Hawaii taxpayers may have to cover a bigger portion of the new Aloha Stadium’s construction costs than initially anticipated.

Sources of funding for the $350 million worth of public investment in the new stadium would put more burden on the state’s general fund, and therefore tax dollars, under a proposal moving through the Legislature, House Bill 1348.

It’s the latest attempt by lawmakers to transfer development powers over the 90-acre stadium site to the Stadium Authority, a nine-member board that oversees the stadium’s operations.

But the bill comes with an important change.

Financing for the state’s portion of the new stadium costs would be handled entirely through general obligations bonds backed by taxpayer dollars. As it stands now, more than half of the state’s investment would be paid back directly by stadium revenues.

A change in how the new stadium development is financed could place an additional burden on state taxpayers. Anthony Quintano/Civil Beat/2017

“It could be a sign that they have less confidence the money will come in from the project itself,” Joe Kent, vice president of the conservative-leaning Grassroot Institute of Hawaii, said. “And therefore, it does put taxpayers on the hook more.”

National experts have also cast doubt on how successful the stadium and surrounding site slated for massive redevelopment will ultimately be. There are worries about the long-term impacts COVID-19 will have on large events, and concerns that the new stadium, like some sports facilities on the mainland, will not materialize the economic benefits necessary to justify the state’s investment.

Still, state leaders seem confident that the stadium and an entertainment district filled with housing, hotels and retail businesses expected to surround it in the coming decades will more than pay off the state’s initial investment.

The economic impact from the New Aloha Stadium Entertainment District, as the project is being called, is expected to total close to $2 billion, while the state could be expected to rake in upward of $500 million in various tax revenues from the area, according to consultants’ estimates.

That said, economists generally agree that public financing for sports facilities has not produced the economic returns promised. Experts also question the financing structure being contemplated by lawmakers now.

Several publicly financed mainland sporting venues have fallen short of their initial revenue and development goals and left taxpayers on the hook to pay back hundreds of millions of dollars over several decades.

“It comes down to does it make economic sense? Are we able to balance the books out of this? And can we get back what we put in?” Martin Mayer, an assistant professor of public policy at the University of North Carolina at Pembroke, said. “The answer’s almost always no.”

Paying For The Stadium

Government bonds are a sort of loan the state makes with the promise it will pay back investors with additional interest. In 2019, lawmakers authorized the administration to sell $180 million worth of revenue bonds and $170 million worth of general obligation bonds to partially fund development of the new stadium.

Debt payments for revenue bonds typically come from money generated by whatever project is being built. In contrast, the debt paid on general obligation bonds, or GO bonds, come straight from the state’s general fund — taxpayer dollars.

HB 1348, the newest stadium proposal, shifts the bond financing entirely over to general obligation bonds, putting taxpayers on the hook for $350 million, plus interest, for the bond sale.

Economists and public policy experts contacted by Civil Beat raised concerns with the new bond financing structure.

“If you finance the new stadium out of general obligation bonds, you could have residents who would never think about attending a University of Hawaii football game have their tax dollars subsidizing the stadium,” said Brad Humphreys, an economics professor at West Virginia University who has studied financing for sports venues for the past two decades.

WAM committee Hearing Senator Glenn Wakai.
Sen. Glenn Wakai has long been a proponent of the new stadium, and said that revenue bonds may be difficult to pay back since the stadium is not bringing in revenue right now. Cory Lum/Civil Beat

But Sen. Glenn Wakai, a long-time proponent of stadium redevelopment, is looking to future benefits of the stadium as well as near-term construction jobs it could create. 

Wakai said funding the stadium with revenue bonds could be hard at this time since there’s no money coming in to repay those bonds. He also noted the stadium’s current finances that caused the Stadium Authority to indefinitely shutter the stadium’s operations in December and ask the Legislature for emergency appropriations.

“Whether a stadium, a school or a bridge, there’s a certain amount we don’t want to have borrowed and sitting on the balance sheet,” Wakai said. But where that tipping point is, he said, is “above my pay grade.”

Wakai acknowledged that switching to GO bonds could place an extra burden on taxpayers but deferred most questions on why lawmakers decided to change up the financing structure to Sen. Donovan Dela Cruz, chairman of the Senate Ways and Means Committee. 

“The financial apocalypse has raised questions if this is the time to even have stadium events.”– Joe Kent, Grassroot Institute of Hawaii

Dela Cruz didn’t respond to phone messages. But his office said that the change in financing was necessary because there would be no monies generated by the new stadium while it was under construction, while the state would have tax dollars readily available to pay the GO bonds.

In February, Gov. David Ige criticized spending on a new stadium at a time Hawaii is also trying to juggle repairs of other infrastructure projects during a pandemic. He suggested continuing to put money toward repairs and improvements at the old facility, which a state study from 2017 showed would cost more in the long run.

The governor’s administration has final say on whether or not to float bonds. HB 1348 would give the Stadium Authority until 2024 to spend the cash generated from the bond sales.

On April 1 the Ways and Means Committee voted to move HB 1348 to a vote by the full Senate. The committee amended the measure by making the University of Hawaii a voting member of the Stadium Authority.

The bill would need to win approval in the Senate, and the House would need to agree to any changes, before the bill is sent to Ige’s desk.

Competing Teams

The $350 million represents just the state’s portion of the stadium. How the stadium will ultimately be financed is not clear as state officials are still evaluating proposals from three development teams competing to build the new stadium.

The team selected to build the stadium would be expected to pay for all other design, construction, finance and maintenance costs associated with the new stadium that aren’t covered by the state’s investment, according to the request for qualifications document sent to potential developers.

State Comptroller Curt Otaguro, who heads the agency taking point on the new stadium, declined to be interviewed for this story through a spokesperson, citing the ongoing procurement process that also involves financial plans for the new stadium development.

In a written statement to Civil Beat, Otaguro said the state is still evaluating revenue models and that the state debt is expected to be paid for with revenue from stadium events as well as development of the surrounding real estate. 

“Once NASED is developed and the annual revenue stream accumulates from income realized from the real estate development, the stadium will be self-sufficient, but time is needed to ramp up the various revenue streams,” Otaguro said.

During that time, Otaguro said that the state may need to put up additional annual payments to cover operating costs.

Real estate developments aside, the new stadium is expected to net $11.1 million in revenues every year, according to a 2019 market study by Victus Advisors. That projection assumes the stadium would be booked for more than 300 “event days” each year and include more than 150 swap meets, 52 sporting events, 10 concerts and seven new sporting events including soccer, rugby and motor sports.

Over the last two decades the swap meet has been the stadium’s biggest moneymaker. That will continue, according to the Victus projections, with the swap meet accounting for about 38% of future stadium revenues.

Still, it is money generated from the land development, and not necessarily the stadium, that officials are looking forward to. Preliminary plans for the site surrounding the stadium envision a mix of condominiums, office space, hotels and entertainment and dining options. The taxes generated by those businesses would hopefully make the state’s investment worth it.

“The primary benefit of developing all 98 acres is to monetize the state lands into revenue-generating streams beyond just athletic events,” Otaguro said.

Debt service for the stadium, the annual payments the state makes to cover the bonds, was expected to be about $26 million, according to a 2017 conceptual development study.

The same study found that the total cost to the state for the new stadium through 2058 would be about $520 million.

Consultants estimate Hawaii could see about $570 million in cumulative tax revenues for the state and county once the stadium is running and the entire 98-acre site is developed, according to the Victus 2019 study.

‘A Big Risk’

Revenue bonds as contemplated by the Legislature would be the best bet for paying for a stadium, according to Humphreys, the West Virginia economist.

Relying on tax dollars generated from the surrounding real estate development to offset costs to taxpayers is still a better proposition than relying on tax dollars alone. But that potential reward is dependent on the state successfully developing the real estate surrounding the stadium.

“It may not happen,” Humphreys said. “It’s a little riskier and the state is assuming a big risk.”

He pointed to the KFC Yum! Center in Louisville, Kentucky, as a cautionary tale.

What was supposed to be a $238 million arena meant to revitalize a part of downtown Louisville turned into a boondoggle that may cost taxpayers more than $900 million in future debt. An adjacent district expected to generate a significant amount of revenue to pay down those debts also failed to deliver, according to an investigation by the Courier Journal that detailed the arena’s financial woes.

The timing of the stadium project also interests Kent, of the Grassroot Institute.

“The financial apocalypse has raised questions if this is the time to even have stadium events,” Kent said. “Do we have a new normal? A new future?”

The state hopes the new stadium development, as seen in this rendering, could lead to profitable real estate ventures down the road. Courtesy: Crawford Architects

Mayer at the University of North Carolina-Pembroke, who studies public-private partnerships, has been asking those questions too. In a paper titled “Pandemic and Sport,” Mayer looks to two new stadiums in Arlington, Texas, and Las Vegas whose finances have been hit hard by the pandemic.

In 2016, Nevada lawmakers agreed to put $750 million worth of new hotel room tax revenue toward the new Allegiant Stadium. A reserve fund that had been accruing money since then helped to pay for bond payments when COVID-19 shut down the Las Vegas Strip.

Meanwhile, Arlington had expected to repay its bonds from parking and other stadium revenues but has not realized those either because coronavirus cancelled sporting attendance.

Both cases, Mayer said, illustrate challenges with financing large sport venues during a pandemic that has shut down most of the revenue streams for those projects.

Building up reserve funds in case revenues run dry in some years, as Nevada has done, could be a good strategy for Hawaii, he said. That three development teams are competing for the state’s attention could place Hawaii in a good position to negotiate favorable financing agreements.

No Pro Teams Here

But Hawaii’s lack of a professional sports team to anchor the stadium worries Mayer.

“You really need high attendance events, where you can charge more money, more sponsors, get people into luxury boxes,” he said. 

Humphreys said that putting up public funds for the new Aloha Stadium is a little more justifiable, since the primary tenant of the new facility would be the University of Hawaii Rainbow Warrior football team. 

“At least it’s not a for-profit corporation owned by a billionaire who is trying to get the state government to build him a stadium, which is what happens in the NFL frequently,” Humphreys said.

And there’s still some debate over whether or not a new stadium can be considered a public good, like a new road or a new school. Government funded construction projects have been sought to prop up the economy during economic downturns. But Mayer sees stadiums as something that’s exclusionary, unlike a new sewer system that anyone living in an area could benefit from.

In the absence of pro sports, having a university football team to rally around might be a good thing for Hawaii.

“We know people get enjoyment out of having an athletic team to follow and identify with. That’s valuable, and that part of sport is a public good,” Humphreys said. “From that perspective, breaking even and maybe not breaking even is justifiable because of those intangible benefits that you are getting.”

While Aloha Stadium is closed the UH plans to host its 2021 home football games at Clarence T. C. Ching Field on the Manoa campus. Renovations to the field are expected to cost up to $6 million.

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