Community Economy

Louisville Metro Council is expected to vote next week on whether to issue $30 million in municipal bonds to buy 40 acres of land in the city’s Butchertown neighborhood.

The plan is for the city to buy the land, then give it to the Louisville City Football Club. The pro soccer team would build a $50 million stadium, as well as develop the remaining parcels with retail and hotels. The entire project is expected to cost $200 million.

Many of the details of the deal are laid out here, but unless you’re a bonding expert, you may not completely understand the proposal.

What is a municipal bond?

There are a few ways a city can raise money to pay for capital projects.

One way is a one-time tax increase, but this is problematic. It creates an equity problem, and also can be politically unpopular because residents today are paying for a project that future residents would benefit from without paying the initial tax.

Instead, many cities use municipal bonds for major projects.

“A bond is a form of debt; an IOU, a loan,” said Michael Anthony Campbell, an assistant professor at Tennessee State University. “It has some degree of interest associated with it.”

Municipal bonds are used to raise money for city projects like water treatment facilities, jails, schools or bridges. The city borrows the money from investors and promises to pay those investors back over time with interest.

“The overwhelming majority, maybe not in raw dollars, but the number of municipal bonds being issued are for public good issues,” Campbell said. “Local governments are issuing bonds all the time for small, medium, large projects that fall under the classification of the much more traditional public good.”

Municipal bonds are classified into two types: revenue bonds and general obligation bonds. Revenue bonds guarantee investors will get their money back through revenue generated from a project. General obligation bonds guarantee investors will get their money back through the city’s power to tax. The measure being considered to buy the land for Louisville’s soccer stadium would be a general obligation bond.

Why should I care?

Because your tax dollars will ultimately be used to pay off the bonds.

Janet Kelly, executive director of the Urban Studies Institute at the University of Louisville said in Louisville, the main taxes that could potentially be raised to pay off bonds are property and occupational — or payroll — taxes.

If that’s the case, Louisvillians would want to make sure this investment is good for the city, which is why many are paying attention to the economic impact study of the stadium.

And in some cases, economic studies on sports arenas can overestimate the benefit to the city and public, including overstating the number of jobs that would be created or retail sales that would be generated.

The city says having the stadium is a key investment that will allow Louisville to compete for a Major League Soccer franchise. Other advantages, the city says, include more than 1,400 construction jobs as well as more than 1,700 jobs after the project’s completion.

So what are we really talking about when we talk about bonds?

“I think part of the underlying discussion here is what do we want our government spending money on,” Campbell said.

The proposed development uses public dollars for private investment, which is different from more straight-forward bonds that are used for infrastructure or school projects.

Some believe that the use of public dollars to stimulate the private sector benefits everyone; it’s a public good.

Proponents of the project say the initial stadium development will spur others in the area, like retail, restaurants and hotels. The city says the development would also get rid of a brownfield and bring more people to the Butchertown neighborhood, as well as nearby Big Four Bridge and the soon-to-be-built Botanical Gardens. There’s also an intangible benefit in appeasing a sports team: civic pride.

But others believe that in similar situations, cities and taxpayers often never really get those initial investments back. And they say those tax dollars could be put to better use.

“There’s so many things we need in our cities besides stadiums,” said Art Rolnick, senior fellow at the Humphrey School of Public Affairs at the University of Minnesota. “We got limited dollars; you can only tax so much…and you have to ask what’s the best public investment.”

Rolnick said he thinks money could be better used for basics like roads, lighting, health and education.

“That’s what makes great cities and great economies,” he said. “Get the public goods right.”

How could this deal go wrong?

The deal presented to Louisville’s Metro Council lays out the terms: Louisville Metro Government, with the help of $30 million in bonds, will buy the land in Butchertown and make some improvements. The soccer team, Louisville City Football Club, would be responsible for the cost of building the 10,000-seat stadium. The soccer club would also pay $14.5 million back to the city over 20 years for the cost of the land. Louisville Metro won’t own the stadium.

The city says the amount of public money in the deal is capped at $30 million — Louisville City FC will be responsible for any cost overruns. And if the team doesn’t end up building a stadium, it can either buy the land from Louisville, or the city can seek other development opportunities.

But Janet Kelly of U of L’s Urban Studies Institute said one possible outcome is that the stadium is built — but it doesn’t generate the expected economic boom for the area.

“We could be sitting on a piece of land with a soccer stadium on it that is underutilized and we’re pretty much stuck with it because it would be very difficult to transition that to another more effective use,” she said.

There’s also the possibility that Louisville gets its professional soccer stadium, but doesn’t get a bid to join the major leagues. There are other cities, such as San Antonio and Cincinnati, that are better positioned to snag a professional team. It’s also an unknown if soccer will be popular enough in the coming decades to bank on its future, or whether the team will even stay in Louisville.

Whether you love sports, hate sports or are indifferent, Louisville taxpayers would ultimately be responsible for paying for the initial investment in this proposed Butchertown development. Kelly said this is why the public has a right to review the city’s investment of the land for the soccer stadium — because it is ultimately the public that would be responsible for future payments.

Disclosure: Louisville City FC is privately owned by 47 investors. Two of those, Gill Holland and José Donis, are Louisville Public Media board members.

This post has been updated to accurately reflect the number of acres included in the proposal. The stadium will be on 15 acres; the remaining are for additional development.

Roxanne Scott covers the economy for WFPL News.