Be Skeptical of Dome Convention Claims
Recently, the Post-Dispatch published an article on the economic effects of the Edward Jones Dome’s conventions. The Convention and Visitors Commission (CVC) claims that convention goers generate $23 million in tax revenue for the city annually. The idea here is that even if the Rams do not generate much tax revenue for the city, the dome still pays for itself through conventions.
But there is ample reason to be skeptical of the CVC’s tax revenue claims. First, the estimate was generated using estimates of estimates, which could easily lead to miscalculation. Let’s assume that the numbers are correct, and convention goers who use the dome go out and add $23 million to city coffers. That still does not ensure that the dome generated $23 million.
Why not? Imagine you owned a passenger train that generated $5 million annually. You decide you can get more riders if you make the train bigger. Post investment, revenue increases to $6 million. Did the improvement generate $6 million or $1 million in new revenue? Obviously $1 million. You were already making $5 million before you spent a dime. Passengers are likely substituting their use of the old train for the improved train; the investment itself may be attracting few passengers. Even worse, you have to consider opportunity cost, or what you could have made had you invested the improvement dollars elsewhere. If you could have earned more putting your money in other projects, the train improvement was a bad investment.
When the CVC claims the dome makes $23 million annually, they ignore substitution effects, assuming much convention spending would disappear without a dome. They also ignore opportunity cost, or that convention center investment could have gone to other projects. In doing so, the CVC is not only coming up with questionable estimates, they are ignoring historical data.
According to the Brookings Institution, the opening of the dome in 1995 had little impact on hotel occupancy. In 1991, downtown hotels combined for 1.16 million room nights. In 1998, three years after the dome had opened, room nights were 1.15 million (10,000 fewer room nights). As the author put it:
In terms of filling more hotel rooms, the city’s investment in more and newer convention center space and a dome had done absolutely nothing to either fill existing downtown hotel rooms or to prompt the private development of more hotels.
And it’s not just hotel occupancy that remained stagnant. The city’s general tax revenue actually fell in the dome’s opening year:
Revenue growth in the 1990s was faster before the dome opened rather than after. This is not to say the dome decreased revenue growth, just that there is no obvious evidence that the dome created significant revenue expansion.
To sum it up, there are many issues in calculating revenue impact of the dome today. In addition, historical data does not show that the dome significantly impacted the city’s hotels or tax revenue. For that reason, I’d take the CVC’s $23 million estimate with a football-sized grain of salt.