October 05, 2004
Williams' voodoo economics
Last week, I broke down D.C. Mayor Anthony Williams' stadium plan and determined it would create an annual loss to taxpayers of about $30 million a year. On Saturday, Williams announced that his plan would create a net gain of $12 million a year for city coffers, saying: "I believe it's going to bring new people and tax money to our city ... new tax dollars to fund other important priorities, like schools, hospitals, police stations and social services."
Let's break down Williams' figures, as reported by the Washington Post, and see if they make sense:
Sales-tax revenue from fan spending outside the stadium: $2.7 million
Hotel-tax revenue from out-of-town fans: $2 million
Income taxes from players and team employees living in D.C.: $3.5 million
"Other sources": $3.8 million
D.C. officials are projecting 2.5 million fans a year for the new team - probably generous, especially once the honeymoon effect wears off - and that 80% of fans would be coming from Maryland or Virginia. Of course, whether fan spending is counted as "new" to the local economy doesn't depend on where fans live, but rather on where they'd otherwise be spending their money; presumably a large percentage of these folks work in D.C., and would be eating dinner there even if there weren't a baseball game to stick around for before heading home. Let's be generous, though, and count 70% of fan spending as new (versus the 50% figure I used in last week's Baseball Prospectus analysis).
D.C.'s restaurant tax is 10%, its general sales tax 5.75%. Let's again give Williams the benefit of the doubt and assume that baseball fans spend all their non-stadium money at restaurants, and not buying bags of peanuts at the local convenience store. This means that to generate $2.7 million worth of tax money, those 1.7 million new fans would need to spend a total of $27 million outside the ballpark - or almost $16 per person. If even half of them choose to forgo a sit-down meal altogether and instead partake of ballpark hot dogs - sales taxes on which would be redirected to stadium financing - then the remaining fans would need to spend $32 a person to meet Williams' targets. (Eat your steak, son! The D.C. economy needs you!)
The D.C. hotel tax is 14.5%, so to generate $2 million in new tax revenue, fans would need to spend $13.8 million a year on hotel rooms within the District. Given all the other options in the region, this seems optimistic, but without more information it's hard to say if it's overly so.
Income tax: The D.C. income tax tops out at 9.3%, meaning that to generate $3.5 million a year in new income taxes, team players and other employees with salaries totaling $37.6 million a year would have to live in D.C. proper. (Congress has barred D.C. from imposing a "commuter tax" on out-of-state residents.) Everyone who thinks a significant number of D.C. baseball players - right now the Expos' entire player payroll is about $38 million - are going to choose to live in D.C. instead of across the river in Arlington, raise your hand.
The bigger problem, though, is that Williams refuses to accept that the $300-million-plus in tax revenues that would go into the project count as a public cost, arguing, as the Post put it, that "those [taxes] would not exist were it not for the stadium project and thus cannot be viewed as diverting money from existing city services." As I discussed in detail last week, this is economic doubletalk: in fact, a large chunk of the stadium sales tax revenue would be diverted from existing spending, while the proposed business tax would carve out a large portion of D.C.'s potential tax base and dedicate it for stadium costs.
Even giving Williams his $12 million a year in new tax revenues, then - dubious as they may be - D.C. would still be looking at about $18 million a year in red ink on the new stadium. It'll be hard to fund any hospitals or police stations with that.
