As the Minnesota Vikings continue their push for a publicly funded stadium, the vast majority of Vikings' fans are having trouble seeing the forest for preference of the trees. To these fans, the situation is simple--a city or the state need only think of an appropriate way to pay for a stadium and then "get 'er done." Many of these fans have also accepted the commonly stated line that "the longer we wait, the more the price is going to go up."
Both sentiments are fraught with an apparent misunderstanding of both common financing principles and the realities of the current market.
Since 2005, local writers and champions of the Vikings' cause have perpetuated the notion that the cost of the new stadium can only go up, the longer it takes to build the stadium. Based on inflationary data provided by the Federal Reserve Bank, that sentiment, generally speaking, might have held for the years 2003-2007. It certainly has not been true of the years since 2007, however. Today, perhaps more than ever in the post-War era, the real rate of cost for constructing a stadium is lower than it has ever been.
That last point, apparently lost on the locals, is actually a selling point for financing a new stadium in today's dollars. Only Norm Green would find it difficult to reach a deal handsome to the buyer.
How to fund such a venture, even at a bargain rate, remains the more complicated question. On numerous occasions I have suggested that a new stadium is viable under any economic conditions and that the determining factor for the public is in what revenue streams the public will share for the public's portion of upfront money?
I won't rehash that argument here (you can find it throughout the archives of this site), but I will point to the sub-point, that of upfront money. The belief that the public's portion of a new stadium can be borne through Racino, pull tabs, or some other user fee might be true. What most proponents of these endeavors fail to realize, however, is that the endeavors need cover not only the public's portion of the cost of constructing a new stadium, but also the debt on that portion.
Why? That's where basic financing comes into play. No matter how Minneapolis/Minnesota/some other public entity pays its bill on a new stadium, it will certainly have to borrow the money to pay for all of its cost up front. Then it will pay that cost back, with interest, over time. That, of course, significantly increases the price tag for the public portion. It also makes future loans to the public entity riskier (even if only marginally so) and compels the public entity to be spot on regarding future cost projections for all public outlays.
The cost problem for the public stadium in helping fund a new football stadium for the Vikings thus is not merely about what mechanism(s) used to pay off the public debt on the stadium, but also in ensuring that assessments on revenues and expenses are at least close to accurate over the life of the debt. As we have witnessed over the last three years, a failure to make reasonable assessments on public revenues can lead to far more serious issues than mere public default on a debt. As such, how and whether to fund a Vikings' stadium is a far more serious issue than most Vikings' fans apparently even comprehend. Better understanding is required before any public entity is hurried into making a rash decision, particularly when that public entity has virtually all of the good cards at the table.
Up Next: Moneyball.