Recent news reports show that state taxpayers have been paying more for the Consol Energy Center than originally thought. Through a little known provision in the lease agreement between the Pittsburgh Penguins and the Commonwealth of Pennsylvania, state taxpayers are responsible for guaranteeing the bonds used to finance the building. At the time the lease was being signed, we had expressed concerns that state taxpayers were being used to backstop the bonds. We had written in a Policy Brief (Volume 7, Number 12) that the bonds were to be guaranteed by the Sports and Exhibition Authority and ultimately the Commonwealth. We had asked the question: where will the money come from? Now we have an answer.
Seven years later we are now learning that the backstop has cost state taxpayers more than $5 million to date and is expected to cost another $5.6 million over the next five years. The reasoning provided is a change to the variable interest rate caused by a credit downgrade to the bond insurer during the recession. Obviously changes to the variable interest rates had been anticipated and the State agreed to cover any increases.
But the point is this facility is designed to help the team and thus they should have been required to cover any unanticipated costs. Defenders of the team will point out that the money being used by the state is coming from gaming funds and not directly from the taxpayer. But that argument is false. The money is coming from an economic development fund backed by gaming dollars. But the economic concept known as opportunity cost comes into play here: for every dollar diverted to covering the bond expenses of the team’s home, that is one less dollar the State can use for an actual development opportunity. Either that opportunity is delayed or the money has to come from other sources such as tax receipts. Once again the taxpayers are checked by the team.
