New sports facilities fall short of promises 'Taxpayer rip-offs' have failed to produce economic bonanzas

October 11, 1998|By Ronald D. Utt

What do you do for a city with high crime, bad schools and lousy roads? Spend 770 million of taxpayer dollars on a new convention center and an additional $330 million on a baseball stadium. At least that's how local politicians in Washington, D.C., plan to solve their city's problems.

Like other cities, Washington has bought into the popular myth that convention centers and sports stadiums provide an economic bonanza by creating jobs and adding tax revenue.

They don't.

While they provide low-paying jobs, these projects are taxpayer rip-offs. If residents of Washington and other stadium-obsessed cities need proof, they need only look to Baltimore, capital of the "if you build it, they will come" hysteria. Despite the addition of Oriole Park and the Ravens stadium ($500 million for both projects) during the 1990s, Baltimore's population has sunk to its lowest level since 1915, as businesses and residents continue to flee to the suburbs. Moreover, according to Maryland's Department of Fiscal Services, the Ravens stadium will produce only 534 jobs.

Baltimore's experience is typical. Professor Robert Baade of Lake Forest College in Illinois found that of 30 cities that built stadiums between 1958 and 1989, 27 showed no change in per-capita income, and three experienced significant declines.

"The slower growth reflects the kind of economic activity that investments in professional sports spawn," Baade says. "Sports diverts economic development toward labor-intensive, relatively unskilled [low-wage], part-time jobs. Other cities in the region that invest in economic activity that promotes full-time, nonseasonal and high-wage jobs can be expected to capture a greater share of the regional economic pie."

Contrast Baltimore and Washington with Virginia, which has no subsidized professional sports facilities. The Old Dominion focuses its economic development strategy on education and high-tech industry. The result: a statewide boom in jobs. Although Virginia lacks extravagant sports venues, the state's emphasis on education gives it a competitive edge in attracting jobs and job-seekers. Five of Virginia's public universities are included in Kiplinger's 1998 list of the nation's top 25 public universities and colleges. Maryland, on the other hand, has only one school on the list, and the University of the District of Columbia received a pathetic "noncompetitive" rating from "Barron's Profiles of American Colleges."

Convention centers also raise troubling questions. A widely publicized 1997 study by Coopers & Lybrand (now Pricewaterhouse-Coopers) predicted that the proposed D.C. convention center would inject millions of dollars into the local economy. The study assumes that every dollar spent by a conventioneer on a D.C. hotel room will yield $1.40 in total spending by the time the dollar is spent and respent by hotel employees, suppliers and others. The study made no mention of the economic benefits that would accrue if the $770 million up-front investment and $60 million annual tax subsidy were used for a tax cut or public school improvements.

Another calculation shows that the public subsidies will cost D.C. taxpayers $340 for every $140 a conventioneer spends on a hotel room. If half the conventioneers stay in nearby Maryland or Virginia, the per-room subsidy climbs to $680. At this rate, it would be cheaper to let visitors stay in D.C. hotels for free.

Stadium and convention supporters like to note that business activity increases during special events. What they fail to consider is the "substitution effect." If consumers don't spend their money at the ballpark or convention center, they will spend it at a movie theater, a skating rink or another venue. The net benefit to the local economy is the same.

An example of the substitution effect can be found on a once-empty industrial site in Alexandria, Va. The community stopped former Virginia Gov. Douglas Wilder's attempt to build a state-subsidized football stadium for the Washington Redskins. Now the property is home to a new shopping center, providing hundreds of year-round jobs, as well as sales, income and property-tax revenues.

If a community's taxpayers vote to fund a stadium or convention center, so be it. But the advocates of such projects should be honest about what is at stake and not bamboozle citizens into thinking they're supporting economic development.

Ronald D. Utt is the Grover M. Hermann fellow in federal budgetary affairs at the Heritage Foundation, a Washington-based public policy research institute.

Pub Date: 10/11/98

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