Taxpayers Take Their First Shift for the Penguins Arena

Taxpayers Take Their First Shift for the Penguins Arena

When the new hockey arena’s financing deal was announced, politicians were pleased to declare that no direct taxpayer money would be used to fund the facility. They noted the financing would come from the new casino, a state fund supplied by casino taxes, and the team. However, through a lease and sub-lease arrangement, the bonds issued to fund the arena were Commonwealth Lease Revenue Bonds. However, bond underwriters were not confident in the Pittsburgh casino’s ability to pay, so to secure lower interest rates, the Commonwealth-i.e. the taxpayers -would be called upon to backstop the lease. This detail was not very well known until months later. Even when it came to light officials claimed that taxpayers having to ante up was a remote possibility. Well, remote possibility just became reality.

Taxpayers were sent a bill for $5 million to satisfy an unexpected increase in bond interest payments as a result of a rise in the variable interest rate secured on the debt for the new arena. The interest increase happened last fall and was made known to the Governor in December whereupon he inserted the payment into his 2009-10 budget proposal. Unfortunately, it went unnoticed until discovered by the Tribune Review even though the state is scrambling to fill a budget shortfall and still hasn’t agreed to a budget three months after it was due.

The money still has to be appropriated by the Legislature, but a Budget Office spokesman noted that failure to do so "could have long-term negative repercussions…" He also rationalized the lease-sub-lease deal as "a sound financial arrangement in 2007 that was caught up in the crash that affected businesses worldwide."

And that is exactly what is wrong with Pennsylvania policy and one reason it is such a slow growth state. Using taxpayer funds to support a largely private venture should not be considered sound finance. This is the first shift taxpayers will take in paying for the arena. And unless the Rivers Casino comes up with $7.5 million soon, taxpayers may take another big hit quite soon.

The question is; "will the General Assembly appropriate funds to cover bond payments made necessary by the Governor’s ill-advised agreement to put the state on the hook without consulting the legislature and will they demand spending reductions to offset the millions needed to fund the bond payments?"