After I reported here Friday about Detroit’s WXYZ-TV reporting without comment that the new Detroit City F.C. soccer stadium getting $88 million in tax breaks “is expected to generate $25 million in annual economic impact,” Kennesaw State economist J.C. Bradbury dug up the actual report making that projection, and hoo boy:
Good grief. This is the document being used to claim that the Detroit minor-league soccer stadium will generate a $25 mil economic impact *per year*. It's nothing but ridiculous assertions. Reporting this as some sort of credible assessment is negligence. detroitmigov.app.box.com/v/DCFC-CBO-R…
“Report” is probably a misnomer: The document, produced by the Detroit Economic Growth Corporation, is in fact a four-page slide deck, one of which is just a title screen. The remainder consists of numbers with no sourcing beyond “based on data provided by Detroit City FC and Visit Detroit,” and which assume 20 non-soccer events a year drawing 10,000 fans each. More troublingly, the projections also compare the economic impact from a stadium with the economic impact of nothing at all ever being built on the site (ignoring opportunity cost), don’t attempt to account for what spending at the stadium site might be cannibalized from elsewhere in the city (ignoring the substitution effect), and conflate present-day value with future revenue —it turns out that $25 million a year figure is actually the average over 30 years, with it starting at $18.4 million and growing over time.
The real kicker, though, is the slide posted by Bradbury, which rather than “economic impact” (money changing hands in your city) looks at “fiscal benefits,” which is how much tax money would come in as a result of a project. That projection comes to an average of $407,000 a year over the next 30 years. Even if we ignore that much of that tax revenue would be backloaded, that’s still only about $6 million worth of new taxes Detroit would bring in from the new stadium — in exchange for redirecting $45 million in taxes (the present value of $88 million over 30 years) to Detroit City F.C.’s ex-lobbyist owner.
(To distract from that sadly low tax revenue number, DEGC stuck the unrelated “annual new visitor spending” number at the bottom of that slide as well, which is some next-level misdirection, even for a clown document.)
It’s still unclear exactly what the whole $88 million would go toward: The DEGC document shows 84% of it as arriving via “brownfield TIF reimbursement” funding, but the act authorizing brownfield TIFs allows the proceeds to be used for all kinds of “infrastructure improvements,” demolition, and other things that aren’t specifically environmental cleanup. So it’s altogether possible that the soccer team owners will be able to use a large chunk of that $45 million worth of tax kickbacks on building, if not their stadium proper, amenities for their stadium, in exchange for contributing just $6 million in new taxes — and that’s the best-case scenario, according to the team’s own rosy projections. Good grief, indeed.
I bought shares of DCFC several years ago and just sold them for a profit. Now it appears obvious why they were giving us the opportunity to get bought out.
Still, that makes me one of the few people to actually (sorta) show a profit owning a lower-level soccer team, so I’ll take it!
Given that this is Detroit, the most convincing argument might actually be, “Listen, our tax dollars have been spent on far worse things by shadier people.”
While this “report” does try to mask the finding of it being a sizable hole in the city’s finances, I wonder how people — even the type of people who would otherwise cheerlead these types of stadium projects — would react to a statement or a fact sheet that pretty much tells you up front that the taxpayers would be taking a bath on these subsidies. There are few cases, if any, of teams abandoning the numbers game and just leaning entirely on emotional appeals (read: blackmail) to try and extract a stadium deal. As awful and unpleasant of an experience as that would be for any city that has to go through it, that would be an interesting experiment for a team to run and for us to observe.
“our tax dollars have been spent on far worse things by shadier people…”
Yeah, words to live by for most municipalities there.
I can think of a number of blackmail appeals that relied on no numbers at all beyond “think of all the tax revenue we will lose if the team goes”. Or “if you lose your(*) team, you’ll never get one back”, one of my personal favourites given that the one thing we know is that all sports leagues will go back to former locations if and when the money is right.
Those types of arguments are mainly put forward by existing franchises looking for new and free or cheaper than free (you get paid to play in the free stadium others build for you) facilities.
It’s a disgraceful, dishonest and all too often successful battle plan.
As to visitor impact, I usually go to several Detroit Cuty games a season and I look at license plates in parking areas. If people are coming from elsewhere to watch the games, stay in hotels, and such, I haven’t seen evidence.
At some point the city will claim the project will lead to synergy. In these contexts synergy means “pixie dust “
I could (*maybe) believe that a new minor league soccer facility in Detroit could generate $25m in total economic activity per year… Say 20 games x 10,000 attendees at each spending a total of $80-100 each time, plus some commercial activity adding another $7-10m annually etc.
I am not including team payroll or stadium staff earnings in that as that money comes out of the revenue provided by paying fans and corporate support (if any). If you start counting stuff like that, you can easily end up triple or even quadruple counting the ‘benefits’, all of which come from the basic spending in the local market on the local attraction. (Should we count the medical costs of injured players as an economic benefit too?). Yes, players and team staff may pay various state taxes, but some of the revenue generated at this facility will go to paying visiting players and staff, and they will mostly not pay taxes (apart from Income tax) in the district.
That said, you can play with numbers on something like this and alter projections by 50 (or 200) per cent either way.
Economic activity is not revenue for the city, however.
So, over 30-35 years (assuming the team survives it’s first decade) maybe you could see a net $500k in average annual return to the city coffers, adjusted for NPV?
I don’t see any path to even $1m in AAR on this, so calling for $25m in yearly benefits is in the realm of pure fiction – and not particularly believable fiction at that.
But hey, “Intangibles”, right?
Here is the current state of the site: https://www.google.com/maps/@42.329845,-83.0851561,486m/data=!3m1!1e3?entry=ttu&g_ep=EgoyMDI1MTEyMy4xIKXMDSoASAFQAw%3D%3D
So what property taxes do you think that this site would generate if DCFC didn’t go in there?
When you zoom out from the site, you see that there is a lot of empty spaces around there.
Not all development deals (sports or otherwise) are bad. You’ve got a blighted parcel of land and someone is willing to build on it and so you kick back the taxes that wouldn’t otherwise exist. This isn’t NYC offering Amazon billions of dollars to put jobs in a spot that was already experiencing a lot of growth.
That’s a ludicrous argument.
The assumption you are making is that nothing else could be built there. The fact that it is empty is not evidence that it can not be used.
The tax dollars going into this development could be used for many things (either on this parcel or elsewhere). Detroit certainly has many needs. I don’t see a minor league soccer stadium as being a high priority.
“Someone” is willing to build on it only if the city (IE: taxpayers) pay for more than half of the development, with the tax revenues generated by most of the site NOT going to city coffers. That’s not a deal, it’s a scam. We ought not to fete carpetbaggers looking for that kind of welfare, we should out them as the carpetbaggers they are.
I am interested to know why you start from the position that ‘something’ must be built there and that that makes “this” deal a good one? Clearly nothing has had to be built there before.
Detroit has lots of areas that have been razed and, at least so far, not rebuilt (at one point suburbs were paying residents to leave sparsely inhabited districts so they could shut off utilities to those areas). What makes this district so special?
Issuing $88 million in tax breaks for a project that won’t generate that much in revenue for city coffers in 40 years is not a sound business decision, IMO.
If we’re talking about taxes that wouldn’t be generated if not for the development being kicked back then its not really costing the city anything. There is also an affordable housing component to this project.
Detroit is not NYC or LA, you have to give incentives to get anyone to come in anywhere outside the downtown core (which was also rundown until recently). As far as incentives go, getting taxes that otherwise wouldn’t exist isn’t bad.
Whenever I see words like “intangibles” and “synergy”, I know that one or more of 3 possibilities is true:
1. There is no benefit or value, and the claim is bullshit
2. Nobody can quantify the benefit or value, and if they did, it would not be anywhere close to the number being claimed.
3. The people making the claim are too lazy to perform any detail benefit/value analysis, probably because it would lead to (2).