Of Stadiums and Economic Spillovers
Recently, we wrote a letter to the Post-Dispatch that criticized the idea that new tax revenue from a riverfront stadium would “pay” for $405 million in public subsidies. In response, one Saint Louis County resident claimed that: 1. spending on the Rams is not diverted from other areas; and 2. he trusts the governor and his numbers, not the Show-Me Institute’s.
First, we’ll address the substitution effect, or the idea that money spent on the Rams does not necessarily mean new economic activity. Our critic claims that if the Rams leave, he and many others would not be spending their dollars downtown. The problem with that reasoning is that it conceptualizes the Saint Louis region as municipally balkanized, and not as part of a regional or state economy, which in fact they are. Thus, if he and other county residents stay in the county on Sunday and spend money there, the regional and state economy is unaffected, along with the regional and state tax base.
Addressing the second point, if our critic does not believe Show-Me Institute’s numbers, why not the Brookings Institution, which wrote:
A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. . . . No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus . . . most tax collections inside a stadium are substitutes: as other entertainment businesses decline, tax collections from them fall.
Or our critic could also read a review of the economic literature, which finds:
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.
Put simply, the evidence on whether sports stadiums generate economic growth or sufficient tax revenue to justify large subsidies is overwhelmingly in the negative. Our findings accord with these prior results, the governor’s and Post-Dispatch’s do not. I’ll leave it to the reader to decide whose heart is leading whose head.