CLEVELAND, Ohio – The $140 million makeover of the Q will take money from three existing taxes, plus a new rental agreement with the Cleveland Cavaliers, according to a proposal announced today.
The total bill for the renovations, including interest on loans and creation of a rainy day fund for future sports facility work, totals an estimated $282 million over the next 17 years.
The Cavs will pay half. On the public half, not all Clevelanders will have to pay; only people who go to the arena or stay at Cuyahoga County hotels.
Here’s where the money would come from and who will pay, according to Cuyahoga County, the city of Cleveland, the Cavaliers and Destination Cleveland.
Arena rent: $122 million
The Cavaliers, who run the arena, agree to pay half of the cost of the renovations through new rental payments equal to what is necessary to make the loan payments each year.
With interest on the $70 million cost of the work, that adds up to $122 million over the life of the loans, through 2034. The Cavs, who currently pay $1.2 million in rent, will increase their annual rent by millions of dollars to pay their share of the bonds the county will sell.
The Cavs have promised not to add a surcharge to ticket prices to cover the cost.
Admissions tax: $97 million
The agreement does not call for any change in the city’s 8 percent admissions tax.
This tax is included in the published price of tickets, much like gasoline taxes are included in the advertised price at the pump.
Currently, Cleveland keeps 3 percent of the admissions tax on Q tickets and hands over the other 5 percent to the county to help make payments on existing Gateway loans.
The agreement to pay for the new renovations involves two changes casual fans likely will never notice.
- Admission tax on Cavs tickets for playoff games from 2016 through 2023 will be used to help pay for the new renovations, rather than existing loans. (Projected at $8.7 million).
- Once existing loans are paid off, the 5 percent on Q tickets would pay for renovations through 2034. (Projected at $88.4 million)
Sales tax: $3 million
There is not special sales tax at the arena, nor is there a plan to create one.
But the county expects the total amount of sales taxes collected on food, alcohol and merchandise sold at the Q to increase compared to the past.
The sales tax rate is 8 percent in Cuyahoga County – 5.75 percent for the state of Ohio, 1 percent for the Greater Cleveland Regional Transit Authority and 1.25 percent for Cuyahoga County.
The agreement does not change the RTA or state shares.
But it does change the county’s take.
Typically, the county receives about $250,000 a year from sales taxes at the arena. This amount will stay in the general fund, under the proposal.
Any increase in Q sales taxes will pay for renovations.
This year, that’s expected to be $400,000, thanks to the NBA championship. From 2017 to 2034, the annual contribution ranges from $150,000 to $200,000.
Excesses from “good years” can be used to offset shortfalls from other years.
County bed tax: $44 million
People who stay at hotels in Cuyahoga County pay the county’s 5.5 percent bed tax, plus any additional bed taxes applied by cities, plus the standard 8 percent sales tax. So the total tax on a hotel room is 16.5 percent in Cleveland, where the city’s bed tax is 3 percent.
There is no proposed change in the local bed tax rates to finance the Q renovations, but there is a plan to reallocate some of the countywide tax.
Within the county’s 5.5 percent countywide tax on hotel rooms is 1.5 percent for tourism-related capital improvements. This 1.5 percent will bring in about $6 million this year.
The tourism bureau Destination Cleveland will use part of that 1.5 percent to contribute $44 million from 2017 until 2034.
A schedule is not yet set. But a tentative plan calls for $1 million a year beginning in 2017, then increasing until reaching $3.8 million in the final year.
As for the rest of the county bed tax, Destination Cleveland receives the 3 percent portion, and the county uses a 1 percent portion for the convention center.
County reserves: $16 million
Rounding out the package is $16 million, from the county dipping into a reserve fund set up for the convention center and the Hilton Cleveland Downtown, both of which are complete.
The county will pay $1 million to $2 million a year out of the reserves.
Rich Exner, data analysis editor for cleveland.com, writes about numbers on a variety of topics. Follow on Twitter @RichExner or see previous stories at cleveland.com/datacentral.