Stadiums, Subsidies, and other Wishful Thinking (Part 1)

Boston’s shot at the 2024 Olympics is dead and buried, but the post-mortem analysis will go on for many years. Why did the bid fail? Is it because Boston is the city of “no”? Was a sustained effort of “people power“?

Buried beneath the mutual recrimination is an important question: have voters started becoming more skeptical of the megaproject?

The way Boston 2024 was sold in Massachusetts was an exercise in the “wishful thinking” mode of economic development. The Olympics will finally let us fix our public transit, they said. That disastrous traffic circle will disappear. The more boisterous defenders insisted that this was the opportunity to prove that Boston is a real, world class city – and now that we’ve lost to LA, we just have to watch from the sidelines as the big boys eat our lunch.

I wasn’t dead set against the Boston Olympics, but seeing it sold in this way made me very skeptical of its actual impact. It seems to me that a shrinking proportion of voters and policymakers believe it’s smart to rely on the next big project as the thing that’s going to save us. I think it is possible to say that the death of Boston 2024 is part of a trend that is bigger than the Olympics and bigger than local politics.

If I’m right about this – and given the amount of wishful thinking economic development still going on, I’m not sure I am – this would be a huge change for the better. The megaproject as silver bullet to economic woes is still rife in this country.

In a broader sense, wishful thinking economic development preys upon all our human biases for simple answers to complex problems. It’s apparent in the convention center building craze, the public financing of stadiums and sports venues, and the massive incentivization of firms with public dollars. It replicates the same playbook everywhere: shaky public benefits, underestimated costs, and the public left holding the bag on big, flashy purchases. The fight for more transparency, less corruption, and more democratic decision-making is and should be a recurring theme in economic development across the world.

This matters not just for the economy, but also for public participation in democracy.  It’s why many people see economic development – in a line that I wish so badly I had written – as “the stuff of business parks, tax perks, and a long aisle of pig-lipstick.”

In this two part series, I’m going to go through some of the more routine outrages that go on in every state and city in the country.

I hope that we can look back fifty years from now on these stories like some kind of Tammany Hall period – outrageously corrupt, but definitively in the past. Step one, in my mind, is disassociating these ridiculous schemes from legitimate economic and community development.

Exhibit A: Sports Venues

I hope this isn’t news to you: the amount of public money that goes to sports teams in the US is simply shameful.

If you’re a fan of pro sports, you probably have heard about why the public needs to help the team build a new stadium. The logic is seductive, if you’re easily seduced by stupid things:

  • To be seen as a “real city” we need a world class team.
  • The younguns love sports. Without sports, they will leave and we’ll be a brain-drained backwater / We need to have sports to attract the creative class.
  • People will come to the new stadium and spend lots of money. Spillover effects!
  • A team gives something our city to rally around. A stadium is a symbol of civic pride.
  • If we don’t buy a new stadium, they’ll move to LA/Las Vegas/Seattle/London/Abu Dhabi

Spend a few minutes catching up on your local boondoggle through Field of Schemes, a site dedicated to exposing the ridiculous narratives behind public stadium subsidies.

The fact that public spending on stadiums is a real lemon is not controversial. Whenever economists want to add a mainstream press citation to their resume, they come out with another study proving what a shakedown public financing of stadiums is. Deadspin estimated that the cost of direct subsidies to 2012 is $32 billion out of local coffers, which is very conservative in many ways (for example, not counting the cost of foregone property tax, which the arenas rarely pay, or increased municipal services, like the cops paid overtime to direct traffic). The more you dig, I guarantee the angrier you’ll get.

  • 65 of these stadiums, about a third, have already lost their professional teams and/or been demolished. These ghost stadiums cost $8.8 billion, of which$6.6 billion (75 percent) was paid for by the public. Many of these included horrible outer-city 1960s and ’70s megastadiums that were largely funded with taxpayer dollars, only to be shuttered in the ’90s and early ’00s.

If you want a stem to stern examination of how bad these deals are for their cities, I’ll recommend a killer piece by Next City on the development of a new Detroit Red Wings stadium with $284.5 million in public financing. Detroit! It would be hilarious if it weren’t so heartbreaking. Certain details of the deal, such as redirecting property taxes that would otherwise go to funding Detroit schools and selling the property to developers at well below market rate – in fact, for $1 – might make Ebenezer Scrooge blush, given Detroit’s recent bankruptcy.

All in all, the Red Wings case is thoroughly modern: sold as a public service and a boon necessary for a struggling city; financed out of complex, redirected money rather than a giant novelty check cut from public coffers; done for private gain and in the name of public impact; and thoroughly invisible to a public that loves their team but has trouble sorting out the details. It’s looting carried out in broad daylight.

Local media play a huge role in explaining these issues to the public, who rarely have time to sort out where the money comes from and how this financing scheme affects them. This is exactly the sort of coverage hurt by the decline in local press outlets.

Unfortunately, while the deals are local, the system is national. Team owners have much more leverage over cities than the days when no public financing went to stadiums. There’s just more cities that want a team than there are teams. The leverage to fleece taxpayers only declines if a huge number of cities suddenly refuse to play ball.

If you want to see this problem at its logical endpoint: I wrote recently about the local scramble to shell out 9 figures for the minor league Red Sox affiliate, the PawSox (formerly/currently of Pawtucket, RI). Thankfully, most local decision makers seem at least somewhat skeptical of the PawSox pitch – but never underestimate people’s ability to sell themselves the Brooklyn Bridge.

The next time a new stadium comes up in your area, especially if you’re a sports fan, you owe it to your community to ask who pays, how, and why. Be honest.

Exhibit B: The Edifice Complex

Stadiums are unfortunately just a part of a broader suite of poor decision making and inflated claims. The “Edifice Complex” refers the desire to build grand buildings at public expense for either personal aggrandizement, or more to the point in this context, the one key needed to move the economy forward.

Let’s look at one fascinating example of this trend in action: convention centers. There may even be a convention center nearby you that is screaming for public investment. This totally ignores the changing market for conventions and the weak claims that they make.

In 2012, CityLab wrote an article examining the convention center building boom:

Over the last 20 years, convention space in the United States has increased by 50 percent; since 2005, 44 new convention spaces have been planned or constructed in this country alone. That boom hasn’t come cheap. In the last ten years, spending on convention centers has doubled to $2.4 billion annually, much of it from public coffers.

…But there’s a problem with this building bonanza, and it’s a doozy: There aren’t really enough conventions to go around. The actual number of conventions hosted in the U.S. has fallen over the last decade. Attendance at the 200 largest conventions peaked at about 5 million in the mid-1990s and has fallen steadily since then.

Like stadiums, you will hear the same tired talking points trotted out for *every* publicly funded convention center, regardless of context. The vague idea that they create “cachet” for the host community – unfalsifiable, like any good slippery claim – is ubiquitous, for example.

Convention centers are only one type of white elephant in the Edifice Complex. Other possibilities include casinos, luxury hotels, or ridiculous highway expansions. The common theme is that costs will be underestimated, benefits overestimated, and common human biases like the sunk cost fallacy or appeals to regional pride will be exploited.

Often the Silver Bullet is a cash handout dressed up like an infrastructure project. I don’t really need to pile on Detroit any more (they already have a basket full of image problems and its issues aren’t out of line with what happens in other cities) but Governing recently reported on a story that shows how far the madness can go, and the city happens to be Detroit. Detroit’s port for cruise ships cost taxpayers $22 million and has achieved considerably less than that in economic output. In fact, it has received just one cruise ship in 2015, and when that ship returned the passengers were not allowed to disembark because Customs said the facilities were not able to process cruise vessels or passengers.

Detroit only serves to prove the simple fact that being out of money is not a limit to these type of schemes; it is sometimes, in fact, a prerequisite. To quote the Governing article:

Elective politics rarely attracts small egos, so it’s only natural for officials to want to do big things. But good government is rarely sexy. Sometimes it requires resisting the siren song of projects that rely on patently unrealistic economic assumptions. That’s particularly true when those who can least afford it — such as the taxpayers of a suffering region — are picking up the tab.

These dynamics aren’t unique to Detroit: here’s some similar stories from Miami, Seattle, and DC. I’ll have more on how desperation creates ideal conditions for looting of public coffers next time.

There’s another element that I have to leave out of the Edifice Complex for this series: the ridiculous way we overbuild highways in this country. If you’re interested in the topic you’ve got to check out the excellent Aaron Renn on the Illiana Expressway and I-64 in Louisville. They suffer from the same optimistic projections, blindness to reality, and dependence on government support. In ten years, when traffic is just as standstill or tolls aren’t getting their projected return but the local area has been entirely covered by overpasses, the folks in charge are already on to the next project, with no time to talk about yesterday’s news.

How Did We Get Here?

Almost everything I’ve talked about in this post is a direct result of manipulation about what the term “economic benefits” means. The typical project is justified on the basis of nebulous “economic effects” which have little to do with how good an investment a project is. For example, even if Detroit could prove it had directly caused $44 million in private spending on cruise ships through the purchase of a new port, this does not mean that the port was necessarily a good investment. They have not doubled their initial investment of $22 million, although it’s often framed that way. Two questions at the very least have to be asked and measured to determine the quality of the investment: how much actual tax revenue did the project generate, and would the spending have happened without the subsidy?  This should ideally take the form of rigorous accounting, but even basic addition is lacking from most public projects. Benefit calculation usually takes the form of a wink and a promise from the developers themselves.

It’s depressing, but these facts are something people have to understand. The 21st century demands scientific and computer literacy. I propose that people need to become more economically literate as well. More outrage to come in part two.

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