South Bay Stadium Deals: Which Is Worse?

When individuals barter, they generally have a firm sense of underlying value, i.e. "What's this thing really worth to me?" A 10-year-old car might be worth $1,000, to judge from the Recycler or Craig's List. At $20,000, a used car is a bargain only if it is a 1949 Ferrari Spider with the original piping on the seats.

Cities, on the other hand, often appear not to have a sense of "beyond this price we will not go." True, they bargain for big things on which it is hard to pin values, such as stadiums for NFL football and professional soccer. Still, the fact that cities are willing to entertain highly aggressive offers suggests to me that some city officials have a hard time drawing a line between a good deal and a bad one.

I am not stating unequivocally that two pending deals for sports stadiums in two cities in Santa Clara County are bad, but both give me the shivers. In one case, a developer is asking a king's ransom from a middle-sized town for the privilege of putting a National Football League stadium in its midst. In another, a developer has proposed a novel quid pro quo: He promises to build a $100 million soccer stadium, if the city agrees to rezone a large industrial tract so the same developer can build housing.

For 100 points, write an essay comparing and contrasting these two deals, telling us which is worse, and why.

Let us start with the offer that the San Francisco 49ers have put before the City of Santa Clara, a community of 114,000 people. The NFL football franchise has asked the city for up to $230 million in subsidies, including a $42 million garage with nearly 20,000 parking stalls, for a new stadium. Even if the city wanted to, however, it probably can't cough up that much. Santa Clara has about $70 million of bonding authority left, according to Deputy City Manager Carol L. McCarthy. When you add tax increment and sales tax to that, the largest possible package would be about $136 million, she adds. (For a sense of scale, the city's general fund is only $147 million.)

The city could raise some additional money by creating a 2% assessment district on eight of its largest hotels that would be layered atop the existing "bed tax" of 9.5 percent. That district could yield up to $35 million a year for the stadium. The rationale for this assessment district, of course, is a consultant's report saying that the 49ers will bring the city $1 billion of business over the next few decades.

In attempting to set a new world record for chutzpah (I mean cold-blooded outrageousness) the team has also asked the city to contribute the land for the stadium. (I asked Ms. McCarthy if the 49ers want the Santa Clara City Council to play their road games for them, too. "That's you saying that, not me," was her wise retort.) The city has refused the land deal, because it makes a tidy sum in land leases.

In the other deal under discussion here, sports team owner Lew Wolff has been looking for a place for his soccer franchise, the San Jose Earthquakes, to play. Being a brilliant real estate developer, Wolff has come up with a creative concept: He will build the city the soccer stadium using revenues from a 1,300-home development in the city's suburban Edenvale district. However, Wolff needs the city to rezone 74 acres of industrial land for his housing development.

That sounds equitable, on its face. The project will "pay for itself," and few, if any, public subsidies will be required. A recent city report, however, finds some financial flies in the ointment. The site to be rezoned is in a redevelopment area, so all increases in property taxes, the primary fiscal benefit of home building for cities, will go to the redevelopment agency, not the city's general fund. Also, research has shown that housing becomes a net loss for cities after about 15 years, meaning that the cost of providing services to mature neighborhoods generally exceeds the amount of property tax revenues they generate.

For me, however, the most distributing part of this deal could be put in the form of a rhetorical question: Since when does a city barter away its general plan just because a developer waves a bauble in front of it?

Actually, most cities in California would submit to this sort of offer. They remind me of that scene in Ghost Busters, when Sigourney Weaver is trying to seduce Bill Murray. He demurs, telling her his company has rules against employees fooling around with clients. Predictably, he weakens quickly. "They're not rules, actually," he says. "They're more like guidelines."

Perhaps I am over-reacting. With 6 million square feet of undeveloped land zoned for industrial development in north Coyote Valley, San Jose is not exactly begging for industrial land. Still, the city has an existing policy not to rezone its industrial land for home building (see CP&DR, November 2007). Why should the city trash its own policies for a single, non-essential project?

Good heavens, San Jose. Get a hold of yourself! If you want a soccer stadium, then assemble the land and issue an RFP to build the facility, you silly municipality! Do not cut off your nose so you can buy lipstick and mascara.

In evaluating these two deals for relative badness, I confess I am almost stuck. I dislike subsidies on principal. My motto is: No socialism for sports magnates. The deal that really gets under my skin, however, because it exemplifies so much that is wrong with planning in California, is the soccer stadium proposal in San Jose. True, the city does not spend its own money; San Jose merely bargains away its ability to do long-term land-use planning and economic development. Opinions may vary, but I find that trading away the powers of governance for a handful of beans is actually worse than throwing money at rich people. Therefore the San Jose deal is the worse deal, from my perspective.

Hopefully, it's not too late for either city to get out. I know that stadiums are catnip for voters. But get a grip, city fathers! No deal is worth all of your remaining bonding authority, nor your ability to make land-use decisions. Unless, of course, it's a really nice stadium with a luxury box for planning journalists.