"To Put Some Meat Behind This" - David Adelman Details Tax and Land Commitments for Sixers Arena Proposal
The Sixers announced on Thursday a series of commitments to the City of Philadelphia as part of the Market East Arena effort. There are three proposed agreements in total, based around taxes and land ownership, which the Sixers say will help generate one billion dollars in new revenue over a 30-year period.
Here’s the relevant portion of the press release, which details HBSE plans:
Philadelphia, PA, July 27, 2023 – As a follow up to the City of Philadelphia and the Philadelphia Industrial Development Corporation’s (PIDC) announcement that firms have been retained to conduct an independent analysis of the proposed 76 Place at Market East, 76 Place is releasing details of key agreements it is prepared to make with the city, to be included for consideration in the city’s due diligence process and the studies it has commissioned. Central among those commitments, previously submitted to the city, is a plan to generate more than $1B in new tax revenues for the city, state and School District of Philadelphia, and give the city additional control and influence over the project. Initial analysis by the team shows the new 76 Place on Market East will generate additional tax benefits totaling $200M for the School District of Philadelphia and $800M for the city until the end of the 30 year lease term.
76ers Will Convey Private Land to City of Philadelphia
Among the agreements 76 Place is prepared to make is the conveyance of currently private land to the City of Philadelphia. The precedent in Philadelphia, and generally across the country, is for cities to own the land of stadiums and arenas. Cities, Philadelphia included, frequently contribute public property at no cost to developers, however the 76ers will use private funds to purchase the land and convey it to the city at no cost. Public ownership of the land will give the city more influence over the arena design; power to enforce the largest legally binding Community Benefits Agreement (CBA) in the history of Philadelphia; and ensure arena access for community events and emergency services.
76ers Will Remove the Arena Site from the Existing TIF
As part of the 76ers’ negotiation with the city, upon demolition and conveyance of the arena site to the city, it will be removed from the existing Tax Increment Financing (TIF) structure, which is set to expire in 2035. This will result in significant incremental tax revenue for the city and School District during this time period and beyond.
76ers Will Create New PILOT in Accordance with State Law
In accordance with state law and tax code for sport venues that is followed by all of the arenas and stadiums in the South Philly Sports Complex, a PILOT (Payment in Lieu of Taxes) will be created. This structure will yield a net positive outcome compared with taxes paid by the site today; however unlike other venues across the country whose payments go to publicly finance those arenas and stadiums, 76ers’ PILOT payments will go to the City. Initial analysis by the team shows the new 76 Place on Market East will generate additional tax benefits totaling $200M for the School District of Philadelphia and $800M for the city until the end of the 30 year lease term. This estimate is based on a conservative estimate of 50 new events in Philadelphia as a result of creating a second arena. Calculation for taxes benefitting the state will be forthcoming.
The press release also notes that “in the coming weeks, there will be additional exciting announcements about the project, including information about community meetings and opportunities for community engagement.”
So what does all of this mean? The average Philly sports fan (or blogger) is likely not a land conveyance or tax expert, but we were able to catch up with lead developer and Sixers part-owner David Adelman, who explained these agreements in more simple terms.
Crossing Broad: The conveying of the private land to the City of Philadelphia, what’s the reason for that and how does it all work?
Adelman: So the Phillies, Eagles, and Wells Fargo Center all did the same thing. This is done all over the country… it basically allows the city to have some controls over the things we say we’re going to do over this period of time. By us buying the land, handing it to the city, and then leasing it back, we’re still out our purchase price of the land, (and) the city now has governance over certain things. For example, when I talk about that $50 million community benefits agreement, the city will have stipulations in our lease now to make sure that they have purview over that. They’re going to have design guideline control that we (previously) didn’t have to give them, but that we’re willing to give them as part of what we want an enhanced Market East to do. It really provides for more governmental control. Lastly, when you buy your house, there’s a methodology for how your taxes are established, your property taxes. For stadiums and arenas there’s no real methodology, so it has to be done within this construct. It’s the same way (Lincoln Financial Field, Citizens Bank Park), and Wells Fargo Center handles it. It allows the city to exert more control and this is really the mechanism.
Crossing Broad: Removing the arena site from the existing TIF – the Fashion District has a tax abatement that lasts until 2035, but you guys are essentially waiving that.
Adelman: Correct. Some people have said that we have this backdoor subsidy, but it wasn’t our subsidy, it was already there. Not only are we saying we don’t want that subsidy, but this will ensure that it goes away.
Crossing Broad: Similarly, if someone bought a new construction in Fishtown, lived there for three years, then sold it to someone else, that person would inherit the remaining 7 years of a typical 10-year Philadelphia tax abatement. This is the equivalent of that person saying “I’m good, I’ll pay my fair share.”
Adelman: That’s right.
Crossing Broad: The PILOT Program – Subaru Park and the Union have a deal where they pay Chester, and then Chester gives the money to Delaware County to pay back the bond that helped build the stadium with public dollars. In this case, since the arena is privately funded, this is essentially money that goes to the city and they can use it how they choose?
Adelman: Correct. The state has set the mechanism on how this works. It was established I think for Lincoln Financial Field. This legislation was created back then.
Adelman did reiterate that these agreements put 76 Place, if it gets built, in line with the other stadiums in South Philly, The sports complex properties and Sixers arena would be treated in the same manner, with the city operating with the same purview.
“First and foremost, we just want to control our own home,” he added. “It’s been a good run where we are (at Wells Fargo Center), but it’s no different than someone who owns an apartment wanting to buy their own house. Number two, if we were gonna do it, we were gonna do it in a way where three things happened, 1) it benefited the city, 2) it benefited our fans, and 3) it benefits our players. That hasn’t changed. We’ve tried to talk about how we can benefit the city along Market East and have tried to say ‘look at the current conditions with a mall on the precipice of bankruptcy.’ As we’ve been waiting for this to be verified, we thought to put some meat behind this and show everyone that net new tax money over a 30-year period is a billion dollars. $200 million to the school district and $800 million to the city. What’s not included is that we haven’t finished our calculations on what the new state taxes would be. Very simply, this is what I said I would do. Create positive change for the city without taking any city subsidy dollars and creating a net benefit of a billion dollars. If we stay where we are, Comcast gets the benefit and the city doesn’t. That’s the summary here. We finally have a calculation that we’re willing to put forth.”
We’ve tried to hit all sides of the arena argument on Crossing Broadcast. Adelman joined us in June. This month, we had Mohan Seshadri and Kenny Chiu explain Chinatown’s stance, and Comcast’s Dan Hilferty discussed the project on Snow the Goalie with Anthony, Russ, and Bundy.
Finally, here’s a walkthrough of the proposed arena site: