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Monday, August 16, 2004

Arlington and Cowboys have a deal...

Local radio is reporting "Arlington and the Cowboys have reached a deal about a new stadium."

While we haven't voted on the new stadium, the city council has come up with a master plan intended to bring the Cowboys to Arlington. There is only one problem - perhaps the voters of Arlington don't want the Cowboys in Arlington, or rather we don't want to pay $325m for a new stadium for the Cowboys. We will evidently see in November. Tomorrow (Tuesday) the city council is expected to rubber stamp the proposal and put it on the ballot for November. No discussion of costs, only benefits, and these benefits are just not adding up.

Let's consider the proposal as it stands. The city of Arlington will float $325m of debt at, let's say, 5% interest which will cost approximately $1.75m per month to service. The economic benefit study that the city contracted predicts the following revenue for the city: $2.9m in additional sales tax revenues in 2010 dollars (see p.2) (most likely an overstatement but supposedly including ALL multiplier effects for 45 events, not counting a Superbowl), 5% of stadium naming rights, which if the name sells for $3m per year would yield another $150,000 (see pp.25-26, table mislabeled) (better than what the city got out of selling the name of the Ballpark in Arlington but not much better), the Cowboys will pay rental of $2m per year. All said and done, the stadium will generate about three months worth of debt service.

Where does Arlington come up with the other 9 months of debt service? As the city is already in a deficit of $16m per year, the only way to service the debt is to raise taxes somewhere else (property or sales?) or to reduce services. No one, except for me, is discussing the likelihood of tax avoidance in Arlington after the sales tax increase. Indeed, it is possible that sales taxes from retail may actually decline (are demand curves downward sloping?).

The mayor and some on the city council keep insisting that the stadium is expected to generate additional sales tax revenue that will pay for the stadium because there will be economic development and increased retail and hospitality. But the additional economic activity city wide would have to be the six times what the stadium itself (not counting the Cowboy's rent) is expected to do.

Let's see how this works, the economic benefits of the new stadium have already been (over) estimated, but the mayor and city council insist that there will be additional economic activity that will occur - roughly six times as much over again - that the economic impact study failed to discover. Where does this additional economic activity come from? And why did the city/Cowboys pay $25,000 for the study (beyond the obvious political angle)?

Everyone keeps promising additional development around the new stadium, now magically anchored by some "major hotel chain" that will build near the stadium. This mystery hotel chain is a recent addition to the debate, likely because no one in their right mind believes that economic development will magically spew forth after a new stadium is built. Moreover, the city council's claim ignores the findings of its own economic benefit study. If the study is worth anything, it shows the upper bound of what the city might expect to happen for the next thirty years of the stadium. How additional economic activity sufficient to offset the debt incurred for the new stadium, which might avoid requiring additional property taxes or decreased city services, magically appears is not discussed.

This is a snow job as far as I can tell. Unless the citizens of Arlington get very large non-monetary benefits of the stadium, in the area of $50-$60 per person per year (approx. $250 per household), there is no way for this to work.

The economic benefit study does have one hidden finding that no one is talking about. Tarrant county stands to gain more than the city of Arlington, yet the county is not being asked to contribute anything to the stadium. I suspect that the numbers for the county are as overblown as those for the city, but if the numbers are what stadium supporters are going to rely on then they should consider what the county is getting for "free."

If the city was going to help finance the stadium based upon the numbers at work so far (that is not counting quality of life and non-pecuniary benefits), the city would incur no more than $82m or so.

Thanks to Ben Muse for a mention on his blog.

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