May 28, 2018

Admissions tax should be repealed

Greg Bordonaro Editor

Leaders who are ill-prepared to handle a crisis often make slapdash decisions that help solve short-term problems but lead to longer-term issues.

It's the way our state legislators have governed in Connecticut for far too long and why the state finds itself engulfed in an endless financial crisis.

A prime mismanagement example is how lawmakers have handled Hartford's XL Center, which has become a political hot potato in recent years because of its need for hundreds of millions of dollars in renovations.

The aging arena's latest problem, however, isn't about state funding, although it remains a major issue.

As Hartford Business Journal News Editor Matt Pilon reports in this week's issue, the XL Center is having an even harder time attracting shows and performances because lawmakers recently removed the arena's exemption from a 10 percent state admissions tax.

The tax, which applies to certain sporting events, theaters, movies and amusement parks, has been around since the 1970s, but some politically connected venues, including XL Center, New Britain Stadium, and Webster Bank Arena in Bridgeport have received exemptions over the years.

That changed in late 2017 during lawmaker's desperate attempt to balance the state budget. Most exemptions were eliminated so lawmakers can raise a few more dollars to balance the state's books. (The tax raised a total of $15.4 million in fiscal 2017 and is expected to tack on another $2 million this year thanks to the removal of venue exemptions.)

The tax, according to Michael Freimuth, executive director of the Capital Region Development Authority, has cut into shows' potential profit margins, making it harder to attract certain acts. In fact, Freimuth says the newly assessed tax has played a role in XL Center missing out on as many as a dozen events it recently bid on, costing it as much as $650,000 in revenues.

Now the money-losing XL Center is projecting to lose $3 million this fiscal year, its worst operating performance in four years. Guess who picks up that tab? State taxpayers, of course. (The admissions tax impact itself is expected to cost the XL Center $400,000 annually.)

The timing of the tax couldn't be worse. MGM Springfield, a nearly $1 billion casino-entertainment venue, is scheduled to debut in August and will further hurt XL Center's chances of attracting performances. Meantime, CRDA recently put the XL Center up for sale and is looking to entice buyers willing to invest tens of millions of dollars to completely renovate the 43-year-old structure.

The tax will certainly make it harder to attract willing investors.

What's the solution? I've long favored an equal playing field among businesses so I think lawmakers should repeal the tax in its entirety. One venue doesn't deserve a competitive edge over another.

This tax is particularly absurd because it's hurting venues already subsidized by taxpayers.

Lawmakers, for example, have agreed to invest tens of millions of dollars in the XL Center in recent years to give the drab facility a facelift so it can attract more fans and events. But now the nuisance admissions tax is having the opposite intended effect. And, making matters worse, taxpayers have to foot the bill when XL Center loses money.

There is a bigger picture to all of this. It underscores lawmakers' inability to understand tax policy and its economic effects, and it's exactly the reason Connecticut's economic competitiveness ranks near dead last in the nation.

State lawmakers lack a sophisticated tax policy plan that would balance the budget and promote economic growth, so they are left panhandling for spare change. That leads to the types of trivial taxes or fees that do more harm than good.

The XL Center will continue to be a controversial topic. But Connecticut taxpayers are already major investors in the venue and the only way to ensure it's financially viable is for it to attract as many acts as possible.

The admissions tax is counterintuitive to that effort.

Let's not trade dimes for nickels.

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