Brewing Up An Inflated Impact

Major League Baseball recently released a study claiming a large economic impact due to Miller Park. Distant Brewers Fans Have $263 Million Annual Economic Impact.

A link to the study is not included in the article, nor could I find a copy of the study on the Institute for Survey & Policy Research's website.

[Coincidentally, this comes alongside the push for a new Milwaukee basketball arena.]

For starters, the study claims over 45% of fans come from outside the five-county Milwaukee metropolitan area. Yet, as I wrote in April 2012, "The UWM-Center for Economic Development notes in a study of another one of the Milwaukee development community's white elephants (PabstCity), "No venue in Milwaukee draws anything close to 30 percent of its visitors from outside the region. The Calatrava, with all its national and international publicity and iconic status, draws substantially less than 30% of its visitors from outside Milwaukee. Events such as the Wisconsin State Fair and Summerfest draw close to that figure, but these are once a year “special events,” with state-wide and civic participation and sponsorship."

Another odd caveat mentioned in the article, "The study did not consider spending by fans within the five-county metropolitan area in summarizing the economic impact of Miller Park. The reason is something economists call the "substitution effect," or the argument that local fans would be spending their money on other entertainment if the Brewers were not here."

When we're trying to decipher the economic impact a sport facility has on a region, you want to make sure you don't consider how the spending patterns of the majority of attendees affect other businesses in the area. WTF?

Next, we find that, "In estimating economic contributions of fan spending, Leib said the UW-Milwaukee study team used a reasonable multiplier of 2.1, though he usually does not use a multiplier higher than 2. This means that for every $1 spent by a distant fan, the study multiplied it by 2.1, arriving at an impact of $2.10 in the regional economy.  This summarizes how many more times - 2.1 - that dollar is spent in the region, according to Leib."

So, multipliers are usually under 2, but in this case, for some unexplained reason, a higher multiplier was used. Hmmm, I wonder why. 

Dennis Coates and Brad Humphreys found, "The multiplier for spending on sports in a city may be substantially smaller than the multiplier on other forms of entertainment spending, perhaps the most plausible explanation. The majority of the revenues from professional sports go into salaries for players, managers, coaches, trainers, scouts and to income for the ownership. Most of these individuals, especially the more highly paid ones, do not live full time in the city where the games take place. Unlike the wages and salaries paid to employees of local restaurants, movie theaters, car dealerships, department stores, etc., the large salaries earned by players and coaches leak out of the local economy."

Here, again, we have the media proclaiming quantitative evidence of a substantial impact from sport stadiums by merely regurgitating the bullet points of the latest "study." But upon further inspection, this "study" can hardly be taken seriously.

It was also disappointing (although expected at this point) to see that the Journal Sentinel didn't even attempt to find a few counterpoints to interview for the article. Onward with the media-enabled corporate welfare bonanza.

Residency Requirements

Much (in the last year) talk about ending the residency requirement for City of Milwaukee (especially for police and firefighters) has been bandied about. Primarily by persons whose motives, and interest in this topic, are unclear. The residency requirement has been in place since 1930. Why is the state interfering with a City of Milwaukee employment policy?

Recently, Gary Kraeger, a Wind Lake appraiser, weighed in - The Principles Of The Residency Rule. He opines, "Milwaukee is everyone's business in the state, especially since Milwaukee is very dependent on state money [state aid to Milwaukee has actually plummeted]... On a third hand, Milwaukee is the fourth-poorest big city in America [not sure where this number comes from, Kraeger doesn't say], at last word, and I suspect it might move up a bit if we dump the residency rule. In which case, I expect Milwaukee to need even more of our money. On another hand, it sounds sensible that if you want taxpayers to pay your salary in a community, you should be one of them. In that way, if your compensation benefits from high taxation, at least you're pulling the cart, too. Also, normally you care more about the community you live in."

Kraeger states, "On principle, however, the residency rule should be lifted and lifted by Milwaukee itself." Um, yeah, so if it should be up to Milwaukee, why are so many people outside of Milwaukee concerning themselves with Milwaukee governance?

"The biggest hand of all is the principle of freedom," claims Kraeger. When it comes down to it, Americans should be able to do what they want, when they want, and where they want. No rules, no questions.

Kraeger continues on describing how removing the requirement could hurt property values in the City. So, he has laid out numerous economic examples of why the residency requirement is in place. Numerous reasons why it should be there. But he then concludes that it should be ended. Why? Freedom.

If the ultimate rationale for an argument one poses is "freedom," one really doesn't have much of an argument or a rationale.

The residency requirement is a pretty simple, straight-forward policy - as a public worker, you should live in the city that employs you. The economic idea of "leakage" is addressed by such a policy. Much of the dollars earned by these public employees will be spent back within the community. Which also addresses the economic multiplier effect - money earned and spent in the same area, thus percolating and rippling throughout the local economy, over and over. As opposed to City of Milwaukee tax dollars funding a Milwaukee Police Officer who now lives in Waukesha and spends most of his/her money there.

There are 2,697 City of Milwaukee fire and police employees. The average police employee earns $65,649; for fire it's $67,554. This a potential $177 million dollars of earnings "leaking" out of the city, including property taxes, sales taxes, and other spending.

The possible loss of property taxes, spending at local businesses, and neighborhood stability are more than sufficient reasons for maintaining the requirement. The economics behind the requirement make it a no-brainer.

Governing is a set of rules. If you want to live or participate in certain communities you have to follow their rules. Some subdivisions make homeowners have 5-acre lots. Others require certain facades or materials be similar amongst the homes. If you don't like those rules, you go somewhere else. That's freedom. Freedom isn't doing away with things one doesn't like.