Questionable Economic Impact Claims

Wisconsin Department of Tourism claims $321 million economic impact from Republican National Convention. 

As Center Square clarified:

Economists who have studied the impact of national party conventions says a report from the marketing firm Tourism Economics does not accurately reflect the actual impact of the 2024 Republican National Convention in Milwaukee.

Economist Victor Matheson of College of the Holy Cross has studied and written on national conventions and large events, He called the release, which claims the event had a $321.5 million impact, a “promotional booklet/press release, not a serious economic impact study.”

Center Square, in other economic impact reporting, further noted:

Economists say the numbers produced by the marketing group do not follow economic study principals and are not reputable. The numbers are used by politicians and state tourism departments to justify spending.

“Viewing what ‘economic impact’ consultants do to be economics is like considering horoscopes to be astronomy,” economist J.C. Bradbury of Georgia’s Kennesaw State University recently wrote. “Newspapers are smart enough to put horoscopes next to the comics and Dear Abby, while economic impact ‘studies’ get banner headlines on the front page.”

Bradbury noted economic impact analysis is not something real economists do and there is a reason that work is not presented at conferences or published in journals.  

Economic impact is often claimed surrounding publicly funded sports stadium projects or sporting events.

The annual tourism reports are paid for by state tourism departments and national tourism agencies.

Urban Milwaukee reported:

But when the Common Council discussed the RNC in September, it wasn’t as favorable.

“It didn’t trickle into the neighborhoods,” said Ald. Marina Dimitrijevic of the economic impact.

In an email to Dimitrijevic, LuLu Cafe & Bar owner Cameryne Roberts said the RNC didn’t result in a business boom. “For what it’s worth, the RNC was a complete bust for us and most of the other Bay View business owners I spoke with, not to mention those in other parts of town.” 

Alderwoman Milele A. Coggs asked for the final report to include a geographic breakdown and diversity data. “I just want us, as a council, in case we’re asked again to sign on to anything like this, to be aware of its impact. And where things might not have been how we wanted it to be, or we might not have achieved the goals we were going to achieve, that we recognize that and that we work differently in the future to better achieve those goals,” said Coggs. The final report does not include the breakdown requested.

Reports during the convention highlighted how many businesses outside of the hard security perimeter were seeing lackluster business. Across the month of July, sales tax revenue in Milwaukee was actually down year over year. But the state, which collects the revenue, does not collect data by week.

Per usual, many of these economic-impact no-brainers (conventions, stadiums, Olympics, etc.) which are touted to be win-wins for cities and states are anything but.  

Little Economic Impact From Stadium Projects

Report Finds Little Economic Impact From Stadium Projects

For Further Reading:

The Legalized Bribery That Is Sport Subsidization

It's A Scandal! It's A Outrage!

The Math and Taxes of Stadium Boondoggles

Big League Confusion

Brewing Up An Inflated Impact

Big League Broke

Bonds & Bondage: Indentured To The Sports Entertainment Cabal

Keep It Simple, Stupid

Visit Milwaukee is claiming the Bucks Championship Had $58 Million Economic Impact.

That's possible. Anything is possible. But claims of such an impact are dubious at best. 

As Roy Cordato's article noted:

Economic impact studies are everywhere.

Whether it’s to support a new highway project, special tax breaks for solar energy, the building of a civic center or sports complex, or to promote subsidies for Hollywood film producers, you can find an economic impact study, often touting how great the project will be for the state or local economy.

The formula is simple, predictable, and effective. A special interest group that stands to benefit from the project funds an economic impact study that purports to provide hard numbers on the number of jobs, the increase in wages, and the additional output that will be generated by the project or subsidy, and it will do this on an industry-by-industry basis. It makes grandiose claims about how much overall economic growth will be enhanced for the state or region generally. Once the report is completed, the special interest group that paid for the study will tout these results in press releases that will be picked up by the largely uncritical media establishment, ensuring that the political decision makers and others who determine the fate of the project receive political cover.

These studies all have several things in common. First, they typically use proprietary, off-the-shelf models with acronym names like IMPLAN (Impact Analysis for Planning), CUM (Capacity Utilization Model), or REMI (Regional Economic Model, Inc.). Rights to use the models are purchased by professional consulting firms who are hired by the interest groups to do the studies. Furthermore, seldom do those who actually perform the studies have formal training in economics. Instead their expertise is in using one or more of the aforementioned proprietary models. And finally, all of these studies ignore basic principles of economics and, as a result, do not meaningfully measure what they claim to be measuring—the economic impact of the public policies and projects that they are assessing.

One big problem with economic impact studies is the idea of substitution. If money that would have been spent elsewhere was simply spent on the Bucks, growth did not occur. Spending that would have occurred in one spot was merely spent in a different spot. The project (the development, the event, etc.) hasn't catalyzed growth. They haven't made an economic impact. They've merely realigned spending.

Now, this isn't to say all projects are unable to spur growth. But unless the impact study accounts for concepts like substitution and opportunity cost, it's mostly measuring the rewards that will go to primarily absentee owners.

Milwaukee Magazine had their own questions regarding the local economic impact of the Bucks championship run.

The sparkling, shiny, loud things (sports and entertainment events) often get attention, articles and praise. Yet, as far as being supposed economic catalysts, all too often, the economic benefits and impact are ephemeral to non-existent.

Maybe it's time we stop deluding ourselves in the belief that all activities and projects can be or need to be fun and exciting. Clean water, smooth roads, public transportation, quality schools, affordable housing and health care, and maintained infrastructure provide a better return on investment and generate much more growth than any stadium or convention center could ever hope to. 

How Corporate Welfare Hurts You

The Economic Impact Mythology Of Convention Centers

Milwaukee's Boondoggle Twofer
How Can Convention Centers Be So Dumb?
The Convention Center Shell Game
Convention Center Follies
It's A Race To The Bottom
Is It Time To Stop Building Convention Centers?
Case For Bigger Convention Hall Has Familiar Ring
The Realities Of Convention Centers As Economic Development Strategy
Debunking The Conventional Wisdom About Conventions
The Dubious Economics Of Convention Centers
Do We Really Need To Keep Building Convention Centers?
A Critical Review Of Convention Center Feasibility Studies
The Skeptical Study No One Ever Talks About
Convention Centers
Economic Impact Studies: Instruments For Political Shenanigans?

Economic Development, Tax Incentives and The Plutocracy It's Creating

Tax incentives have become part of the economic development lexicon. The public sector has become a crucial funding cog in private sector projects. If not for the public injection of funding, the project, supposedly, would not get done. So much for the "free" market.

A quick perusal of news stories of the last few months are littered with tales of incentives creating jobs and growth. Such as the stories about how much sport teams add to the local economy and how much the new Amazon facility in Kenosha will boost their prospects.

The Milwaukee Journal Sentinel, in Green Bay Prepares For Playoff Game At Lambeau,

"The estimated impact is $14 million," said Toll, who, maybe only because he was standing with the Packers stadium in the background, bears a surprising resemblance the stadium's namesake. Advance ripples of that economic wave arrived first thing Monday morning, with fans streaming into the Packers Pro Shop and snatching up all the NFC North Division champions baseball hats by noon.

Sadly, the boost felt in Green Bay is a loss for others. Unless the money spent is above and beyond what would have already been spent, there is no growth taking place. If consumers merely traded dinner and a movie for Packer memorabilia and tickets, there is not growth, but merely a realignment of spending.

Another blogger wrote, "Whether or not you like the priorities, pro sports are one of the few things that seem to be booming and sparking the Wisconsin economy in 2017, and we'll see more examples of it today."

Much of this optimism seems prefaced on the Build-It-And-They-Will-Come mantra. Much of this new development will simply displace and devalue older businesses. Again, realigning spending, and in the case of sports (or large, big-box retailers), funneling money to absentee landlords -- persons or businesses that do not live in the city or state from which they are receiving funding and consumer spending.

Gregg Easterbrook, of The Atlantic, detailed How The NFL Fleeces Taxpayers.

Judith Grant Long, a Harvard University professor of urban planning, calculates that league-wide, 70 percent of the capital cost of NFL stadiums has been provided by taxpayers, not NFL owners. Many cities, counties, and states also pay the stadiums’ ongoing costs, by providing power, sewer services, other infrastructure, and stadium improvements. When ongoing costs are added, Long’s research finds, the Buffalo Bills, Cincinnati Bengals, Cleveland Browns, Houston Texans, Indianapolis Colts, Jacksonville Jaguars, Kansas City Chiefs, New Orleans Saints, San Diego Chargers, St. Louis Rams, Tampa Bay Buccaneers, and Tennessee Titans have turned a profit on stadium subsidies alone—receiving more money from the public than they needed to build their facilities. Long’s estimates show that just three NFL franchises—the New England Patriots, New York Giants, and New York Jets—have paid three-quarters or more of their stadium capital costs.

Many NFL teams have also cut sweetheart deals to avoid taxes. The futuristic new field where the Dallas Cowboys play, with its 80,000 seats, go-go dancers on upper decks, and built-in nightclubs, has been appraised at nearly $1 billion. At the basic property-tax rate of Arlington, Texas, where the stadium is located, Cowboys owner Jerry Jones would owe at least $6 million a year in property taxes. Instead he receives no property-tax bill, so Tarrant County taxes the property of average people more than it otherwise would.

The situation has become so distorted that the revenues from suites, club seats and national TV deals are more important to most NFL teams than the average seats at stadiums.

The development panacea has trickled into college sports, too. As Eben Novy-Williams describes in College Football’s Top Teams Are Built on Crippling Debt:

Football critics nationwide often point to multimillion-dollar coaches as emblems of excess. They should be more worried about debt, which costs more and lasts longer. A high-priced coach might earn $4 million to $5 million a year. Meanwhile, according to public records, athletic departments at least 13 schools in the country have long-term debt obligations of more than $150 million as of 2014—money usually borrowed to build ever-nicer facilities for the football team. 

For some schools, millions in TV money can support a high level of debt service. That includes the University of Alabama, which plays Clemson for the national championship on Monday. The Crimson Tide owes $225 million over the next 28 years. In the Big Ten, also flush from a rich media deal, the University of Illinois owes more than $260 million. If that revenue stream fails to grow or starts to drop, as it already has for some programs in the top tier of college football, the results could be crippling.

How can these can't-fail projects, guaranteed to bring jobs and growth, lead to such debt? The reality appears to be almost exactly the opposite of what all the boosters are claiming. The beneficiaries of these projects are not workers or the community, in general, but the ownership that gets to avoid costs and pocket the profits.

Much has also been made of the new Amazon development in Kenosha. Again, supposedly, a big win for the community and its workers. First, this ignores the numerous stories of the abusive practices in Amazon warehouses. The company has been investigated by OSHA over its warehouse practices. Second, these warehouse jobs are low-wage and typically temporary positions. The pay is usually 16% lower than average warehouse worker pay. The Institute for Local Self-Reliance (ILSR) found that local brick-and-mortar retailers employ 47 people for every $10 million in sales, Amazon employs just 19 people for every $10 million in sales.

Between 2012 and 2014, Amazon extracted $431 million in tax incentives and other subsidies from local and state governments. ILSR also found that Amazon has eliminated about 149,000 more jobs in retail than it has created in its warehouses.

As Daniel Gross explains, "Paying more, making work more attractive, and offering perks is one tried and tested way of meeting the need for labor when labor markets are tight. Another tack is to design machines, systems, and consumer experiences that reduce or eliminate the need for human labor. Amazon is doing that, too. The New York Times reported in December that Amazon is now experimenting with a retail concept dubbed Amazon Go. It has built an 1,800-square-foot store in one of its office buildings in Seattle that should start operations next year. Open at first only to Amazon employees, it will be stocked with drinks, snacks, and prepared meals. One thing it won’t be filled with is many retail employees. The store will be outfitted with technology — a smartphone app, scanners, sensors — that will enable people essentially to load goods into their bag, then walk out and pay without stopping at a check-out lane." Thus, while Amazon takes these subsidies whilst promising jobs, they are actively pursuing strategies to eliminate their need for workers.

Amazon received $21.8 million in TIF subsidies for the Kenosha facility and $10.3 million in state enterprise zone tax credits. These final subsidy numbers also increased from the originally proposed $17 million TIF subsidy and $7 million in credits.

All of these subsidies have helped Amazon grow from a 2006 market value of $17.5 billion to a 2016 market value of $355.9 billion. 8 other large retailers, over the same period, have seen their combined market value drop $102.4 billion.

This phenomenon ties into recent research on Rising U.S. Business Concentration and The Decline in Labor's Share of Income.

The economists look at firm-level data on the labor share of income to see what’s happening. Using firm-level data on sales and employee compensation, they find a strong correlation between increasing concentration of sales among firms and a lower share of income accruing to workers in the same industry. The five economists argue that competition within these industries is shifting income toward successful, less labor-intensive firms “superstar firms.” 

Note that it’s not a lack of competition resulting in higher price markups that’s causing the decline in the labor share of income in these industries, as some other research has argued. Rather, this new paper emphasizes the role of competition in shifting sales toward firms with a lower share of income going to workers. The analysis of the data by the five authors shows that most of the decline is due to the shift in higher sales toward firms with low labor shares.

Much of this tax incentive, economic development paradigm seems to be funneling money into fewer and fewer, select hands. Whether it be sport or big-box retailers, much of the incentives offered seem to be counterproductive and often fail on delivering the jobs and growth for the communities and their workers.

For Further Reading:
With 6,000 New Warehouses Jobs, What Is Amazon Really Delivering?
4 Ways Amazon's Ruthless Practices Are Crushing Local Economies
A Local Book Publisher Laments Amazon's Impact
Before You Click On Amazon, Here's Why Your Choice Matters
How Amazon's Tightening Grip On The Economy Is Stifling Competition, Eroding Jobs and Threatening Communities
Will Amazon Fool Us Twice?

More Bradley Center Bull

The Journal Sentinel has run yet another editorial pushing for a new basketball stadium. Yes, in the wake of a recession second only to the Great Depression, the thing we need most, right now, is a new sport stadium.

Even the Journal Sentinel's own Don Walker previously wondered how Bradley Center officials and boosters can have it both ways - the arena is uncompetitive and doesn't generate sufficient revenues, yet it is also is a huge economic driver for the region.

The editorial uses Miller Park as an example (to highlight the often repeated stadium subsidy threat), "Without a new Miller Park, the Brewers would not be in Milwaukee today. Now, with new ownership and a new stadium, the team brings in more than 3 million fans a year." The impressive sounding 3 million attendees (closer to 2.8 million, ranking 11th in MLB for 2012, down from 7th place in 2011) doesn't seem as impressive when you express it as 81 games with roughly 35,000 attendees per game (in a stadium that holds just under 42,000; a 17% vacancy rate).

And, so what? If the Brewers weren't in Milwaukee, we wouldn't have a baseball team. That's it. No baseball team - boo hoo! There isn't a single economic indicator the boosters can point to which shows Miller Park has had a positive economic effect on anything but the owners' and players' wallets.

Yet, without any evidence, without anything to back up the claim, the editorial gushes, "A new arena could spark economic development downtown, especially in the Park East corridor."

The editorial even eludes to the substitution effect (consumers spending at one place rather than another), "The Bucks need to have a plan in place to construct a new state-of-the-art facility by 2015 - a new arena that would be a year-round draw for downtown Milwaukee." The new stadium will end up being a draw from non-subsidized establishments, venues, and other entertainment options. Sure, more people may attend games for the first few years of the new stadium, but this will be due to the decreased patronage at other local establishments. It would be nice if the Journal would explain why we should be picking stadiums as winners over other restaurants, bars, and entertainment options.

The editorial went on to state, "[Herb] Kohl will not bear the entire cost of a new facility, and he shouldn't." A most perplexing line. The whole consideration of a new stadium is for the primary purpose of housing the Bucks basketball team - Herb Kohl's team! I would love for the Journal Sentinel to elaborate as to why the public needs to fund private enterprise. Just because the public is allowed to purchase tickets to an event at an establishment, that doesn't really make it a "public" facility (actually a state-owned building operated by a quasi-private board). [The discussion of whether or not to have a public arena - for concerts and collegiate sporting events is an entirely different discussion.]

Obviously unable to see the contradiction in their own thought, the Journal continues on, "Newer NBA facilities are self-sustaining and can make money even when the teams are not playing." If these are such sure-fire, game-changing, no-brainers, why does the public have to be involved at all? Yet another point where the logic of stadium subsidization falls apart.

They close with, "And so the clock is winding down on the Bucks. It's time for the city and business leaders to pull up and try a game-winning shot." Yes, when the evidence and data contradict your premise, simply use a hackneyed sports cliche to sell that sow's ear as if it were a silk purse.

Economic Engine or Albatross?

Marc Marotta, the board president for the Bradley Center, in the Milwaukee Journal Sentinel, declared the Bradley Center an economic engine.

Most of the workers are non-union, low-wage, seasonal and without benefits. Not the type of jobs most economic development aims to, nor should, create. Most of the millionaire athletes that play at the Bradley Center don't live in Milwaukee - their tax and spending dollars spillover outside Milwaukee. Often, the money spent on sporting events leaks outside the host region.

To be an economic engine, a project has to lure customers from outside the area that would not otherwise be spending money, or induce locals to spend more than they otherwise would. If people decide to go to the Bradley Center rather than a movie one night, there is no growth. This is merely a realignment of leisure spending. The majority of dollars spent at these events are simply a substitution of spending patterns (a basketball game rather than eating dinner out).

And, again, perplexingly, many whom would routinely be lumped in with the ultra-conservative, government-is-bad, no-new-taxes cabal are saying they need public dollars to continue their private entity. So...government can't do anything right, they don't know how to properly spend tax dollars...but when the government is giving millions to stadiums and arenas, they're investing wisely. Yes, screw public transportation, green energy, and modernized sewer and water systems. Sport stadiums are much more crucial to our economic future.

If extra-market forces (taxpayer subsidies) are good when it comes to stadiums, why aren't taxpayer subsidies good for public works programs, light rail, greening older buildings, or facilitating universal health care? Those subjects seem much more important to the average citizen than sporting facilities.

It's also very strange to claim the Bradley Center is an economic engine and then offer up nothing quantitative to back up that claim. But then again, actual studies looking into the effect of stadium subsidization have found that stadiums have little to minimal impact on the local economy.

For Further Reading:
Basket Case
Buck The System
Conclusions On Subsidies For Sports Franchises
Economic Impacts Of Tourism
Sports, Jobs, & Taxes
Stadiums & Convention Centers As Community Loss Leaders
The Stadium Gambit & Local Economic Development
Stadium Swindle