Because sports facilities are not expected to generate additional net output in a metropolitan area and no systematic empirical analysis ever finds evidence that they do, sports facilities cannot be counted on to augment tax collections. Indeed, public expenditures occasioned by operating a sports facility generally exceed revenues generated by it. To assess the budgetary impact of a new facility, however, it is necessary to know the financing and lease terms. If the financing burden is large and falls primarily on public coffers and if the lease terms are concessionary to the team, then the public obligation for debt service, infrastructure maintenance, environmental remediation, incremental sanitation and security expense, probable cost overruns, and subsequent facility enhancement is likely to generate a substantial budgetary hole in the municipal, county and/or state accounts. Such budgetary gaps must be filled either with decreased government services or with higher taxes; either will produce a drag on the local economy. Unfortunately for host cities, the monopoly status of the major team sports leagues has enabled the teams to drive impressive bargains in negotiating financing and lease terms. Even as sports facilities have grown more and more expensive, in some cases costing over half a billion dollars, public contributions to construction costs have continued to average nearly 70 percent. Quirk and Fort (1992, pp. 170-171), after studying 25 facilities built between 1978 and 1992, concluded that the host cities provided on average a $7 million per year operating subsidy to the team. In none of the cases did the host city receive a positive net operating income from the facility. The perverse influence of the 1986 Tax Reform Act on lease terms described above and the escalating costs of recent facility construction suggest that the size of these subsidies has only grown since 1992. Promotional economic impact studies often claim that an additional positive economic stimulus is derived from the actual construction of the sports facility. The problem with this contention is that the funds to build the stadium or arena have an opportunity cost. If the construction is funded by the city, then the city must raise the money via higher taxes or reduced services. Spending on construction thereby causes lower spending by the government in other areas or lower disposable household income. If stimulating a local economy were so simple, every municipal government could guarantee full employment with a public works program that hired workers to dig holes in the ground and then hired other workers to fill the holes. Only in the case where some of the funding comes from state or federal coffers can the city expect to experience a net job gain from facility construction, and in this case, the gain comes at the expense of worker layoffs elsewhere in the state or country. The logical implications of both multiplier and budget impact analysis are consistent with the results of empirical studies that fail to detect any discernible effects on local economic growth associated with a sports facility or a team.
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1. They argue that the lack of economic benefits is due in part to the budgetary impact of the stadium construction. What do they mean? Explain your answer with sufficient detail to convince me you read that part of the article
Because sports facilities are not expected to generate additional net output in a metropolitan area and no systematic empirical analysis ever finds evidence that they do, sports facilities cannot be counted on to augment tax collections. Indeed, public expenditures occasioned by operating a sports facility generally exceed revenues generated by it. To assess the budgetary impact of a new facility, however, it is necessary to know the financing and lease terms. If the financing burden is large and falls primarily on public coffers and if the lease terms are concessionary to the team, then the public obligation for debt service, infrastructure maintenance, environmental remediation, incremental sanitation and security expense, probable cost overruns, and subsequent facility enhancement is likely to generate a substantial budgetary hole in the municipal, county and/or state accounts. Such budgetary gaps must be filled either with decreased government services or with higher taxes; either will produce a drag on the local economy. Unfortunately for host cities, the monopoly status of the major team sports leagues has enabled the teams to drive impressive bargains in negotiating financing and lease terms. Even as sports facilities have grown more and more expensive, in some cases costing over half a billion dollars, public contributions to construction costs have continued to average nearly 70 percent. Quirk and Fort (1992, pp. 170-171), after studying 25 facilities built between 1978 and 1992, concluded that the host cities provided on average a $7 million per year operating subsidy to the team. In none of the cases did the host city receive a positive net operating income from the facility. The perverse influence of the 1986 Tax Reform Act on lease terms described above and the escalating costs of recent facility construction suggest that the size of these subsidies has only grown since 1992. Promotional economic impact studies often claim that an additional positive economic stimulus is derived from the actual construction of the sports facility. The problem with this contention is that the funds to build the stadium or arena have an opportunity cost. If the construction is funded by the city, then the city must raise the money via higher taxes or reduced services. Spending on construction thereby causes lower spending by the government in other areas or lower disposable household income. If stimulating a local economy were so simple, every municipal government could guarantee full employment with a public works program that hired workers to dig holes in the ground and then hired other workers to fill the holes. Only in the case where some of the funding comes from state or federal coffers can the city expect to experience a net job gain from facility construction, and in this case, the gain comes at the expense of worker layoffs elsewhere in the state or country. The logical implications of both multiplier and budget impact analysis are consistent with the results of empirical studies that fail to detect any discernible effects on local economic growth associated with a sports facility or a team.
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1. They argue that the lack of economic benefits is due in part to the budgetary impact of the stadium construction. What do they mean? Explain your answer with sufficient detail to convince me you read that part of the article
