LeBron James Stadium Deal Flops Due to Tax Challenges

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Alex Ebert

The owners of the Cleveland Cavaliers are pulling out of a $140 million stadium renovation deal due to delays caused by legal challenges to the city’s ticket tax—a rare victory for detractors of public stadium financing.

Last week, the city council clerk, under order from the Ohio Supreme Court, verified that there were more than twice the required signatures to hold a repeal referendum on the city’s extension of a ticket tax ordinance that provided a key $45 million in funding for the stadium. However, due to a city charter rule, the referendum would have to take place after the Nov. 7 election, costing taxpayers more than $700,000.

But the Cavaliers announced late Aug. 28 that the referendum is no longer necessary because the costs of delays make the deal unfeasible. The team’s owners had pledged $70 million. The city pledged $45 million and the county $25 million—with all of the money raised through extensions of existing taxes.

The blown deal leaves the city in a strained position with the Cavaliers. The Quicken Loans Arena, known as “The Q,” is the oldest stadium in the NBA without a major renovation, and it’s possible the Cavs could move. The city will also lose out on an NBA All-Star Week, which the Cavaliers’ owners predicted could generate up to $100 million in economic activity in Cleveland.

“The investments over the years into The Q have paid back multiples in economic impact, job creation, and tax generation. It is very disappointing to see our further private investment into The Q Transformation project reach this ending point,” Len Komoroski, CEO of the Cavaliers, said in a statement.

‘Shocking’

This might be the first example where pressure from a public referendum defeated a stadium financing deal already approved by local government, Ted Gayer, a stadium tax expert and vice president and director of economic studies at the Brookings Institution, told Bloomberg BNA.

“It’s usually reversed, and all the pressure is all about, ‘How do you publicly attract these teams?’” Gayer said. “I can’t think of any example. It’s shocking.”

Cleveland Mayor Frank Jackson (D) called the announcement a “tremendous loss.” In a statement, he said the deal would have had significant short-term impacts for the city, including “construction and permanent jobs” and would have modernized the facilities and guaranteed “the Cavs would remain in our city until at least 2034.”

In the short-term, the city might lose out on at least $45 million in general fund revenue it would have also collected from the ticket tax. But in the long-term, City Council President Kevin Kelley said the blown deal could mean loss of the only Cleveland team that has won a championship in the last 50 years.

“The long term consequences that future mayors and councils will have to deal [with] include the loss of tens of millions of dollars that will occur when the Cavaliers lease expires and how to deal with what will then be an obsolete arena owned by the public,” he in a statement.

Calling Victory, Shifting Blame

Protesters against the city’s ticket tax claimed victory, but said they weren’t opposed to the team remaining in Cleveland.

“The Greater Cleveland Congregations (GCC) were never opposed to the idea of renovating Quicken Loans Arena. What they wanted was to see the benefits of a $140 million investment spread throughout the community for broader public benefit,” Subodh Chandra, legal representative for the protesters, told Bloomberg BNA in an email. “When a corporate mogul is petulant and uses adherence to the rule of law and well-established democratic processes as his excuse for picking up his ball and going home, it is a sad day indeed. Fortunately, we do not live in an oligarchy.”

The GCC, which led the petition drive against the tax, issued a statement saying it “makes no apologies” for standing up for the poor in Cleveland and “the loss of this deal squarely lies at the feet of those who put old school politics above the interests of the people.”

The GCC, in coordination with the Cuyahoga County Progressive Caucus, collected more than 13,000 signatures on a petition to repeal the city’s ticket tax. The city clerk initially refused to accept the signatures, saying that it would be unconstitutional for the city to back out of its deal with the stadium’s developers. However, this month the Ohio Supreme Court mandated the clerk accept the signatures.

“It’s a tremendous victory for grassroot organizing in Cuyahoga County,” said Steve Holecko, political director of Cuyahoga County Progressive Caucus. “If the city council was really confident the people of Cleveland wanted the deal, why would they have fought against the referendum? Why not welcome it? The truth is, they knew the people didn’t support it.”

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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