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Beware of boosters promising an economic bonanza from a shiny new Sacramento arena.
As city and state officials kick the tires on proposals over the next months, you’ll also be hearing and seeing a lot about how a world-class sports and entertainment venue would jump-start development and shower benefits across the region.
While the City Council seems adamant that no citywide tax money should go directly to an arena, there is bound to be some public contribution. Before that decision, officials should scrutinize any economic impact numbers with healthy skepticism – a lesson other cities have learned the hard way.
There’s a reason why financial projections for arenas and stadiums tend to be so rosy, says Stanford University economist Roger Noll, an expert in the field. Support from sports fans alone is not enough to build a majority in favor of public subsidies, he says, so boosters resort to two lines of argument: the benefits will ripple far and wide, and the arena will attract lots of family-friendly events besides sports.
But such boosterism is “increasingly not working,” Noll said, because inflated claims are getting punctured by hard reality.
More and more cities that helped finance arenas and stadiums are having buyer’s remorse, as more independent studies are debunking the oversold benefits. That research points out four main flaws with the projections from supporters:
• The economic impact figures often don’t account for the shifting of existing entertainment spending. The money that fans spend at an arena or a nearby bar means less money spent at other restaurants and entertainment venues. And the farther away from the arena, the less direct benefit there is.
• Indirect spending – the “multiplier effect” – is often exaggerated. The principle is that the same dollar generated by an arena is spent again and again within a city, multiplying the economic impact, with sales taxes collected each step of the way. But if that dollar would have been spent somewhere else anyway, it is being double-counted.
• The “opportunity cost” is ignored. The real measure of a proposal is not whether it generates some economic growth. Rather, it is whether a project offers the best return on investment of all the potential uses for that site – and whether the public money could be better spent on another priority, say, hiring more police officers.
• The quality of jobs is given short shrift. Sports facilities tend to produce lower-skill and lower-wage jobs than what would be generated by many other kinds of development. The biggest beneficiaries, not surprisingly, are the team owners and the athletes to whom they pay multimillion-dollar salaries – money that usually doesn’t stay in the community.
Remarkably, or perhaps not, the nearly unanimous studies haven’t stopped public officials from chasing that proverbial pot at the end of the rainbow with eye-popping amounts of taxpayer money. Their pursuit has continued even during the worst recession in decades.
New York City will pay out as much $1.8 billion in tax breaks, infrastructure improvements and other subsidies for the new stadiums for the Mets and Yankees, which both opened last season. The city of Arlington, Texas, will eventually funnel as much as $325 million to the luxurious Dallas Cowboys stadium that opened last year. Closer to home, Santa Clara’s City Council has set aside $114 million in redevelopment, hotel tax and other funds to help build a $937 million stadium for the 49ers. Voters will get the final say on June 8, and a poll released last month showed a majority opposed.
There are cities that have done better. AT&T Park in San Francisco, the $357 million home of the Giants, was almost entirely financed with private money, with only $15 million from the city’s redevelopment agency. That came after voters rejected four attempts between 1987 and 1992 to use public money to build a new ballpark.
Indeed, the public is often far more realistic about the possible benefits and far more wary of being taken to the cleaners than their elected representatives. In 2006, Sacramento voters overwhelmingly rejected a quarter-cent sales tax increase to raise as much as $600 million for an arena in the downtown railyard.
With that history, Mayor Kevin Johnson and his volunteer Sacramento First task force, which solicited and evaluated arena proposals, declared one of its guiding principles as putting taxpayers first. In its report Thursday, the task force recommended that the city look first at a complicated land-swap deal that would put a new arena in the downtown railyard, in large measure because that proposal has the firmest private financing and would require less city funding than other plans. The panel also urged council members to press for full repayment of the $69 million the Kings still owe the city.
The task force also deserves credit that an economic impact study it commissioned is more realistic than many like it. The analysis concluded that Sacramento would gain 1,300 temporary jobs, mostly in construction, and 229 permanent jobs from a new arena. It didn’t try, however, to project how many spinoff jobs would be created, and it acknowledged that money spent at the arena would take away from other entertainment venues. But the study did not address who would pay for the arena, and whether any public investment would be justified.
That is the big unknown, of course: what taxpayers will be asked to fork over – whether in cash, publicly-owned land, tax abatements or some other subsidy or contribution.
The most talked-about proposal – one with the blessing of the Kings owners and the NBA and now the mayor’s task force – is the three-way land swap: The state would get the current Arco Arena site in Natomas for a new fairgrounds; the developer would buy the Cal Expo property from the state and sell off parcels for residential and commercial projects; and the arena would go on city-owned land in the railyard.
A group led by local developer Gerry Kamilos says the new development at Cal Expo would generate money to help build the arena, estimated to cost $300 million to $400 million or more. But they also want the city to donate 100 acres it owns near Arco for the new fairgrounds and plan to ask for other assistance. That could include a share of tax revenue generated by new development in the complex deal. If everything falls into place, Kamilos envisions $4 billion worth of development, half new to the tax rolls.
All the cautionary tales from other cities do not necessarily mean that Sacramento should pass on a new arena. It might be worth it, especially to help revitalize downtown and particularly if any taxpayer contribution is strictly limited. But officials should proceed with their eyes wide open and not in hopes of a huge financial windfall.
And every step along the way, they need to make sure that Sacramentans have a clear accounting of what they’re paying and what they’re getting.