or the $159.5 million in the last fiscal year.
Based on this, little money would be left over for anything else. Additionally, some upcoming changes being phased in for what gambling businesses can deduct could mean a little less money on the same amount of gambling in the future.
Other variables
Should lawmakers pursue such a compromise, other variables could impact the cost of borrowing.
One is market changes. As a spokesperson for the treasurer’s office pointed out, “rates have been very volatile so far this year.” Another factor is the size of the borrowing.
“Larger issuances of $600 million to $1 billion and beyond are colloquially known as jumbo bonds. These high nominal value jumbo bonds can carry a higher cost of borrowing for the issuer (Ohio, in this case) to entice enough buyers/investors to complete the transaction,” the spokesperson emailed. “However, this is very difficult to predict.”
The treasurer’s office also noted that the $75 million in borrowing last month came in the form of “special obligation” bonds, not “general obligation bonds” that carry lower, more favorable interest rates. A general obligation bond likely would have been close to 3.75%, the spokesperson said.
So, what would happen if, say, the bonds would have to be repaid at 5%, instead of the 3.876% used for the scenarios above – while keeping the term at 10 years.
The $600 million requested by the Browns would require about $76 million a year in payments. The $950 million requested for the Browns and Bengals stadium combined would require about $121 million a year. In both cases, this is well below what a doubling of the gambling tax is projected to generate.
To cover 40% of both the Browns and Bengals projects – at a cost of nearly $1.3 billion – the payments would amount to about $164 million a year. That’s below the high end of DeWine’s projections for his proposed tax increase, but above what the 20% tax brought in last year.
Rich Exner covers regional development and transportation for cleveland.com. Read previous Browns stadium coverage at this link.
