Sunday, November 12, 2017

Cost for stadium were deceiving

Writing in today's Tennessean, reporter Mike Reicher reports that the economic impact report paid for by the team owners greatly overestimated the economic impact of the proposed MLS soccer stadium and overestimated the sales tax revenue the project will generate. The report treated all anticipated sales tax revenue generated by the development as new revenue. It completely ignored what is called the “substitution effect.” 

The substitution effect takes into account the simple commonsense fact that if money is spend for something it is not spend for something else. People who spend money going to a soccer game would have spend that money on another sporting event, or going to a movie or a concert, or would have purchased more consumer goods.  The substitution effect would only not apply to money spend by visitors who come to Nashville for a soccer game who would have not otherwise have came to Nashville, to economic activity or growth that occurs due to the soccer stadium that would not have otherwise occurred, or to money people would have otherwise saved had they not spend it on attending a soccer game. While one can't place an exact percentage on what portion of the sales tax revenue generated by the project would be due to the substitution effect and what portion would not, most would simply be substitution effect revenue.

According to the soccer deal, if Nashville is awarded a franchise, the team will pay $9 million each year toward the $13 million annual debt payment. Those attending soccer games at the stadium  will contribute through ticket tax and sales tax revenue. The deal limits public investment to $25 million for stadium infrastructure, plus any annual shortfall.

The deal fails to acknowledge that sales tax revenue redirected into the stadium financing will  be a drain on the city and state coffers. Those attending soccer games likely would have spent that money on other sales-tax-producing purchases. The author of the article points out that funds that will now pay the debt on the stadium would have been paying for police, schools and roads. To read the article, follow this link.

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