Ballpark Finance Requires Clear Thinking

Doug Duncan, the Montgomery County executive and would-be governor, has joined politicians from the District, Arlington, Loudoun, Prince William and Loudoun counties who have bravely promised "tax cuts" or "tax relief" this year in response to skyrocketing property assessments.

In fact, all this talk of standing up for the taxpayer is meant to deflect attention from the fact that Duncan and others are actually raising your taxes. More to the point, they are raising them faster than the increase in the cost of living and faster than the increase in your average income. In political terms, they are hoping to dine out on your nickel.

The Big Lie here is that the tax rate used in calculating property tax bills has mystical qualities that require it to remain unchanged from year to year. In fact, as any textbook on municipal finance will tell you, the tax rate is simply the number you get when you take the amount of money you want to spend on municipal services and divide it by the total assessed value of the property to be taxed. So if assessed values go up 20 percent a year on average, as they have been lately, at a tax rate of one dollar per hundred dollars of assessed home value, anything less than a 16.7 percent reduction in the tax rate is a tax increase.

Rather than reduce rates, however, most local politicians prefer to use gimmicks like tax caps, income tax rebates and higher homestead exemptions to give the appearance of tax relief and frugality while getting credit for expanding services.

One hopes the same financial illiteracy that surrounds property tax discussions won't be at work in Round Two of the Great Baseball Stadium Debate in the District. Yesterday, Nat Gandhi, the District's estimable chief financial officer, offered a hopeful step forward when he delivered his analysis of eight "private financing" proposals to D.C. Council members. While he found that two of the schemes pass the smell test, his essential message was to remind the council that there is still no way to spin straw into gold. Happily, Gandhi gave a thumbs-down to the idea of turning a baseball park in the nation's capital into a tax scam of questionable legality. He also was wise not to jump at seemingly attractive proposals to make a stadium part of larger, more complex development projects. After all, the economic rationale for public involvement was that a stadium would revitalize a blighted neighborhood and eventually generate lots of extra tax revenue. It would have made little sense for a city now flush with cash to diminish that potential payoff by prematurely selling off development rights and "monetizing" future tax revenue at the heavily discounted rates proposed by the developers.

Oh, yes, Deutsche Bank and a parking outfit called the Gates Group have approaches that would allow the city to pay for the stadium without having to hit up its largest businesses for $14 million in "ballpark" taxes annually, as Mayor Anthony A. Williams proposed. But this magic, it turns out, is accomplished primarily by tapping one or another new revenue source -- advertising revenue from bus shelters or on-street parking fees during ballgames -- that the city had been considering to finance other projects or city services.

One advantage to the Deutsche Bank and Gates Group proposals is that they would save $40 million to $50 million in upfront fees and reserves that would be required to float publicly traded bonds. But the price for that is that the city would pay slightly higher interest rates on some of its borrowing. And under neither proposal, according to Gandhi's written analysis, would the private sector assume the risks of cost overruns. Both proposals contain District guarantees against revenue shortfalls if the Nationals sell fewer seats, hot dogs or parking tickets than anticipated.

You can debate whether you'd prefer one source of revenue for this project or another, and whether they amount to "private" or "public" financing. But in the end, all of them, including the mayor's plan, involve borrowing $500 million to be repaid from a stream of anticipated revenues from individuals and businesses. And all of them indirectly subsidize the millionaires of Major League Baseball.

Steven Pearlstein will lead a Web discussion today at 11 a.m. at washingtonpost.com. He can be reached at pearlsteins@washpost.com.