The wealthy, elite group of men who owns sports teams have been on a winning streak. They managed to convince New Yorkers, Marylanders and Tennesseans to turn over billions of dollars in public money to help build glitzy new stadiums (for the Bills, Orioles/Ravens and Titans), setting new subsidy records as they go. As I write, lobbyists with other pro sports teams – Chicago Bears, Washington Commanders and the Oakland Athletics among them – are explaining why their stadiums should be paid for with tax dollars, touting all the jobs, all the tourism, all the new tax revenue the projects will allegedly bring.
The facts will not be on their side.
“We [sports economists] all agree that the ideal amount of public funding is either zero or awfully close to zero,” Victor Matheson, a sports economist and professor at the College of the Holy Cross in Massachusetts, told the Nevada Independent in a June 4 story about the A’s effort to get public subsidies in Nevada. “These are typically just gigantic giveaways to billionaire owners at the expense of taxpayers. It’s the sort of thing we generally wouldn’t do for other types of entertainment venues, other types of retail venues.”
And last month in Tempe, Arizona, voters were also not on the side of a wealthy pro sports owner seeking taxpayer dollars for a new National Hockey League area. They soundly rejected a ballot initiative that would paved the way for the new subsidized arena.
The Coyotes are owned by a billionaire named Alex Meruelo, who approached leaders in Tempe after the City of Glendale nixed his team’s lease after the 2021-2022 season for frequently being late on rental payments and sometimes failing to pay what they owed. The City of Tempe agreed to help pay for the area as part of a larger (stop me if you’ve heard this before) “entertainment district” that would eventually be build out to include retail, restaurants, a music venue and luxury housing.
Supporters called it a “win-win,” claiming no tax money would be at risk. The Grand Canyon Institute, a non-partisan think tank, did its own analysis. I talked to Dave Wells, the research director at the Grand Canyon Institute, about their findings. Wells answered my questions by email from Phoenix, Arizona.
Q: Can you specify some of what you saw as went through the city and developer’s study, which, per your website relied on “highly speculative, fairly arbitrary numbers”?
A: Economic impact analysis, as Geoff Propheter of University of Colorado-Denver told me, is more art than science. The project has not yet occurred, so any analysis is built off assumptions. Tempe was concerned about how the new development would impact existing Tempe businesses, so consultant models had “net new” assumptions which varied widely between the two studies. Only in one case was a clear estimate developed of an impact of the music venue on another music venue in Tempe, but even here they ignored the substitution effect (that if people spend money on a concert they may give up spending on something else in Tempe).
Q: By contrast, your study showed that for every $2.70 diverted to the community facilities district, the city would get a $1 return. How did you get to that, which sounds like an in-the-red project?
A: Tempe’s Request for Proposals had one clear requirement — an arena — which was the only reason for the substantial subsidy. Consequently, we argued that the arena and the smaller music venue should be able to pay for themselves. So I focused on the “net new” spending attributable to the arena and music venue—as there is a better literature on that—and looked to see if that “net new” with its multiplier effect and less its substitution effect could cover the cost of the subsidy. I found for every $2.70 of tax dollars redirected to the community facilities district, Tempe would earn only $1 in additional tax revenue.
Q: Many times with these types of projects (and by many times I would go so far as to say most times), we hear the argument that no tax revenue would be coming in without the project, so it can’t be a revenue loser. How do you respond to that?
A: That is the vacant land argument that the city gets nothing now, so failing to build a project is a loss. Our study noted that many other projects were likely to be just as lucrative and given that Carvana is building its headquarters across the street and a 16-acre multi-phase office project is next door, the site will be developed. As a former landfill, the site needs remediation but from our estimate Tempe post-remediation was offering the land for half its market value. And you don’t need to develop all 46 acres at once. Tempe could also decide it wants to focus on workforce housing as opposed to luxury units. Many options exist.
Q: Tempe voters were pretty clear about how they felt about the project, as were San Diego voters in 2016 when they opted out of helping pay for a new stadium for the Chargers. Is giving voters a say in these deals a better way to do them? Or do you have an idea for an alternative?
A: While professional sports get lots of attention in our culture, they are not engines of economic development. I expect when final financial reports are in the Coyotes will have spent $1 million to influence the vote, likely 20 times the opposition. I think voters are tired of seeing subsidies to help the wealthy when key needs, affordable housing for instance, are more prominent. Local governments often get overly friendly with developer interests, so I do think that voter approval when it’s a substantial subsidy is important.
Q: As an Arizona resident, do you have ideas for how cities and the state should direct their spending when it comes to economic development in a way that builds equity and truly boosts a community?
A: A number of states, and Arizona may join them, are giving states greater authority to prevent local land use restrictions that tend to drive up the cost or availability of housing. A focus on the supply-side and helping expedite affordable housing, as opposed to impediments are crucial. Part of the problem may also be at the Federal level where the costs of complying with requirements, one affordable housing developer noted to me, made the per unit cost exorbitant. If households spend less on housing, they will be more stable and able to spend more at local businesses.
Read the full report at the Grand Canyon Institute.
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