A few times each year, a little-watched nonprofit meets in a downtown law office to approve millions of dollars in taxpayer-funded repairs to Cleveland’s ballpark and arena.
The nonprofit, which goes by the unassuming name Gateway Economic Development Corp., gave its blessing earlier this month to the latest round of repairs: $24.4 million to modernize Rocket Mortgage FieldHouse’s elevators, escalators and broadcast center.
The catch is that Gateway’s ladle is starting to scrape the bottom of the pot it has used to fund stadium work. Cleveland or Cuyahoga County will need to find another source of money to meet Gateway’s contractual obligations.
Gateway’s board of directors meets again this Wednesday. But how much do you really know about it? Signal Cleveland breaks down how the nonprofit works and how taxpayers ended up on the hook.
What is Gateway Economic Development Corp.?
Gateway serves as the landlord for Progressive Field and Rocket Mortgage FieldHouse. At its meetings, Gateway reviews proposals from its tenants – the Guardians and the Cavaliers – for construction work at the sports facilities.
Over the years, Gateway has signed off on a $15.5 million scoreboard at the ballpark, a $26.8 million heating and cooling system in the arena, and tens of millions of dollars of other projects.
The nonprofit pays for this work with the proceeds from a countywide tax on alcohol and cigarettes, often referred to as a “sin tax.” But the sin tax is not expected to generate enough revenue to cover all of the FieldHouse bill, Gateway Chair Ken Silliman has said.
And Cleveland and Cuyahoga County officials who sit on Gateway’s board haven’t yet said where they’ll find the money.
“That means that someone – city, county, state, whoever – is going to have to come up with a new funding source not identified previously to cover the cost of this,” Silliman said earlier this year.
How did a nonprofit come to be the landlord for the ballpark and arena?
Gateway grew out of a push in the 1980s and early 1990s to build a domed stadium in downtown Cleveland. Its predecessor, the Greater Cleveland Domed Stadium Corp., began assembling land at the site of the Central Market near Ontario Street.
Founded in 1990, Gateway is essentially a joint project of Cleveland and Cuyahoga County, which control the nonprofit’s board seats. Gateway oversaw the construction of what was then Jacobs Field, home of the Indians, and the Cavaliers’ Gund Arena.
The arrangement is different with Browns stadium, which the city owns outright.
Nonprofit ownership has advantages for the city and county. For one thing, Gateway can focus exclusively on the ballpark and arena, Silliman told Signal Cleveland.
“What Gateway has is a staff dedicated towards just that activity – managing the site, managing the leases with the teams,” he said. “Whereas in the case of the City of Cleveland and Browns Stadium, the city people that work on the arrangement with the Browns, that’s just one of their tasks.”
Another advantage (at least from the perspective of people hoping to negotiate with sports teams out of the limelight): As a nonprofit, Gateway is not bound by state public records law in the same way that a government is, according to Silliman.
Who is on Gateway’s board?
Originally, the mayor of Cleveland and the Cuyahoga County commissioners each named four people to Gateway’s nine-member board. The final board seat was a joint appointment by both the city and the county.
Today, there are five seats on Gateway’s board – two appointed by the county executive, two by the mayor and one by both.
The county appointees are Matt Carroll, a longtime county official, and Ron King, the general manager of the Huntington Convention Center of Cleveland. The city appointees are Cleveland Finance Director Ahmed Abonamah and Cleveland Heights Council Member Davida Russell.
Silliman, the chair, is a joint appointee.
The board meets in the offices of Climaco, Wilcox, Peca & Garofoli, the law firm that advises Gateway. Meetings, which Gateway announces in advance on its website, are open to the public.
What does Gateway pay for, and not pay for, at the arena?
Gateway’s leases with the Cavaliers and Guardians spell out what it has to pay for at the arena and ballpark.
At Rocket Mortgage FieldHouse, Gateway pays for repairs that cost $500,000 or more. The Cavaliers handle repairs below that price. The Guardians’ lease, which was renegotiated in 2021, requires Gateway to cover all capital repairs, even if they cost less than $500,000.
The leases include detailed lists of potential repairs that Gateway would be on the hook to fund. Among the items on the list: replacing scoreboards, HVAC compressors, worn-out seats, cracked or disintegrated concrete, broken pipes and making other improvements required by the leagues.
What does the lease require the teams to cover?
The teams cover routine maintenance – replacing light bulbs, doing touch-up painting and cleaning the stadiums after events, for instance.
The Guardians and Cavaliers also pay enough rent on the stadiums to cover Gateway’s operating budget, including property taxes. In 2022, the teams approved a $4.8 million budget for Gateway, according to the nonprofit’s audit.
Both teams have shared the costs of recent major renovations. The Cavaliers covered $115 million of the $185 million arena project that began in 2017. As part of its new lease, the Guardians committed to spending $67.5 million of the $202.5 million in ballpark improvements.
How are taxpayers paying for repairs at the stadiums?
Cleveland, Cuyahoga County and Gateway draw on a countywide sin tax on alcohol and cigarettes to pay for repairs at all three stadiums.
Technically, businesses pay the taxes on the tobacco and alcohol they sell. But sellers like liquor stores pass those costs on to the consumer.
The stadium sin tax comes out to:
- 60 cents for a 750-milliliter bottle of liquor
- 1.5 cents for a 12-ounce bottle of beer
- About 6 cents for a 750-milliliter bottle of wine
- 4.5 cents for a pack of cigarettes
Cider and mixed drinks are also taxed, but vaping products aren’t. Wine used by houses of worship for “known sacramental purposes” is exempt from the sin tax under Ohio law.
What did voters pass?
Voters originally passed the sin tax in 1990 to pay the construction debt for the arena and ballpark, renewing the tax in 1995 to include the future Browns Stadium in the deal. They re-upped the tax again in 2014 to pay for repairs at the three facilities. It is set to expire in 2034.
The tax raises about $14 million a year, which is split equally among Rocket Mortgage FieldHouse, Progressive Field and Browns Stadium.
Why isn’t there enough sin tax money to cover FieldHouse repairs?
In theory, the sin tax should net about $4.5 million a year for each facility. But that’s not how it worked in reality.
After voters re-upped the sin tax in 2014, the Cavaliers and then-named Indians needed more money sooner. Cuyahoga County sold bonds in order to provide money up front for the ballpark and arena. Sin tax collections are now paying down the debt on those bonds.
Gateway estimates that the sin tax will collect enough money over 20 years to fund about $92 million of work at each of the three stadiums. According to Gateway, the nonprofit has allocated the following to the facilities:
- $82 million to Rocket Mortgage FieldHouse, leaving $10 million remaining
- $69 million to Progressive Field, leaving $23 million remaining
- $38 million to Browns Stadium, leaving $54 million remaining
Sin tax collections have remained largely static since 2014. Because the tax isn’t tied to the sale price of alcohol and cigarettes, collections don’t rise with inflation.
Construction costs have been going up, however. Add to that the “arms race” between teams for better and more modern facilities, and public revenues like the sin tax face even more pressure.
If Gateway can’t pay, are other taxpayers on the hook?
Gateway’s lease with the Cavaliers says the nonprofit must pay for major repairs – even if there isn’t enough sin tax revenue to cover the work.
But if Gateway doesn’t have the money, who steps in? One can infer that Cleveland and Cuyahoga County have a responsibility for stadium costs, based on Gateway’s original agreement with the two governments, Silliman said.
Although Gateway currently owns the two facilities, that original agreement lays out a process for turning the ballpark over to city ownership and the arena to the county in the future.
The governments have gone in together for stadium projects in the past. Most recently, they’ve paid for part of the 2017 arena renovation and most of the 2021 Guardians lease renewal.
If the city and county have to dip into their own general funds for the latest arena work, those paying city income and county sales taxes could be on the line. But so far, officials haven’t said where they’ll find the money.
Why can’t Gateway, the City of Cleveland and Cuyahoga County just say no to the teams?
If Gateway refused to pay for legitimate repairs, it would violate its leases with the Guardians and Cavaliers. The teams could sue and win, Silliman said.
And even though Gateway doesn’t have deep pockets for damages, Silliman suggested the city and county could be on the hook if the matter were to go before a judge.
Silliman, who just self-published a book on stadium financing, believes Congress needs to level the playing field between professional sports teams and cities. He argued that teams can get what they want in lease negotiations thanks to the ever-present fear that they might leave town.
“The deck is stacked against local governments in negotiating leases with teams because of that implied threat of relocating,” he said.