If you were wanting a primer in “ridiculous economic claims by sports venue advocates and how to debunk them,” Sacramento Mayor Kevin Johnson’s The4000 booster club is here to help. Yesterday the group issued a report claiming that spending $258 million in city money (really more like $334 million, but who’s counting?) on a new Kings arena would generate $11.5 billion in economic activity over 35 years — then managed to undercut its own numbers in the fine print:
[University of Maryland economist Dennis] Coates, who hasn’t yet seen the Sacramento study, added: “I’m pretty sure people eat and drink even if they don’t have a team in town that night.”…
The study said the arena and the surrounding development at Downtown Plaza would lead to $230 million in annual spending, not counting arena ticket sales. Factoring in inflation, that would add up to $11.5 billion in 35 years. Taking out the dollars that would be spent “regardless of the existence of the new facilities,” the net impact is reduced to an estimated $25 million a year, or about $1.25 billion over 35 years.
[Study author Cathy] Dominico [of Capitol Public Finance] defended the use of the larger number, saying she thinks the net figure is a gross understatement of the project’s true value because of the “catalyst” effect it would have on downtown.
I’ve seen an awful lot of economic impact reports, and agree with Coates that “basically they are just PR documents,” but this is the first time I’ve seen one actually calculate how much arena-related spending would be cannibalized from elsewhere in the city and then ignore that. If you have numbers for a “catalyst” effect, then by all means use them, but counting up every dollar spent in and around an arena and then declaring all of it to be the result of the arena when your own study shows that nearly 90% of it would be redirected from elsewhere … think we can get Cathy Dominico’s face on this page? I mean, what more could she do to deserve it?
Cathy Dominico, managing partner at Roseville-based Capitol Public Finance Group, which wrote the report on behalf of The4000 arena support coalition, said if anything, some of the estimated economic impacts in the report are on the conservative side.
“It’s spelled out to show we’re not using ridiculous numbers,” Dominico said.
For a report from the reality-based community, we’ll have to turn to the Sacramento News & Review’s Cosmo Garvin, who helpfully provided a long, in-depth analysis of the Kings arena numbers yesterday that included the following:
- The city of Sacramento is planning to backload its arena construction debt, starting with $6.5 million a year in bond payments in 2016, and eventually rising to $23 million by 2035. This is in part so that about $3 million a year that’s currently being used to pay off downtown parking garages can be shifted over to help pay off the arena.
- Mayor Johnson has claimed that these bond payments won’t affect the city’s general fund, but Sacramento State University economist Rob Wassmer says, “This is wordplay. The city’s current general fund will not be hurt by this—but the city’s future general fund will be hurt.” That’s because the new revenue (from ticket taxes and other fees) is only expected to amount to about $6 million a year, which isn’t even enough to pay off the arena bonds in the early years, much less the later ones. The city says that $6 million number will grow as city parking revenues grow, but unless you assume that all that growth comes as a result of the new arena, that ends up being money that would have gone into the city’s general fund if not for the arena debt. “There is a diversion of future general-fund dollars to this arena project that could be used for other city expenditures, or cuts to taxes or fees for city residents or businesses,” says Wassmer.
- As for the projected economic-impact figures, “I’m open to some wild ideas, but that one just defies belief,” arena economic impact expert Geoffrey Propheter says of an earlier study’s claims of $7 billion in economic activity over 30 years. “A number like that gets pumped into the political system, people start parading it around as if it were gospel. Pretty soon, it’s ’Let’s rubber stamp this sucker.’ That’s a travesty.”
- “Economic activity” just counts up how much money is spent within a city’s limits. How much of that would actually accrue to the people of Sacramento via new tax receipts that could be spent on actual services (or tax cuts)? Garvin notes that if the arena generates as much in sales taxes as the city’s current biggest sales-tax generator, the Arden Fair mall, it would add about $4 million a year in sales taxes: “Not nearly enough to cover the debt service on the arena, but every little bit helps.”
Perhaps Garvin’s most important point, though, is that even if there are some public benefits to spending money on a Kings arena, you have to compare them not to a baseline of doing nothing, but of what else you could be doing with the same money. “You’ve got to ask, ’Could we do something else with that $258 million?’” says Propheter. “Politically, that’s not a very appealing question, and no one asks it.”
It’s an important answer, though, to The4000 director Joshua Wood’s assertion: “I would honestly challenge anyone from the opposition – what is your plan for generating $11.5 billion?” Given that there’s a non-zero economic benefit just to lowering taxes — let alone doing something more targeted with the money that might generate more bang for the buck — it seems something worth exploring.
And as Propheter tells Garvin, it’s worth exploring even if it takes some time: “I’m a big fan of having a long, drawn-out conversation when you are making a policy choice to spend $258 million. It’s frustrating when these things get pushed through without a discussion.”