Ryan Smith teases reimagined downtown SLC with new arena as lawmakers debate billions in subsidies

SALT LAKE CITY — Utah Jazz governor Ryan Smith took to social media on Tuesday, posting a rendering of a reimagined downtown Salt Lake City sports and entertainment district, anchored by a new arena that would host the Jazz and a potential National Hockey League franchise.

The image comes as state lawmakers discuss giving Smith upward of $1 billion through a 0.5% sales tax increase in Salt Lake City to partially fund the arena. Another bill would give the Larry H. Miller Group nearly the same amount for a potential Major League Baseball stadium just across Interstate 15, in the Fairpark neighborhood.

“Downtown Salt Lake City is the heart of Utah,” Smith said in his post. “Our efforts are not about an arena, it’s about revitalizing a downtown that desperately needs investment. Imagine a downtown experience like this with the NBA / NHL at its core.”

Downtown Salt Lake City is the heart of Utah. Our efforts are not about an arena, it’s about revitalizing a downtown that desperately needs investment. Imagine a downtown experience like this with the NBA / NHL at its core. pic.twitter.com/w2Qzxf17gs

— Ryan Smith (@RyanQualtrics) February 27, 2024

The Legislature has until Friday night to pass any bills in this year’s general session.

Smith formally asked the NHL last month to begin the expansion process to bring a franchise to the Beehive State. He said a team could immediately play in the Delta Center, with a franchise moving into “a new, state-of-the-art hockey arena” in the next several years.

Revitalizing downtown or redistributing tax dollars?

While Smith points to revitalizing downtown Salt Lake, economists broadly agree that arenas are “not economic development catalysts and confer limited social benefits.”

“It’s really across the board that these are really poor public investments,” said J.C. Bradbury, a Kennesaw State University economics professor who studies sports economics and stadium subsidies.

Ryan Smith Teases New Downtown Arena Rendering Focused On Pro Sports Arena

Bradbury, along with Dennis Coates, an economic professor at the University of Maryland, Baltimore; and Brad Humphreys, an economic professor at West Virginia University, published a comprehensive review of stadium policy just last year.

They noted that “research continues to demonstrate that stadiums remain poor public investments, and optimal public funding of professional sports venues is substantially less than typical subsidy levels.”

In their article, they looked at several recent sports and entertainment districts, including Baltimore’s Camden Yards (MLB), Cleveland district of Progressive Field (MLB) and next-door neighbor Rocket Mortgage FieldHouse (NBA), San Diego’s Petco Park (MLB), Denver’s Coors Field (MLB) and Atlanta’s highly touted Truist Park (MLB) and “The Battery Atlanta.”

Economic reviews of those projects noted “very localized success” in Baltimore, “a net drain” on San Diego taxpayers, Cleveland’s project thriving at the expense of other parts of its downtown and development in Denver occurring away from the ballpark.

In 2015, a decade after San Diego opened Petco Park, about $14 million – roughly 8% of city tourism taxes – was being funneled toward stadium operations and related bond payments.

Bradbury wrote that sales tax revenue in Cobb County, Georgia, increased when it opened a new stadium for the Atlanta Braves in 2017; but, “the magnitude of the effect is small and not statistically significant” and wasn’t enough to offset the subsidies local officials provided, a study published in the Journal of Urban Affairs in 2022 states.

Atlanta’s project has since run an annual deficit of $12 million to $15 million for Cobb County, which committed to financing $300 million to help with construction of the stadium.

Their overall conclusion?

“The widespread belief that placing stadiums in urban environments can redevelop urban areas to promote new economic activity is mostly anecdotal and lacks strong empirical support.”

Even setting aside the cases where sports subsidies are directly extracted from local school budgets, every spending choice is a choice, and like all choices it precludes other choices, and that's worth reminding people. https://t.co/7ql0S2ZdJH

— Field of Schemes (@fieldofschemes) February 26, 2024

Ideally, the government shouldn’t get involved with professional sports but with at least two other cities also petitioning for expansion teams, it will likely have to happen in some form, says David Berri, a professor of economics at Southern Utah University and former president of the North American Association of Sports Economists.

“The problem that Salt Lake City is going to have is, if they want a team, they’re going to have to subsidize this,” he told KSL.com. “Baseball is going to demand something from them because they have choices. … (MLB doesn’t) create as many teams as they could have and that way, markets are left open.”

Salt Lake City Mayor Erin Mendenhall voiced her support for the proposal, presenting the NHL bill alongside its sponsor Sen. Dan McCay, R-Riverton.

“We set the pulse of the state in downtown Salt Lake City — for our economy, culture, sports and entertainment,” Mendenhall said Tuesday. “Our downtown and the investment in it must remain strong to ensure we have a future with a better quality of life for residents and deepening community connections.”

Last Thursday, a Senate committee advanced the plan to fund the NHL stadium and downtown sports and entertainment district, which includes a sales tax increase of up to 0.5% in Salt Lake City.

“It is with this abundance of caution that we ask the people of Utah to invest in a project like this, that we know long-term, generational investment is to the benefit of not only those here today, but we look forward cheering on the Jazz and the National Hockey League,” McCay said.

What about just taxing people who use the stadium?

Funding for the MLB had been focused on a hotel tax, which raised concerns among Utah’s hotel industry because hotel taxes across the state would go up — not just around the stadium. On Tuesday, lawmakers said they would strip out the statewide hotel tax portion of the bill.

The House is debating these change now.

Instead of the hotel tax, the state will dip into the state's portion of the sales tax that's generated within the created Fairpark district. @KSL5TV https://t.co/rhtfNKp8yf

— Lindsay Aerts (@LindsayOnAir) February 27, 2024

If the bill had passed in that version, hotel taxes would have gone up one-tenth of a percent immediately upon Gov. Spencer Cox’s signature. Lawmakers say that would help fund emergency services largely needed for tourism in rural Utah.

Then, once a team is secured, hotel taxes would go up by a total of 1.5%. That amounts to $3 per night on a $200-per-night hotel stay. Car rental tax would also go up an additional 1.5%.

“Our fear is that as more and more taxes get layered onto the transient room tax, the more difficult it is to be to sell rooms, and at some point, hoteliers are going to have to adjust their rates in order to compensate for that tax increase,” Jordan Garn, a representative for the Utah Hotel and Lodging Association, told KSL TV’s Lindsay Aerts.

Garn said that the association is very excited about major league baseball but still worried that the hotel tax hike falls on Utahns.

“The general consensus is that out-of-state residents are paying for this. That’s not necessarily entirely true. We know that about half of hotel stays in Utah are paid for by people that reside in Utah,” Garn said. “And so the more they start to lean on not only affects Utah consumers, but it’s also ultimately going to have an impact on the industry itself.”

Bradbury, Coates and Humphreys noted this wouldn’t be the first time cities claim to turn to non-residents to fund projects. Houston funds its major league venues through 2% hotel and 5% rental car taxes. After a hotel tax passed to fund a new NFL stadium for the Atlanta Falcons, the city’s mayor said the revenue would come “almost exclusively…from visitors and tourists,” not local residents.

They would agree with Garn and noted in their study that it’s “incorrect to view hotel and rental car taxes as being assessed on stadium patrons” as the majority of fans at an MLB game in SLC would be local residents who do not stay in hotels, and the vast majority of hotel and car rental customers in the state would not be attending baseball games.

A special district tax also appears to be a use tax, where taxes are only paid by people in the district to be used for the upkeep of the stadium and surrounding areas. However, the authors noted that local residents would make up the majority of the district’s customers, meaning money spent in the district is just reallocated from spending at existing local businesses. A family eating dinner at a new restaurant next to the stadium keeps those tax dollars in the district, whereas eating at an established restaurant outside the district generates tax revenue to support public services.

“The broader lesson is that sports stadiums do not have a broad economic impact, so why do we keep talking about them like they do?” Bradbury asked.