Should Cities Subsidize Stadiums with Bonds?

Stadiums are elements of economic development, but one researcher found that using public funds to construct them does not pay public dividends.

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Recently MunicipalBonds.com reviewed the common practice of financing sporting facilities construction with tax-exempt municipal debt in order to advise muni bond investors. The researcher found that contrary to popular opinion, subsidizing stadiums offers little contribution to local economies and spends public dollars on projects that reap the largest wins for private entities:

The sole winners from these constructions are various sporting team owners and the construction firms that will reap the benefits from these huge construction contracts,” according to Jayden Sangha, who manages the Stockton, Calif., municipal bond portfolio.

Federal Losses from Subsidizing Stadiums

Sangha found that since 2010, $2.7 billion in municipal debt has been issued for professional sports stadiums.

He pointed out that the federal government has lost a substantial amount of tax revenue because the debts issued to construct the facilities are tax exempt, and Congress rejected several proposals during the Obama administration. There is a chart of the lost federal tax revenues by specific stadium projects in the article, including the newly constructed Detroit Little Caesars Arena, financed in part through a $250 million muni bond issued in 2014, which cost the federal government $71 million in revenue.

Justifications for Subsidizing Stadiums Don’t Hold Water

Proponents say that by subsidizing a stadium, the local government will:

  • Expand the local economy
  • Generate revenue
  • Increase consumer spending
  • Create jobs

But Sangha claimed these assumptions are easy to refute when factoring in lost opportunities for public funds and the net impact on the full local economy.

Public funds earmarked for a stadium cannot be spent on key functions of municipal government, like education and infrastructure upgrades, or long-term asset management plans.

Further, a subsidized stadium doesn’t increase what people spend on entertainment, it just reallocates where they spend. Thus, new stadiums and surrounding new businesses take business from existing local revenue streams — a risk that is not always evaluated in plans to build stadiums with a city’s public funds.

Historically, the cities that have built these sporting facilities show that sporting event revenues typically constitute a small share of a city’s economic output and these events do not employ a substantial number of people,” wrote Sangha.

He concluded by advising municipal debt investors to carefully analyze the revenue streams backing a debt to subsidize a stadium, and the potential worst-case scenarios.

Read the original article and access a chart on recent bond-issued stadiums on MunicipalBonds.com.

Some of the sentiments discussed are echoed in a recent Detroit News story about the Little Caesar’s Arena, pictured above, set to open September 12th with a Kid Rock performance.

Why Cities Should Invest in Festivals

From their potential to promote branding to the partnerships they create, festivals further both cultural and economic development in numerous cities.

Summer weekends around the U.S. are replete with music festivals. But dig a little deeper and you’ll find plenty more unique events to attend – including festivals that celebrate Shakespeare, kites, film and art, Halloween, food trucks, agriculture, beer and more.

Cities are investing in festivals, for good reason.

When done right, festivals promote a city’s brand, increase tourism, foster the arts and community involvement and increase revenues for the municipality and local businesses. They can even revitalize a city and spur sponsorships.

Branding and Tourism

According to the National Research Center, Loveland, Colo., uses its annual Fire and Ice Festival to grow the brand of “America’s Sweetheart City.” The event, featuring a downtown snow sculpture and fireworks, coincides with Valentine’s Day and attracted 24,000 people in 2016, making it one of the largest events on its kind in the nation.

Each September, Loveland also puts on “Pastels on 5th,” a sidewalk chalk-art festival that highlights Loveland’s internationally renowned arts community.

Both events raise Loveland’s profile “in the most beneficial ways possible,” City Manager Bill Cahill said in an interview with the National Research Council, Inc.

Community Involvement

Chandler, Ariz., hosts a variety of events: There’s an Ostrich Festival, a Cinco de Mayo Celebration with Chihuahua races, a Tumbleweed Festival, jazz and Greek festivals and more.

These events, according to Chandler’s website, “showcase our people, our heritage, and our values … and strengthen community bonds.”

Even the small town of Forest City, Iowa, is getting into the festivals game.

The inaugural Tree Town Music Festival took place Memorial Day Weekend in 2014 after six years of planning by a private group. This festival bills itself as the “Midwest’s premiere country music destination festival,” and offers camping and glamping.

Profits, Revitalization & Sponsorships

While some festivals provide a financial bump for local businesses, others help to drive the economies of the region in which they are located.

The Sundance Film Festival generated almost $63 million in 2015, according to a study from the University of Utah. An estimated 46,100 filmgoers spent on car rental, lodging, dining, transportation and retail, according to the study.

In Providence, R.I., WaterFire is the big fish.

The unique festival features around a hundred metal, flaming braziers set into the middle of a downtown river that fire tenders, dressed in black, fill with wood and keep alight from small boats. Attendees stroll, take gondola rides or dine al fresco at restaurants that border the river while listening to instrumental music coming from speakers hidden along the tributary.

The non-profit WaterFire is credited with helping to pull Providence out of its economic decline, which began in the 1930s.

The immensely popular festival, founded in 1994, has been called the “crown jewel of the Providence renaissance.” Hotels and high-end condos, which have since been built around the rerouted river, use WaterFire images for promotion. Rooms and tables with a view are reserved months in advance.

WaterFire attracts 1.1 million people to downtown Providence each season, has an annual impact of $114.3 million from visitor spending and creates 1,294 jobs, according to the organization.

There are 13 Waterfire events scheduled for 2016, each with a different national sponsor, such as Bank of America, National Grid, Waste Management and CVS.

In fact, sponsorship of festivals is up around the country.

According to a recent study from IEG Sponsorship Report, sponsorship spending on fairs, festivals and annual events is expected to total $878 million in 2016, a 2.1 percent increase from 2015.

Public Private Partnerships

Many festivals employ the use of existing public space and don’t require new construction to run. This makes them nimble and able to “switch venues and change up programming if necessary,” according to Jonathan Wynn, associate professor of sociology at the University of Massachusetts Amherst, author of Music/City: American Festivals and Placemaking in Austin, Nashville and Newport.

There is a cheaper, more equitable path toward creating culturally vibrant cities, one that requires less public funding and much less steel and glass,” Wynn wrote in a recent opinion piece promoting investments in festivals over museums in the Des Moines Register.

In his research, Wynn found that the most successful U.S. festivals are created organically through public-private partnerships.

“Festivals are really successful when they are generated by a subcultural infrastructure of alt-weekly magazines and music venues, then winning support of [convention and visitors bureaus], chambers and city halls,” he said.