Repeat After Me: Development of Event Arenas Should Be Left to the Private Sector

Rendering of proposed Navy Hill redevelopment in Richmond

by James A. Bacon

The big economic-development controversy in the City of Richmond these days revolves around a $1.5 billion plan to redevelop Navy Hill, the name given a large tract of mostly city-owned land downtown now devoted largely to the aging Richmond Coliseum and surrounding parking lots. Everyone agrees that the land should be re-developed as a walkable mix of residential, commercial and retail. The key sticking point is on how to finance the public improvements — whether or not to create a Tax Increment Financing (TIF) district, and how far to extend the boundaries of that district in order to ensure investors that the bonds will be paid off.

The controversy has swirled around and around, but I have yet to see anyone focus on the most critical issue: Does the project need to spend $235 million to build a new arena?

To be sure, the old arena, the Richmond Coliseum, has been closed, is unsalvageable, and costs the city $1 million a year to maintain. It needs to be torn down to make way for something new. No one disagrees. The question is who should pay to replace it, and who should take the risk of business failure — city government or the private sector?

Under the proposal backed by Mayor Levar Stoney, the city would own the new arena but NH District Corp. (NHDC), the developer behind the project, would operate it. The $235 million cost would be subsumed by the larger $1.5 billion redevelopment project, which will be financed by municipal bonds, and the municipal bonds will be repaid with tax revenues generated by the redevelopment. Typically TIF projects are financed by revenues from redevelopment in the area where the public improvements are being made. The Navy Hill project, however, would extend the tax district into high-value areas of downtown that will not benefit from the public expenditures.

NHDC contends that the project will generate an additional $1 billion in incremental tax revenue over the next 30 years. That’s great if things work out. But that projection assumes there are no big economic hiccoughs along the way, that redevelopment doesn’t stall, and that property values and tax revenues don’t tank — in other words, that the United States doesn’t experience a recession of the magnitude that it did, oh, say, eleven years ago. If things don’t go right, revenue from a chunk of the city’s tax base will be put at risk that would not have been otherwise.

My question is this: What would the project look like without the arena? If developers take the $235 million arena cost out of the equation, how much would the tax district have to borrow? Could the special tax district be strictly limited to the area being redeveloped? Would deletion of the arena hurt the prospects for redevelopment — or actually improve them?

Richmond has lost event-related revenue and jobs to Washington, D.C., Raleigh, Charlotte, Charlottesville, and even Virginia Beach, Stoney has said. “It’s time to give our city and its residents a venue they deserve and the economic opportunities that come with it,” Stoney has said.

With all of Richmond’s competing needs, are event-related jobs the kind of economic opportunities the city really wants to create?

Here’s an idea: Let’s analyze the arena on its own merits as a stand-alone business entity. If there’s a business case to be made for building it, let the private sector take that risk. Don’t hide the arena in a larger project and spread the risk via a special tax district to Richmond taxpayers.

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14 responses to “Repeat After Me: Development of Event Arenas Should Be Left to the Private Sector”

  1. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    If the arena could stand on its own feet, that is, if a business case could be made for building it, then the NH District Corp. would have included in its proposal.

  2. wonderbread Avatar

    That’s mighty generous of you Dick, I rather expect that even if it was viable, they’d still be asking the city to pay first. That said, as a city resident and taxpayer, I’m irate about this, as is literally every single neighbor that I know. The amount of cronyism in play here, from the bid process to the Davenport “analysis” to the job fairs is astoubding.

  3. djrippert Avatar

    Repeat after me, people who don’t live in the City of Richmond should not carp about how the people of the City of Richmond want to spend their taxes. Yes, I’m talking to you Harry F. Bacon, Jr. Put it to a vote in Richmond. Or, do I recall you saying you moved into Richmond? The good news is that there should be lots of room in cities for the geriatric set since the millennials are leaving the urban walkability of the cities …

    You ready to admit you got that one wrong Jimbo? Lol. Kids graduate from college, move into the cities, get married, have kids and move out of the cities. Been going on since about 800 AD I believe. I guess halting funding for suburban transportation projects based on the permanent preference of young people for walkable, high density, mixed use urbanity would have been a mistake.

    Nashville funded its convention center and it has done phenomenally well.

    1. Sometimes convention centers pay off, sometimes they don’t. Let private developers take the risk.

      1. djrippert Avatar

        The problem with your logic is that you view the convention center or event arena in isolation. Much of the benefit won’t go to the owner of the convention center / event arena but will accrue to the city. I’ve seen it in Washington, DC with Capital One Arena, Nationals Park, etc. As I recall what is now called Capital One Arena was originally MCI Arena and was built with Abe Polin’s money but then bought by Ted Leonsis. So, private money. Nationals Park had city financing with MLB guarantees as I recall.

        Both venues have been part of a renaissance of the neighborhood where they stand.

        Compare that FedEx Field – a stadium built with private funds outside the city in suburban Maryland. What a disaster. Isolated, a terrible fan experience, hard to access, a mess. By all appearances it has contributed absolutely nothing to the surrounding community.

        The moral of the story?

        Stadiums and other venues can be a big part of making an urban area vibrant. Yes, it would be best to have private enterprise fund the venue. However, too much is at stake for the city to fail to act if 100% private funding is not available. Done properly, event venues are a risk worth taking with taxpayer money.

        People have no problem with the Tobacco Indemnification Fund being squandered in half witted business development efforts. Not sure why a stadium in Richmond is any different – although, hopefully, with a much better outcome.

    2. You’re right about Millennials moving out of the city — at least the Millennials in traditional husband-wife households with kids. That doesn’t mean they’ve fallen in love with subdivisions of single-household houses, however. The article is clear that they are making the move because of schools and taxes. The suburbs need to wise up and build more walkable urbanism — while keeping taxes lower and maintaining better schools than the cities.

      1. djrippert Avatar

        Now we agree! It was never the urban cores that really mattered. It was walkability, relaxed attitudes, decent schools, reasonable taxes and access to entertainment. Build 10 more Restons in Fairfax County and we’ll have a fighting chance of success.

  4. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    “Does the project need to spend $235 million to build a new arena?”

    Like all real estate improvements of all kinds the devil is in the details. Here using public funds, in this particular place within Richmond, such a publicly funded project would not be in the public interest, indeed would be counter to the public interest.

    Such projects typically destroy nearby urban life and lifestyles around them and do so permanently, while they also create places of frequent desolation, dislocation, and burdensome traffic that spreads far and wide at odd times and within whole sections of town.

    The totals costs imposed, typically far outweigh the benefits to a small city, although these project burdening the public, can and often do enrich a few rich people. To eliminate the great risk here, do as Jim Bacon suggests. Force the rich to finance this project themselves, instead of financing their private benefits off the backs of working people, the general public, who live in the city.

  5. TooManyTaxes Avatar

    And moreover, the Millennials in the D.C. region are buying personal cars. The MWCOG’s 2019 State of the Commute report found car ownership among residents under 35 was up (from 2016) by 8% in the Inner Ring, up by 9% in the Middle Ring and up by 10% in the Outer Ring. Inner Ring is D.C., Arlington and Alexandria. Middle Ring is Fairfax, Montgomery and Prince Georges. Outer Ring is Frederick, Charles, Loudon and Price William.

    Just as the Yuppies of the 1980s grew up, so too are the Millennials.

    And, yes, I really don’t care what taxpayers in Richmond do.

  6. LarrytheG Avatar

    I think one can argue this both ways. Such developments cannot succeed without some serious help from the city AND it is in the best interests of the city to stay involved and have a role in development plans. There is risk yes but I’d argue the risk is also about what needs to be done on the front end – that has a role in whether the project succeeds or not.

    I can give a couple of examples. Back when the railroads were first developed – the prospect was not appealing to potential investors until the govt agreed to not only give the railroads the right of way but land along the rail – that the railroads sold to finance the rail.

    In Asia, the subways are profitable because govt also gave the subways the right to acquire land adjacent to the rail stations.

    Airports have similar synergistic arrangements.

    So what might be more convincing would be more than one’s philosophical beliefs. How about some real data on projects like this and now they fared with and without govt help?

    I doubt seriously projects of this type are totally without govt help – that they are pure private ventures but perhaps the facts argue otherwise.

    It seems almost impossible to have a large scale development with attendant impacts to water,sewer, transportation, etc that the govt has to be involved in.

    And the truth is that in some sections of the city – developers really have no interest in investing in – without some level of commitment from the city.

    I just see these things requiring a partnership between the city and the developer. It’s just a fantasy that such development happen purely as private sector ventures… and again -this is why Conservatives and Libertarians are not actively involved in urban governance for the most part – they are just ill suited for that task.

  7. “Such projects typically destroy nearby urban life and lifestyles around them and do so permanently, while they also create places of frequent desolation, dislocation, and burdensome traffic that spreads far and wide at odd times and within whole sections of town.” Very true, Reed. And that’s exactly what the first Richmond Coliseum project did to what was left of Jackson Ward and the old North-Of-Broad commercial district and farmers’ market back in the 60s. This rebuild simply sounds like an attempt to make a profit for a well-connected few out of a 60-year-old concept that was midbegotten to begin with, an excuse in its day to demolish a vibrant old-fashioned urban neighborhood, “urban renewal” born of racial animus over school integration and the GA’s refusal to allow Richmond to expand its tax base and its coordinated planning for the urban area into Henrico. Jim, you are correct: the convention center either stands on its own economics or delete it from the package. Nashville has a lot more going for it when it comes to entertainment industry events to support a huge convention center than Richmond could even think of.

    1. djrippert Avatar

      Stadiums have enhanced neighborhoods in Baltimore, Pittsburgh, Washington DC, Denver and many other cities. Of course, these cities were really cities. They had NFL teams, MLB teams, hockey teams, etc. Durham has an absolutely beautiful minor league baseball field for the Durham Bulls that provides affordable, enjoyable sports entertainment.

      I have no issue with Richmond building an arena but who will play there. The Spiders? You can’t be serious.

      “Richmond has lost event-related revenue and jobs to Washington, D.C., Raleigh, Charlotte, Charlottesville, and even Virginia Beach, Stoney has said.”

      DC – Wizards, Capitals, Nationals, Georgetown University basketball
      Raleigh – Carolina Hurricanes (NHL), Durham Bulls (AAA)
      Charlotte – Carolina Panthers, Charlotte Hornets Charlotte Checkers (AHL)
      Charlottesville – THE University of Virginia (National Champion) Wahoos!
      Virginia Beach – Norfolk Tides, Norfolk Admirals

      What does Richmond have? The Double A Flying Squirrels?

      Before you build an arena make sure you have something to watch. Talk UVA into playing a few basketball games in Richmond. See if the Hornets or Wizards want to try to expand their geographic fan base.

  8. LarrytheG Avatar

    I dunno – have folks seen this headline:

    ” Millennials Continue to Leave Big Cities
    Census figures show smaller drop in young urban residents than previous years, but many still leaving for cheaper housing, better schools”

  9. Reminds of me of the same mess down here with sports houses.

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