by Howard Stephenson
Real Salt Lake, an affiliate of Major League Soccer (MLS), wants up to $50 million in taxpayer subsidies to build a soccer-only stadium in Salt Lake City or Murray. It’s a bad idea. The conservative think tank Heartland Institute has issued papers and studies debunking what they call “stadium madness” showing that taxpayer-funded sports stadiums don’t develop the economy and in fact, often create a negative drain on the local economy. The Heatland Institute’s Joseph Bast has written that nationally, subsidies to professional sports facilities cost taxpayers some $500 million a year. He says that more than $7 billion will be spent on new facilities by the year 2006, with most of it coming from public sources. Communities that are hard-pressed to keep their schools open or police on the beat are nevertheless entering into agreements to spend hundreds of millions of dollars to bid away a professional sports team from another city.
Bast notes that sports stadiums are subsidized in many ways: construction and ownership by a government agency, construction and operating grants paid to private owners or developers, state and local tax abatements, and by the use of federal tax-exempt bonds to finance construction. Competition among cities for professional sport franchises has dramatically lowered rent payments from teams, often to zero, and teams routinely claim all revenues from parking and concessions.
According to The Brookings Institution, “a new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. … [T]he economic benefits of sports facilities are de minimus.”
Sports economist Robert Baade at Lake Forest College studied 48 metropolitan statistical areas (MSAs) over a 30-year period, and found “of the 32 MSAs where there was a change in the number of sports teams, 30 MSAs showed no significant relationship between the presence of the teams and real, trend-adjusted, per-capita personal income growth. In the remaining two cases, the presence of sports teams was significantly positive once (in Indianapolis) and significantly negative once (in Baltimore).”
Real Salt Lake‘s Proposal
Promoters of Salt Lake’s proposed taxpayer-subsidized stadium are claiming the stadium will promote economic development in Salt Lake County because people, including some out-of-towners, will purchase soccer tickets and eat at the restaurants surrounding the stadium. Stadium promoters are also planning on creating a regional sports broadcast production facility which they say will employ 100 workers.
Utah Taxpayers Association Vice President Mike Jerman has shown that raising taxes to fund a soccer stadium is not true economic development. It simply shifts spending and tax revenues from one Utah location of the community to another. Stadium supporters argue that MLS is “new” to Utah and therefore will generate spending that is not currently occurring. However, getting households to spend even more than they are spending right now is a lost cause since the United States already has one of the lowest (almost 0%) personal savings rates in the world, and Utah has the nation’s highest bankruptcy rate. Increasing taxes on households that are already spending too much and not saving enough is a strange way to promote “economic development”, especially since raising taxes reduces the amount of money that households can spend. Unfortunately, too many policy makers in Utah associate “economic development” with getting Utah households to spend even more money than they ought to spend. Stadium promoters point to a study that indicates that millions of dollars will be generated by the new stadium construction and operation. However, the study does not accurately account for the reduced economic activity created by taxing businesses and households which, as a result of the tax increase, would now have less disposable income than before. The study does not accurately account for the reduced economic activity at existing retail businesses and restaurants whose profits are reduced because consumer spending has shifted to the stadium and surrounding restaurants.
Stadium promoters point to “multiplier effects” of government spending to justify raising taxes to build a soccer stadium. However, private sector spending also has multiplier effects. Experience in the U.S. and throughout the world clearly demonstrates that higher tax burdens and higher government spending lead to lower, not higher, long term economic growth.
Undoubtedly, stadium supporters will eventually argue that the proposed tax increase is a very small tax increase, less than a couple of hamburgers per household per fortnight. However, so-called small tax increases accumulate into very high tax burdens. Utahns currently bear the nation’s 3rd highest state/local tax and fee burden as a percent of personal income and should be asking for tax cuts, not tax hikes.
What is economic development?
Economists agree that long-term economic growth is based on improving business and worker productivity which means increasing output per unit of input. Mr. Jerman points out that computers, machines, other technological breakthroughs, and increased worker training and education improve worker and business productivity. However, he says, soccer stadiums do not. Businesses need to reinvest profits in order to improve productivity, expand output, and hire workers, and raising property taxes for a soccer stadium hinders business ability to accomplish this.
Jerman notes that economic development also occurs when wealth is brought into the economy from outside. This can be accomplished by bringing in tourists who spend money in our economy or by having Utah-based companies export goods and services to customers in other states and countries. The Legislature will be appropriating without increasing taxes $10 million to fund tourism promotion this year. This $10 million will bring in more tourists than the $50 million most of which will be funded by tax increases that Real Salt Lake is asking for.
Mr. Jerman concedes that there is perhaps one economic development feature associated with the stadium proposal — the broadcast production facility which will hire 100 people and will target customers mostly outside of Utah. However, $50 million in taxpayer dollars to bring 100 jobs (and some out-of-town tourists, coaches, players, and sports writers who will watch some soccer games) to Utah is not a cost-effective use of scarce tax dollars.
Mr. Jerman says that increasing taxes in order to encourage Utahns to spend money that they are already spending does make not sense, especially in a state whose taxpayers bear the nation’s 13th highest state/local tax burden as a percent of personal income – 3rd highest when government fees are included – and whose taxpayers struggle to finance critical improvements to the state’s education system and transportation infrastructure.
The Heartland Institute has more information showing the fallacy of tax-funded stadiums. One of their articles entitled “Sports Stadium Madness: Why it started, How to stop it,” can be found at the following link: www.heartland.org/pdf/madness.pdf