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 5
percent ticket surcharge explained to fans
By Jon Schmitz, Post-Gazette Staff Writer
It is called Plan B, the public/private partnership
formed to finance new baseball and football stadiums in
Pittsburgh and to expand the David L. Lawrence Convention
Center.
Details of the plan, released March 16, raised almost as
many questions as they answered.
The Post-Gazette decided to break the plan into pieces,
both to better explain the plan's details and to frame
the issues for public debate.
On Tuesdays and Fridays for the next several weeks, we
will answer questions about specific parts of the plan.
Today's installment looks at ticket surcharges. City and
county officials have proposed a 5 percent surcharge on
Pirates and Steelers tickets to raise $22 million of the
$803 million projected cost of the projects.
Q. How would the ticket surcharge work?
A. A 5 percent charge would be built into the price of
each ticket. The teams would forward the surcharge money
to a trust account, which would be used to pay off some
of the stadium construction debt.
Q. Why a ticket surcharge?
A. Proponents give two reasons. First, other funding
sources - sales and hotel taxes - are insufficient to pay
the local share of the projects' cost.
Second, they say it makes sense for users of the new
facilities - the fans - to bear a share of the expense.
Of course, the teams consider money raised through ticket
surcharges to be part of their financial contribution to
the projects. Whether this money would be contributed in
addition to the $85 million pledged up-front by the
owners, or whether it is a part of that $85 million,
hasn't been negotiated yet. Public officials involved in
Plan B clearly see this money as being in addition to the
$85 million already pledged.
Q. Why is that? It's the fans' money, isn't it?
A. Maybe so. But the teams contend that if the market
dictates a certain ticket price, that's the limit they
can charge, regardless of whether there are taxes or
surcharges. If the market supports a $20 ticket price,
and there is no surcharge, the team keeps the $20. If
there is a 5 percent surcharge, the ticket price is still
$20 but the team gives up $1. If it tried to add the
surcharge to the $20 ticket charge, it would price itself
out of the market - or so the theory goes.
Q. OK, so the teams say it's their money. Are
they willing to go along with the surcharge?
A. Officials say yes, provided that it is part of a
reasonable public-private financing plan for the
projects. In other words, they are willing to negotiate.
Q. Have other teams levied surcharges?
A. At least four teams have used them to finance new
stadiums or arenas or major renovations. But it is more
common for teams to have agreements to pay stadium rent
based on a percentage of gate receipts, which is
essentially the same thing as a ticket surcharge.
Q. I've heard proposals for a flat charge of $1
or $2. Why does the plan call for a 5 percent surcharge?
A. Two reasons. Proponents say it is fairer to tax on a
percentage than to assess the same fee to bleacher bums
and lounge box aristocrats alike. Also, using a
percentage ensures growth in the revenue produced from
the surcharge as ticket prices increase. Flat fees - like
the city's $10 per year occupation tax - have little
growth potential.
Q. How much money would the surcharges bring in?
A. Based on projected Pirates and Steelers attendance and
ticket prices at the new stadiums, about $3 million per
year. The current plan is to use that revenue to float
$22 million in long-term bonds to help finance the
projects.
If there is money left over after the annual bond
payments are made, it could be devoted to a fund for
maintenance or capital improvements.
Q. When would the ticket surcharges take effect,
and how long would they last?
A. So far, there has been no timetable set for the
surcharges. Typically, the surcharges don't take effect
until a team is in its new home. The surcharges would
last the life of the bond that was floated based on this
revenue. It has not been decided whether the surcharge
would remain after the bond is paid off.
Q. What are the drawbacks to ticket surcharges?
A. They are somewhat unreliable as funding mechanisms
because of fluctuations in attendance. That reduces the
amount that the city and county can borrow, using that
revenue stream. Also, surcharges, if excessive, can put
teams at a competitive disadvantage.
Q. A few years ago, the city went to great
trouble to cut the amusement tax - which is levied on
ticket prices - from 10 percent to 5 percent, mostly at
the urging of the teams. Won't this surcharge just put us
back where we were?
A. Not exactly. Part of the deal is that the teams are
getting new stadiums with significant new revenue
potential. So they are much better off than they were
with the existing stadium and the 10 percent amusement
tax. As Pirates owner Kevin McClatchy said recently,
"if (the surcharge) allows us to play in a brand-new
ballpark that makes us competitive for the next 30 years,
I don't think that takes us back at all."
WHAT THE FANS WILL PAY
How ticket revenue is divided
Current:
City gets 5 percent amusement tax.
Teams get 95 percent.
(Note: Teams also pay rent equal to 10 percent of gross
receipts to a maximum of $1.2 million annually for the
Pirates and $850,000 for the Steelers).
Proposed:
Five percent surcharge goes toward new stadium financing.
City gets 5 percent amusement tax.
Teams get 90 percent.
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