Stern and Stadiums

Looks like even David Stern realizes stadiums are difficult to justify on purely economic grounds.

NBA commissioner David Stern is putting the screws to Seattle in his attempts to get the community to provide taxpayer subsidies that are lucrative enough to keep the team from departing the "Emerald City" to even greener fields in Oklahoma.

Stern blasts city officials and the overwhelming majority of voters in the city for passing a law requiring (gasp!) that any funds used to help build an arena earn the same rate of return as a treasury bill. "That measure simply means there is no way city money would ever be used on an arena project," Stern said. Effectively, Stern has just confirmed what sports economists have known all along: taxpayer spending on sports infrastructure is unlikely to provide significant returns on the investment.

Mortgages

Some evidence that my prognostications were correct:

The areas studied, and the gross metropolitan product growth expected next year, include Appleton at 2.7 percent, Duluth, Minn.-Superior 2.6 percent, Eau Claire 2.8t, Fond du Lac 3.1, Green Bay 2.9, Janesville 3.3, La Crosse 3.1, Madison 3.4, Milwaukee 2.5, Oshkosh 2.7, Racine 2.3, Sheboygan 2.6 and Wausau 2.6.

Diffley said the result is better in Wisconsin because area prices and mortgage values did not climb as much or as rapidly as in other parts of the country.

Even a blind squirrel finds an acorn once and awhile.

Bonding

I was just interviewed for a piece on WSLU/WPR concering this article in the Journal Sentinal.

According to the Legislative Fiscal Bureau, the state had $8.28 billion in general-obligation, transportation and environmental debt in mid-2006; the same debts totaled $4.41 billion in 1996.

The 87% increase was three times the U.S. inflation rate over that period.

Figures show that debt rose the most - by $1.8 billion- under Thompson between 1996 and 2001, when he resigned to become a cabinet secretary for President Bush. Debt increased by more than $1.5 billion in Doyle's first three years.

Todd Berry, president of the Wisconsin Taxpayers Alliance, said the growing debt is another risky budget decision governors and legislators have made to benefit themselves politically.

Also rising is annual debt-service payments on those bonds: Principal and interest payments on general-obligation bonds will exceed $700 million for the first time this year; and payments on transportation bonds will cost an additional $174 million.

That $874 million is cash that can't be used for other important programs. By comparison, that amount is close to what it cost to run the state's prison system last year.

There are two real issues. The first is that the increase in bonding burdens future generations, which is alright if they are the ones who benefit. The second issue concerns the state's bond rating. As it falls debt service costs rise, crowding out other budget items.

The article could have been improved by publishing the debt as a percentage of the state economy, as it has grown by 50% over the last 9 years. That makes the outstanding debt about 2.9% of Gross State Product in 1997 and about 3.6% in 2006. Not exactly an enormous increase.

Stadium Memo

Below is a memo I've written on the stadium:

DATE: 11/07/2007

TO: Interested Parties

FROM: Taggert J. Brooks

Associate Professor of Economics

RE: Memo on Stadium Finance Request

I’m writing this in response to questions I have received regarding my letter to the La Crosse Tribune editor dated October 26^th, 2007: In the letter I note that academic research by economists finds little support for the idea that stadium projects have a positive net economic impact on their communities. That is not the same thing as saying they always have a zero net economic impact, and it is not the same thing as saying all money invested in such projects has a zero rate of return.

My comments in the rest of this memo will pertain directly to the request for the county to provide $250,000 to the UWL Stadium plan.

If we consider that an alternative investment for the county might earn a 5% annual rate of return, then a one time investment of $250,000 would return $12,500 annually.

How might the new stadium project achieve this? The main return for the county will happen through increased county sales tax revenue due to attendance at stadium events and its associated tourism. In order for this return to have a positive net impact it must have a net increase in sales relative to the alternative scenario. There are many possible alternatives that could be considered.

More specifically in order to generate an additional 12,500 in sales tax revenue, there needs to be an increase in annual county wide taxable sales of $2,544,529. This represents an increase of 0.13% over sales for the entire 2006 year. It is only a 1.58% increase in the amount of sales in an average month.

One important note, there are many different things the county can do with 250,000 it is up to the elected officials to evaluate the relative merits and therefore relative returns on those alternative projects.

Below are the details of these calculations.

250,000	County Investment
5.00%	Annual Rate of Return
12,500	Dollar value of annual return
0.50%	County Sales Tax
1.75%	DOR take on county sales tax
0.4913%	Net county sales tax after DOR take
$2,544,529	Required increase in taxable sales to generate 12,500 Dollars in additional tax revenue
$1,932,219,847	December 2006 Retail Sales for Previous 12 Months
0.13%	Required increase in sales as percentage of total annual sales
$161,018,321	December 2006 Retails Sales Monthly average for prev 12 months
1.58%	Required increase in sales as percentage of total monthly sales

This position is not inconsistent with my earlier statements. I still believe the economic impact of the project will be quite small, however it need not be very large to justify (from a return on investment standpoint) the amount of money the county is being asked to commit.

I am free to answer any questions anyone might have of me. You are also free to share this memo with anyone you wish, so long as it is shared in its entirety.

Sincerely,

Taggert J. Brooks

Lessons From Buffalo

Ed Glaeser has an excellent piece on the past and the future of Buffalo but the best piece of advice for the economic development folks is:

The truth is, the federal government has already spent vast sums of taxpayer money over the past half-century to revitalize Buffalo, only to watch the city continue to decay. Future federal spending that tries to revive the city will likely prove equally futile. The federal government should instead pursue policies that help Buffalo’s citizens, not the city as a geographical place.

The Editing Floor

My letter to the editor on the stadium can be read here. What I actually wrote is below. Notice the additional reasons to contribute to the stadium which were cut.

If you are planning to donate to the stadium project do so because you like to go to UW-L home football games. Do so because your son has the opportunity to play his high school football games there. Do so because you want the opportunity to watch your daughter compete in the state track meet in her hometown. Do so because you are an alum who takes pride in the appearance of his alma mater, or do so because you enjoy running around the track on your lunch hour.

But do not contribute to the stadium because you think it is going to bring jobs and economic growth to the area or even a return on tourism dollars which “alone will far exceed the investment”. Unfortunately with the latter statement the co-chairs of the UW-L Stadium fundraising campaign fall victim to an economic fallacy economists have been debunking for years. It turns out sports stadiums (and here we are talking about professional sports stadiums) do not tend have a statistically positive economic impact on the surrounding community. And in countless other studies academic economists have been hard pressed to find any evidence that hosting a professional league championship such as the World Series, the Superbowl or an All Star game brings a return through tourism dollars. Even as large as the WIAA state track meet is, I think we can all agree it is smaller than any of the those events.

But surely all of those people who come to town and spend their money must have some impact? The right question to ask is what is their net impact? How many other people would have come to La Crosse but didn’t because the state track meet was happening? How many people left town to avoid the crowds of the track meet? I think you’ll find the answer is that in the end there isn’t a big net change in the number of people in town from what there would have been without the track meet, and that means their isn’t much of a return on investment in terms of tourism dollars.

This is not an argument against donating to the stadium effort. Rather it is merely an argument against some of the arguments made in favor of donating to the stadium. Even so you won’t see my name on the list of donors, unless new plans suddenly include a velodrome, in which case my check book is open.

Economic Impact of Stadiums

Most everyone is aware that donations are being sought for a new stadium at UW-L. The tribune has an opinion piece from the co-chairs of the fundraising campaign.

The new Veterans Memorial Field Sports Complex will enhance the region’s already-strong position as a premier destination. The return on tourism dollars alone will far exceed the investment. Conservatively, the estimated impact of the three-day WIAA track meet alone is $3 million. Many who visit the area for events held at the stadium return to enjoy vacations and day trips.

Economists are in agreement that:

On the sports facility side, numerous researchers have examined the relationship between building new facilities and economic growth in metropolitan areas. (Baade and Dye, 1990; Rosentraub, 1994; Baade, 1996; Noll and Zimbalist, 1997; Coates and Humphreys, 1999) In every case, independent work on the economic impact of stadiums and arenas has uniformly found that there is no statistically significant positive correlation between sports facility construction and economic development (Siegfried and Zimbalist, 2000). This stands in stark contrast to the claims of sports teams and leagues who assert that the large economic benefits of professional franchises merit considerable public expenditures on stadiums and arenas.

And on the issue of the impact of hosting large events:

As in the case of sports facilities, independent work on the economic impact of mega-sporting events has routinely found that the effect of these events on host communities is either insignificant or an order of magnitude below the figures espoused by the sports promoters. In a study of six Super Bowls dating back to 1979, Porter (1999) found no increase in taxable sales in the host community compared to previous years without the game.

Take a look at La Crosse county sales tax revenue, can you find a spike associated with the track meet?

I'd cite the litany of research such as this piece or this one, but the reader can just go to google or google scholar and type the economics of sports stadiums.