The Tax Man Cometh… Maybe

Sep 7, 2013; Cleveland, OH, USA; A general view of a fireworks show after a game between the New York Mets and the Cleveland Indians at Progressive Field. Mandatory Credit: David Richard-USA TODAY Sports

Pending Sin Tax Decision Looms Large for Indians

The Cuyahoga County sin tax is set to expire. As you would expect, the three professional sports teams that call Cuyahoga County home are in a bit of a panic. Ok, maybe panic is too strong of a word. Perhaps a more fitting word would be concerned. After all, watching your primary income source for maintenance and renovations suddenly come to a stop could be problematic.

So what did the Indians, Browns, and Cavs do? Naturally, they did what anyone in that situation would do. They went to a council meeting and pleaded their cases as to why the sin tax should not just remain in place, but should also receive a 20-year extension in order to continue aiding in the funding of their major stadium projects.

For those of you who might not be aware, the sin tax is the tax that was put into effect back in the early 90’s to help fund the Gateway project, otherwise known as Jacobs Field and Gund Arena at the time. Cleveland Browns Stadiums, now First Energy Stadium, also benefitted from the sin tax. As publically owned stadiums that are leased to their respective clients, the sin tax helps make it possible for renovations to take place. By no means is it the only means of income used to make changes, Cavs owner Dan Gilbert has invested millions in improving the fan experience at what is now Quicken Loans Arena, but it certainly helps keep the stadiums up to date.

In terms of its monetary impact on the residents of Cuyahoga County, the sin tax breaks down as follows: 4.5 cents per pack of cigarettes, 16 cents per gallon of beer, 24 cents per gallon of cider, 32 cents per gallon of wine, and $3 per gallon of hard liquor. Since its inception, it has generated somewhere around $320 t0 $350-million dollars. It’s understandable then why those who benefit the most from the sin tax are so desperate to keep in place.

However, one has to bear in mind that while the Indians, Cavs, and Browns certainly benefit from the sin tax, it is ultimately up to the city as the owners to ensure the proper renovations are made. In the case of Progressive Field and Quicken Loans Arena, the Gateway Corporation acts as landlord for the city who owns the properties. For First Energy Stadium, the city acts as both owner and landlord. If the sin tax fails to pass, the city will then have to find alternative means to funding renovation projects. Or, they could simply deny all requests and focus their attention elsewhere, as many have said should be the case with publically funded stadiums.

The Indians and Cavs do have a bargaining chip to use against the city should it ever come down to it. According to Tim Offtermatt, chairman of Gateway Corporation, there is language written within the leases for both teams that could provide them the opportunity to break their leases. If “capital improvements” are not made it my give them legal footing to end their leasing agreements with the city. In laymen’s terms, the teams could up and leave for a better situation. I promise you, nobody wants that. Not after the fiasco that was the Browns relocation. The leasing agreements for the Cavs and Indians run through 2023 and 2027, respectively.

Now that we’re all caught up, what about the Thursday’s sin tax presentation to council members? Well, representatives for all three teams were in attendance – Cleveland Indians vice president Dennis Lehman, Cavaliers and Quicken Loans Arena CEO Len Komorowski, and Browns CFO David Jenkins. Jenkins did not speak on behalf of the Browns, who just agreed to $120-milion worth of renovations with the city, but Lehman and Komorowski made their voices heard.

Both Lehman and Komorowski presented a laundry list of renovations that need to be made to their respective buildings. For the Indians, the proposed renovations are expected to cost somewhere around $61.2-$67.2 million. For the Cavs, that figure is $55-$65-million. Lehman also added that Progressive Field has essentially been neglected over the last 20 years. He stated that if the Cubs get approval for their proposed changes to Wrigley Field, Progressive Field will be the only major league stadium to not be built or undergo major renovations in that 20 year period. Call me crazy, but the drastic changes made to the jumbotron in left field seem contrary to that statement, but who am I to judge? Speaking of which, somewhere between $13-$14-miillion of that proposed budget is aimed at renovating the scoreboard.

Here is the complete list of renovations that both teams cited on Thursday:

Indians:

• Replace Air Handling Units

• Replace Fan Coil Units

• Replace Concession & Toilet Exhaust Fans

• Replace Sanitary & Storm water Pumps

• Replace Plumbing Fixtures

• Replace Domestic Water Pumps

• Replace Fire Pumps

• Replace Domestic Water Heaters

• Replace Chilled Water Plant

• Replace Building Automation System

• Replace Emergency Power System

• Replace obsolete and inefficient electrical lighting systems

• Replace obsolete broadcasting infrastructure

• Replace obsolete sound system

• Resurface concourse, ramp, & stair concrete

• Repair/replace metal sub-roof systems on Main, Mezzanine, and Upper concourses

• Replace obsolete scoreboard system including displays and control equipment

• Replace food & beverage concessions areas

• Replace seating standards, seats, and backs

• Resurface seating bowl concrete

• Replace vertical transportation system – elevators & escalators

Cavs:

• Roof replacement

• Exterior precast concrete panel sealing/painting

• Window replacement

• Replacement of sidewalks, steps and railings

• Elevator and escalator refurbishment

• Multi-level seating space replacements, updates and reconfiguration

• Building automation system control replacement and commissioning

• Energy-efficient chilled water pump replacement

• Energy-efficient condenser water pump replacement

• Energy-efficient water-cooled centrifugal chillers

• Energy-efficient cooling tower replacement

• Air handler coil replacement

• Reheat and variable air volume box replacement

• High volume cooling/heating fan and fan coil replacement

• Ventilation management and control system

• Energy-efficient variable speed chiller plant replacement

• Energy-efficient bi-polar filters for seating bowl air handler units

• Pneumatic control systems, update to digital

• Ice floor and chiller plant replacement

• Lighting control system replacement

• Arena bowl lighting system replacement

• Arena bowl curtain replacement

• Video control room update to HD

• HD scoreboard system

• Arena bowl sound system and amplifier replacement

• Fire alarm system update and replacement

• Security command center refurbishment and camera updates

That’s quite a long list for both facilities. Most of it was also added in an attempt to make the situation more dire than it really is. After all, the goal of these presentations is to get the proposed sin tax extension back on the ballot. Providing a lengthy list of issues that need to be addressed is one way to build sympathy and also begin paving the way to possibly pursue breaking their leases, as mentioned earlier. If it ever came to it, they can now attest to the fact that they presented their list of capital changes and provided the county with every opportunity to solve the problem. Failure to do so would only serve as ammunition.

In the meantime, both sides will continue to plead their cases for why or why not the sin tax should be extended. Ultimately it will be up to the council members to decide if it will come to a vote. For that to happen, 8 out of 11 council members must vote yes by February 5. In all likelihood that will probably happen, thus leaving the decision up to the people, the ones that sin tax actually effects over the long haul. What will they decide? Stay tuned. This is far from over.