Stadium Drama (part 974,563,086.12)

[clarette]

Remember when I got all mad at that Mike Jerman guy from the Utah Taxpayers Association and exchanged several e-mails with him?

Well, he must have put me on their mailing list, because I just got this lovely piece of propaganda in my junk mail.

Enjoy.

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Should Your Tax Dollars Fund a Professional Soccer Stadium? Â

Is subsidizing a soccer stadium really economic development? Will these subsidies create jobs that otherwise would not exist?
What are so-called “incremental” tax revenues and will taxpayers get STIFFED by financing gimmicks?
Should ALL “new” businesses receive property and sales tax subsidies, or just those well-connected businesses in the retail and entertainment sectors?
If subsidizing soccer isn’t economic development, then what is? Is there more to economic growth than shuffling money around?
Real Salt Lake has been asking for as much as $40 million in taxpayer subsidies, erroneously claiming that this subsidy makes sense for taxpayers because it will create economic growth. Professional sports franchises have been playing this “economic development” card nationwide for decades, and local elected officials have been falling for the false claims, dishing out billions of dollars for multi-millionaire team owners, just as they have been for large retailers through RDA subsidies.

This issue of Taxing Times investigates the claims made by proponents of taxpayer subsidies for Real Salt Lake.

Will the new stadium produce greater economic growth by increasing consumer expenditures?

No. Consumer activity occurring at the stadium and surrounding restaurants will not be “new” or additional consumer expenditures. Entertainment expenditures, like household retail expenditures, occur on their own without need for government subsidy or intervention. Even though soccer is “new” to Utah, consumer expenditures associated with Real Salt Lake are simply discretionary entertainment expenditures that are already occurring in Utah or will increase naturally due to population growth. Consumer activity at the Real stadium will simply displace existing and future expenditures for outdoor recreation, movies, video rentals, concerts, and numerous other consumer entertainment activities.

Household savings rates in the U.S. are zero percent, and most likely negative in Utah considering Utah’s highest-in-the-nation bankruptcy rate. Utah consumers, in aggregate, are maxed out on spending. A new soccer stadium will not increase household expenditures but merely shift, shuffle, and redirect existing and future consumer expenditures.

Consumer activities such as entertainment and retail do not need to be incentivized. Americans, and Utahns in particular, are excellent spenders. Government intervention and subsidies are not necessary to get Utahns to spend more money. Entertainment and retail expenditures do not create economic growth but rather follow economic growth.

Consumer entertainment expenditures are restricted not only by household budgetary constraints but also by time constraints. An evening spent watching a soccer game leaves less time for a families and individuals to spend money on other activities.

If government officials really wanted to increase consumer expenditures, they would be cutting taxes because this increases disposable income, or they would focus on attracting high wage jobs which would enable Utahns to spend more money.

Will stadium construction and operation have multiplier effects and attract outside investment?

Yes, but private sector multiplier effects are much greater. Private sector expenditures stimulate the economy and create jobs, and private sector investments improve economic productivity and attract outside capital as well.

The spending lobby has argued for years that government expenditures, such as social programs and public works infrastructure, stimulate the economy through “multiplier” effects. However, evidence throughout the world clearly demonstrates that the best way to promote economic growth is to allow the private sector to keep as much of its earnings as possible. This allows households and individuals to invest in productivity enhancing activities, the true driver of economic growth. Countries like Germany and France where the government plays a large role in the economy have lower long term economic growth rates than countries where the government plays a smaller role in the economy, countries like the United States.

Is building a stadium a cost-effective way to bring tourists to Utah?

No. At most, a couple of hundred out-of-state tourists per game will visit Utah just to attend Real games. This is a poor return on a $40 million or more taxpayer “investment” in a stadium for Real Salt Lake. To attract more tourists, Utah would be far better off spending the $40 million on out-of-state advertising.

Are 150 regional broadcast studio jobs that may come to Utah economic development?

Yes, but a $40 million incentive is not the best use of tax dollars. With a $40 million incentive, Utah could attract THOUSANDS of high wage jobs in the pharmaceutical, biotech, IT, and manufacturing industries, not just 150 regional broadcasting jobs.

Will a taxpayer-subsidized stadium make Utah “world class”?

No. What Utah really needs is world class education, transportation, and tax systems. Utah already has a high quality of life with low crime rates and abundant opportunities for outdoor activities. Corporate expansions and relocations are most heavily influenced by infrastructure, quality workforce, business tax climate, and quality of life.

What are the parallels between subsidizing Real Salt Lake and using RDA subsidies for retail?

The parallels are numerous. Retail and sports entertainment are “downstream” economic activities, which means that consumer expenditures in these areas occur on their own, do not need to be subsidized, and follow economic growth instead of creating economic growth.

Defenders of RSL and RDA subsidies also argue that if business activity is subsidized on a previously unused parcel of land, this is necessarily new growth, even though this type of economic activity occurs naturally on its own without subsidy.

[fuegote]

He lost me at hello.

[clarette]

Continued:

What are some of the craziest arguments being used to defend RDA and RSL subsidies?

Defenders of RDA subsidies and RSL subsidies use some desperate arguments to justify their subsidies. Most of these arguments are based on isolated, anecdotal benefits, and compared to the requested tax subsidy, these benefits are miniscule at best. For example:

“RDAs promote economic growth because my wife used to fly to Milan to buy fur coats but now she can buy them at Gateway which was subsidized by an RDA.”
“Subsidies for RSL will promote economic growth because I will attend soccer games in Sandy instead of traveling twice a year to LA to watch soccer”.
Utah’s retail sales tax base is more than $20 billion per year, and the above described economic activities are exceptionally marginal as a percent of the total retail sales tax base, certainly not worth the $40 million plus that RSL is asking for and the millions that retailers are getting in RDA subsidies. The number of people traveling to Milan to buy fur coats and flying to LA to attend soccer games is a de minimus amount. Besides, if the number of Utahns flying to Milan to buy fur coats and flying to LA to watch soccer were significant, the private sector would address these consumer demands by relocating to Utah without taxpayer subsidies.

Other defenders of RSL subsidies argue that out-of-town sportswriters and players from opposing teams will increase sales activity in Utah. However, much of this will be offset by expenditures that Utah sportswriters and Utah-based RSL fans will make in other states when RSL plays on the road. These are expenditures that would typically occur in Utah.

Are there better uses for tax dollars than subsidizing Real Salt Lake?

Utah has pressing needs in transportation and education, and these needs are more critical than stadiums for professional sport franchises. A tax cut would be also be nice, considering Utah’s 3rd highest-in-the-nation state and local tax and fee burden.

Rice Eccles Stadium at the University of Utah currently serves as the home of Real. This stadium could continue to serve as the playing field for many years without an additional taxpayer subsidy.

Will taxpayers get “STIFFED” by financing gimmicks?

Get used to a new term: sales tax increment financing, or STIF for short. The STIF acronym is appropriate since taxpayers will be sold a bill of goods if the Legislature authorizes this financing gimmick. STIFs are similar to RDAs except that STIF involves sales taxes and RDAs use property taxes. STIF promoters argue that any increase in sales tax revenues on a specific parcel of land is really “new” money and therefore these revenues can be diverted to the new business since government is not receiving these revenues currently anyway. However, since consumer expenditures that occur at the stadium and surrounding restaurants are part of the existing tax base, the sales tax revenues are not “new” revenues.

RDA and STIF proponents argue that Utah is a growing state therefore “incremental” tax revenues are not part of the existing tax base but are part of a tax base that is expanding due to population growth. However, a growing population requires more schools, highways, prisons, and other public services – and a growing tax base to fund them. Cutting taxes is a great idea, but tax cuts should promote overall economic growth instead of padding the bottom line of retail and entertainment business that will occur on its own anyway.

If so-called “incremental” tax dollars are really “new” tax dollars, then why don’t cities rebate sales and property taxes to ALL new businesses, or should only well-connected retail and entertainment businesses receive these subsidies?

Taken to its logical conclusion, Real Salt Lake’s claims could apply to all NEW businesses in Utah, since according to RSL’s definition, any property or sales tax revenues generated by new businesses is new money that governments are not getting right now.

If state and local governments really do not need the “incremental” sales and property tax revenue that is generated at or around the stadium, then instead of using this money to cover Real Salt Lake’s infrastructure costs, local government should cut taxes for wealth-creating industries like IT, biotech, pharmaceutical, manufacturing, and industries that export goods and services or cut taxes across the board so everyone – individuals, households, and businesses – benefit. Allowing the private sector to keep more of its own wages and profits is a better way to promote economic growth than giving tax breaks to a small handful of well-connected retail and entertainment businesses which, instead of creating new jobs, are simply shifting existing and future consumer entertainment expenditures from one location to another.

How can Utah promote economic growth?

Economic development is more than just shuffling money around. Long term economic growth occurs when companies export goods and services and import wealth from their out-of-state customers. Economic growth also occurs when business productivity increases which occurs when businesses invest in hardware, software, machines, and worker training.

Utahns can promote economic growth, create more jobs, and earn higher wages by focusing on high wage “upstream” industries such as pharmaceutical, biotech, IT, and manufacturing instead of subsidizing “downstream” industries like retail and sports entertainment. A thriving upstream economy creates economic growth which the downstream economy follows. A prosperous upstream economy creates high wage jobs that allow households to spend more money on downstream economic activity, such as retail and entertainment.

The Tax Reform Task Force is considering changes in Utah’s tax system that will encourage investment in Utah by high wage wealth-creating industries. Two of these proposals include an electable single sales factor for corporate income tax apportionment and removing sales taxes from inputs for telecommunications, pharmaceutical, IT, and manufacturing. To read more about these proposals, visit www.utahtaxpayers.org and click on Recommendations to Tax Reform Task Force.

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[clarette]

Originally Posted by fuegote

He lost me at hello.

Oh, but did you read the part about buying fur coats at Gateway? Some seriously comic stuff...

[oussan]

Hey, there's a whole website devoted to this stuff if you're craving more:

http://www.fieldofschemes.com/

[fuegote]

That just proves there's a worthless website for everything...

<insert blog link here>

[Aerick]

I agree with their points on principle, aside from 4 aspects:

1) They're thinking about the state as a whole and the implications for the state. In this realm their assumptions are correct. But this isn't a state-only issue. This is a county and/or city issue. The county, and more so the city, stands to benefit financially from the placement of the soccer stadium with outside counties (Utah, Davis, Weber, etc.) coming in to spend money. So, is it such a big deal for Sandy to subsidize a stadium so that it can bring in those entertainment dollars? You bet! Is it beneficial for the county? Sure - but not nearly as much.

2) I had thought that RES had to get RSL out of their stadium by 2008 or it affected their tax exemption status. The "article" fails to mention that, and suggests RES as a temporary home.

3) This piece is all about the "hard" costs and benefits. And you wouldn't really expect anything less from a Tax group. However, there are plenty of "soft" benefits to having an MLS team in Salt Lake that are obviously skipped.

4) It's soccer and RSL and MLS!!! COME ON! HOW COOL IS THAT TO GET A NEW STADIUM!!! YEAH BABY!!!

You can't stop the soccer jugernaut!!

[oussan]

Originally Posted by Aerick

...The county, and more so the city, stands to benefit financially from the placement of the soccer stadium with outside counties (Utah, Davis, Weber, etc.) coming in to spend money. So, is it such a big deal for Sandy to subsidize a stadium so that it can bring in those entertainment dollars? You bet! Is it beneficial for the county? Sure - but not nearly as much...

...there are plenty of "soft" benefits to having an MLS team in Salt Lake that are obviously skipped...

Yup. I think Sandy's understood all along how much potential a SSS really portends for their city, and that's why they've pursued it so agressively. And there are most definitely "plenty of 'soft' benefits" that go along with it, national and international exposure not the least of which.

One thing I think these studies fail to consider (and I found a similar "no public funding for sports venues" article in my Marketing 3010 textbook) is that an MLS SSS is quite a different venture to fund than, say, an NFL stadium. Our lil estadio is small potatoes by comparison, is it not?

But most importantly, I totally agree with you on this point:

Originally Posted by Aerick

...It's soccer and RSL and MLS!!! COME ON! HOW COOL IS THAT TO GET A NEW STADIUM!!! YEAH BABY!!!

[Section 37]

I think that crazy fur coat comment truly reveals the serious academic work that is done by those guys.

What a lame example. I didn't even really get it.

[Jim Umber]

Originally Posted by Aerick

2) I had thought that RES had to get RSL out of their stadium by 2008 or it affected their tax exemption status. The "article" fails to mention that, and suggests RES as a temporary home.

I don't know if that's true or not, I hadn't heard about it, but I imagine they are talking about the proposal to change some of the rules that apply to make it more attractive to RSL. I assume that they would change that rule, along with allowing beer sales. But that just shows that they really DON'T GET IT. And probably that they don't care enough to try to GET IT.