Sticker Shock

Last week the Mavericks came close to winning an NBA championship, and the W, an elegant new hotel, opened in the development surrounding the city's new sports arena. So now we hear a certain drumbeat: Dallas Mayor Laura Miller and the people who opposed city subsidies to the arena have been proven wrong.

Dallas Morning News columnist James Ragland wrote last week: "I shudder to think what that part of downtown would look like these days if the arena deal had fallen through."

Morning News architecture critic David Dillon last week remembered the entire plan to develop the area around the arena as an effort by Ross Perot Jr. to rid the city of pollution. In tones of Genesis, Dillon described Perot's act of creation: "And then he turned his attention," Dillon wrote, "to acquiring the 75-acre brownfield that TXU wanted to dump and that the city was willing to subsidize with $135 million in bond money.

"The strategy worked. Victory Park, which includes American Airlines Center, is now a 75-acre boomtown, with a 251-room superluxurious W Hotel, opening today, plus condos, restaurants, shops and bars sprouting like mushrooms after a spring rain. (Dillon did come back Sunday with a very thoughtful piece in which he raised the question whether Victory, which is outside the freeway loop, may be bleeding downtown.)

Even our own Robert Wilonsky, editor of the Dallas Observer's blog, "Unfair Park," rhapsodized last week about the opening of the W and suggested broadly that Miller had been wrong.

Between Ragland, Dillon and Wilonsky, I'm not sure I've heard this much bullshit in my life.

Where to begin?

The development around the arena is called "Victory," as if it were a Broadway musical. Victory is now at 33 percent the size backers promised it would be back when they talked the City Council into signing a very one-sided contract with them.

The projections called for the total taxable value of property in the development--excluding the arena, which is nontaxable--to be $384.4 million this year. According to information provided to me by the city's Department of Economic Development, the Victory development is worth about $128.7 million now, one-third of what was expected.

Before we all start doing the hula and losing our pants over what a wild success it is, could we at least wait for it to do what it promised?

Point Two: We are beset by some kind of municipal mind-block over the question of whether properties in Victory pay local property taxes. The bottom line is that the properties within Victory do pay local property taxes at the same rate we all do, but most of that money gets diverted back into the pockets of Victory before the money can get to City Hall.

The new W Hotel pays full taxes, just like you and me. People who buy condos or other property in Victory pay full property taxes. But 85 percent or more of that money doesn't go into the city's general fund like the money you and I pay. Instead it goes into a special fund dedicated to Victory.

No wonder they call it Victory.

This brings us to two key issues: How much money have we either already given to Victory or promised to give them in years ahead, and what is that money for? In 1997 when the new taxes were to go before city voters for approval, Mayor Ron Kirk swore, "Our costs on the arena are $125 million, and they're not going to go a penny higher." That was never true, not even for a split-second.

In 1998, we--you and I, the taxpayers--took on $141.2 million in debt in order to finance the construction of the arena, which cost $230 million to build. Our $141.2 million went to pay $110 million toward construction of the arena, $15 million for "infrastructure" and $16.2 million for interest on the bonds. We agreed to pay for this debt by putting a new 5 percent tax on car rentals and a 2 percent tax on hotel rooms within the city, making us that much less competitive for convention business with surrounding cities.

Partners Ross Perot Jr., who owned the basketball team at the time, and Tom Hicks, who owns the hockey team, put in $105 million.

But we're not done with the subsidy. Perot and Hicks said they couldn't possibly develop the area around the new arena if the city wouldn't agree to pay them back for even more of the new streets and sewers needed to service their own development. So in a separate deal, the City council agreed to chip in yet another subsidy of $25 million, putting the taxpayer tab so far for Ron Kirk's promised $125 million deal at $166.2 million.

Hang on. We're just getting rolling here.

A year after we agreed to the deal, Perot and Hicks sold naming rights to the arena for $150 million, payable 100 percent to them, zero percent to us, according to the contract negotiated by our City Council. A year after that, Perot sold the basketball team for $155 million more than he had paid for it.

An important footnote here is this: Of the $125 million you and I put into the arena, $10 million went to Perot and Hicks right off the top. Perot drew $8.4 million as the fee he charged us for being the developer of his own project. Another $1.58 million went to Hicks as his fee for arranging financing of his own project, which amounted mainly to getting us to pay for most of it.

We're not done here.

Mayor Kirk's next great memorable line on all this was that we had Perot and Hicks by the short ones. By agreeing to pay them big amounts for the development of the area around the arena, we had put them in a position where they had no choice but to live up to their promises.

"If they don't go and develop the property, they don't get squat," then Mayor Kirk vowed. "That's a great incentive for them to develop."

In 2002, Perot and Hicks told the city they wanted to bring in somebody else, a company called Palladium, to do the developing for them, and as part of that deal they wanted the city to basically cash them out early. Even though the agreements and ordinances setting up a special taxing district for Victory expressly forbade the district from selling bonds, they wanted the city to find some way to sell $83 million more in some kind of bonds.

Of that new money, $43 million was to go directly to Palladium; $25 million was to go to Hicks, Perot and Mark Cuban, the new owner of the basketball team; and then you and I would have been paying an additional $15 million as interest and for "other costs."

Had this deal gone through, Perot would have profited about $30 million by selling 20 acres of his project to Palladium.

The City Council voted for this thing, over Miller's strong objections and against angry opposition from most of the long-term owners of downtown Dallas property. The southern Dallas contingent on the council gave strong support to the Palladium deal after Palladium and Perot proposed that they take millions of dollars mandated for affordable housing in the deal and give it to southern Dallas council members to divvy up in their own districts.

So it's not only a shaft. It's the down-and-dirty shaft.

Even though the City Council approved it, the Palladium deal died in the marketplace (no tenants), which the developers blamed on September 11 and the economy and the weather and so on. But the point is that the City Council will and did agree to anything. There is no limit.

Assistant City Manager Ryan Evans makes a strong case that tax increment finance districts (TIFs) and tax incentives generally are good for the city. He gave me the counter-example of vast sums the city is spending to build new roads in southern Dallas, where there is no current need for the roads based on existing traffic levels, in order to woo businesses into locating along those roads.

"In that particular case," Evans said, "the entire city of Dallas is paying to build that new street. Now, is that a subsidy? Well, maybe.

"In the case of a TIF, at least the only guy who has to pay for that road is the guy that's right next to that road. So, in some sense, it may be more fair to the citizens of Dallas to have the developer that's benefiting from it have to pay for it from his own taxes, rather than charging everyone."

Sure. But let's remember: You want a new alley? They pave your alley. Then they assess you for it. They don't pay you back later "out of your taxes" or out of anything else.

Getting paid back $25 million is a $25 million subsidy. Getting a free gift of $125 million in bond money is a $125 million subsidy. If they get it and you don't, it's a subsidy.

I never heard Miller say don't build a basketball arena. I heard her say don't be an idiot. The fact that she wanted to bargain it out, drive a hard deal and protect the taxpayers' interests doesn't mean she was against doing it.

So now we have this beautiful Lexus in the driveway. It still matters what we paid for it. And in the real world, you can get that Lexus for a good price just like you can get it for a bad price. You just have to care what you pay. Most of them down there do not care because it is not their money.

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Jim Schutze has been the city columnist for the Dallas Observer since 1998. He has been a recipient of the Association of Alternative Newsweeklies’ national award for best commentary and Lincoln University’s national Unity Award for writing on civil rights and racial issues. In 2011 he was admitted to the Texas Institute of Letters.
Contact: Jim Schutze