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What do the studies say on the cost of the new Falcons stadium?

What do economic impact studies and economists say the new Falcons stadium will cost? Will Atlantans have buyers remorse, like other cities with their new stadiums and their hidden costs?

Many Atlantans want to know how much the new Falcons stadium will cost taxpayers, then look at the research.  The Georgia World Congress Center Authority (GWCCA) has had many studies done, and the two recent studies before the end of 2012.  One of these was the economic impact study in September 2012, by Dr. Bruce Seaman of Georgia State University (GSU).

Dr. Seaman describes an economic impact study as the “change in annual value of output...on regional tax revenues, personal wage incomes and full-time equivalent jobs.”  There are two types of economic impact studies:  ex ante and ex post.

Dr. Seaman tells Patch the “Ex ante economic impact studies attempt to predict the most likely measurable economic effects on important regional indicators based on regional impact modeling, which requires making a number of very careful distinctions to avoid analytical errors.”

Dr. Seaman also tells Patch the “Ex post studies attempt the very difficult task of sifting through the historical evidence after an event (e.g., a Super Bowl, or a major arts festival, or related to development of new facilities, a stadium or a performing arts center, or the introduction of a new business into a region, be it a sports franchise, a museum or an automobile manufacturer).”

Dr Rodney Paul, professor of Sport Management at Syracuse University tells Patch the “General rule of thumb applies - if forecasting it is ex-ante, if analyzing past data it is ex-post.”

Dr. Seaman found the construction impact on Atlanta with the Falcon's new retractable roof stadium would have a total output impact of $155.1M, which combine the direct output impact of $100.2M and the indirect output impact of $54.83M.  The direct output impact of the $100.2M would come from three areas:  Atlanta's labor expenditures of $33.8M; material vendor expenditures of $5.7M; and Atlanta's total soft costs of $60.72M.

The 2012 total Atlanta tax benefits, which includes MARTA sales taxes was $1.02M.  The total personal income by the local economy was $71.74M; with 1,468 full-time jobs for the Dome.

The projected total budget from 2014-17 for the retractable roof stadium may cost $972.98M, in construction costs.  Dr. Seaman believes the construction impacts maybe higher.  The direct output impact could be $222.42M, while the indirect output impact maybe $201.25M; for a possible total output impact of $423.67M, instead of $155.1M.  The total direct output impact of $222.42M could come from three Georgia sources:  Labor expenditures of $121.9M; material vendor expenditures of $18.9M; and total soft costs of $81.44M.

Dr. Victor Matheson, associate professor of economics at College of the Holy Cross tells Patch the difference between the two output impacts are; “Direct impact is the first round of spending done by a visitor - for example, a tourist buys a $50 dinner at a local restaurant.  Indirect impact is the "ripple effect".  Part of the tourist's meal tab goes to the server who then goes and spends his or her tips at the local bar after his or her shift is over and so on.”  This means the stadium may bring more from the indirect ripple effect, but this is only a projection.

Dr. Seaman tells Patch the “Direct output impacts are the result of net additions of new spending into a defined region.  You can think of this as the initial “shock” to a specified region’s economy caused by a new net injection of spending.  Indirect output (and other) impacts (sometimes called “induced” impacts;  the IMPLAN model e.g., distinguishes between indirect and induced impacts), reflect the related impacts over time linked to either the supply chain of vendors required to support such spending, and/or the re-spending of the incomes generated by the direct impact.”

The total Georgia sales tax benefit could be $6.3M, with the total Georgia personal income tax benefit of $6.4M; for a total Georgia tax benefit of $12.7M.  The total personal income could be $168.24M, and predicts to create 4,560 full-time jobs within Georgia.

With some ex ante impact study as predictions, Dr. Seaman believes they are “overly optimistic due to overstated attendance.”

Dr. Seaman believes the “one important way to 'check' the empirical validity of ex ante predictions is to compare, where possible, e.g., the actual attendance to the predicted attendance, or the actually measured changed in hotel occupancy rates vs. their 'normal' level for that time of the year.  Sometimes ex ante predictions are below the historical reality (e.g. the first year attendance at the Georgia Aquarium far exceeded the marking and economic ex ante estimates; at other times the ex ante estimates turn out to be too optimistic, with one example being the most recent Chick Fil-A Bowl).”

Dr. Matheson tells Patch “Basically ex ante studies try to predict what will happen while ex post studies try to explain what actually did happen.”

Dr. Seaman believes ex post studies have lower predictions than ex ante study, which causes skepticism.

Dr. Matheson finds the issue of lower projections from ex post is because “lots of economists like me are often suspicious.  Furthermore, usually ex ante studies are done at the request of parties that have a vested interest in the outcome of the study in order to bolster their request for a public subsidy.  Thus, there is a real question about whether one can believe what they say.”

What some call “Legislative Capture,” where lawmakers identify with their clients, over good governance.

While ex ante studies cause skepticism Dr. Paul said, “It depends - if there are greater benefits from a project than anticipated it could be the reverse.  When trying to get dollars to fund a project, however, the interested party wants to forecast the best economic picture possible - so, typically, the ex-post studies reveals less of an impact (if any) than the ex-ante studies.”

Dr. Seaman finds the skepticism, “provides a kind of natural limitation to the size of the total impacts: smaller regions have larger net direct impacts but much smaller indirect impacts over time due to smaller multipliers, while larger regions have typically smaller direct impacts, but for any direct impact there will be larger indirect multiplier impacts over time.  One key ex ante error is to fail to make these partially offsetting adjustments.”

Dr. Paul believes the forecast “increase in local GDP (or income) and lowering of the unemployment rate due to the construction of a new stadium (ex-ante).  If this does not come true - income is stagnant and unemployment does not change - the original assumptions that created the forecasts are likely not to be correct.”

In any economic impact study, the questions are based where and whom it benefits with various factors like:  the number of visitors; local spending captured; and the regional multipliers in the local and greater region of Atlanta, the metro Atlanta area (from Macon to Sandy Springs), Fulton County, and the State of Georgia.

Dr. Matheson tells Patch that Dr. Seaman's study does a perfectly good job describing the economic impact, but does not cover 2 things.  One “I don't see an economic analysis of the effect of the higher taxes that will be required to pay for the public outlay of funds.  Anytime government spends money, you are going to get a temporary surge in output followed by a long-term reduction in output as the initial spending is paid off.”  Two it does not “show that building a stadium is better at generating economic impact than other public projects in which the city and state could invest (like new roads or schools etc).”

Dr. Matheson cautions “Building a big, new stadium would result in a temporary economic surge.  Of course, so would spending on anything else, and the surge now will be countered by a slump later when the funds are paid back...I just wouldn't use his report as any sort of real justification to give a big public subsidy for the construction of a new dome.”

The other GWCCA study done in September 2012, was the economic impact analysis for both the Dome and GWCC by Ken Heaghney; the State fiscal economist with the Fiscal Research Center and Andrew Young School of Policy Studies at GSU.

For 2012, both the Dome and GWCCA events had a total economic output of $1.21B, with $431.4M in labor income; 13,452 total jobs; $57.2M in state tax revenue; $31.5M in sales tax revenue; and $17M in hotel/motel tax revenues both for the local government.

For 2012, Heaghney found the GWCCA accounted for $938.9M in total profits of the $1.21B, while the Dome accounted for $269.2M in total output profits.  The GWCCA generated $377M in labor income and 10,426 jobs, while the Dome generated $94.3M in labor income and 3,027 jobs.

The GWCCA brought in $44.1M in state tax revenues, $36.1M local tax revenues and $11.9M from hotel-motel tax revenues; while the Dome brought in $13.1M in state tax revenues, $12.4M in local tax revenues and $5M in hotel-motel tax revenues.  The new stadium may bring in the same number in profit or not, since tickets and event prices will increase to pay back the debt.

In Table 2, the total attendance for GWCCA in 2012 was 985K, while the Dome was 1.4M for a total of both venues of 2.4M.

In Table 14, both the GWCCA and the Dome total collected taxes paid to the Georgia Department of Revenue (GADOR) was $57.2M.  The total local government tax revenue was $48.5M, from hotel-motel and local sales taxes.  The GWCCA paid the GADOR in total state tax revenues of $44.1M and $36.1M in total local government tax revenues; while the Dome paid $13.1M to the GADOR for state tax revenues and $12.4M in total local government tax revenues.

In April 2012 GWCCA hired Barrett Sports Group (BSG), a sports management consulting firm for a study on the new open air stadium.  The public resources would come from land from the State of Georgia costing $15M, and the Net Bond Proceeds of the hotel-motel taxes would range from $230.7M to $324.9M.  The total in public funding would range from $245.7M to $339.9M.

According to the BSG, the private funding would come from many sources:  The NFL G-4 program $100M advance, a NFL grant of $50M, and a NFL loan ranging from $31.3M to $50M.  The Atlanta Falcons equity would be determined later; and the Falcon's debt funding would range from $0 to $175.5M; for a total from the NFL would range from $181.3M to $375.5M or more.

Other private funding would also include, the Personal Seat Licenses (PSLs) that range from $100K to $200M; the Vendor Financing to later be determined; for a total from other sources would range from $100M to $200M or more.

The BSG study total resources of funding from the private sector would range from $281.3M to $575.5M; plus the public sector that ranged from $245.7M to $339.9M; for a grand total from $527M to $915.4M or more.  This was the total in April 2012 with an open air stadium, before later costs were added and the final agreement in December 2012 for the retractable roof stadium, which is projected to cost over $1.2B.

Dr. Seaman tells Patch he believes the BSG study was, “a compilation of historical (i.e. ex post data) and ex ante assessments of future market potential based on demographics and other variables.”

The BSG use of those funds for an open air stadium construction was $574.2M; with on-site development costs of $48M; plus off-site costs of $84M and the land costs of $15M' would total $721.2M for construction on an open air stadium.

From 2010-11, BSG found the Dome's total operation expenses cost $19.21M; minus the total revenues cost of $22.76M; which totaled $3.55M in operating profit (loss).  If you add the net after non-operating costs of $11.24M minus the total depreciation of $8.94M; for a grand total net after depreciation of only $5.86M.

The March 2012 GWCC: Master Plan Phase IV by Populous, reported the demolition of the Dome is projected to cost $8.19M.

To pay off the Georgia Dome's debt, Georgia lawmakers in April 2010 extended the hotel-motel tax for Atlanta and unincorporated Fulton County, which was to expire in 2020.  H.B. 903 sponsored by Rep. Ron Stephens (R) extended the 7% hotel/motel tax till 2050, which was contingent upon 39.3% of the tax to fund the Dome.

In 2011, Georgia Governor Nathan Deal vetoed and later approved the sponsored bill by Rep. Chuck Martin (R) of S.B. 140, to lift the GWCCA bond capacity cap and increase the hotel-motel tax to 8%.  From 2010, some were planning to build this stadium, but needed to create new laws for it to happen.

In 2006, Arthur Blank predicted a new stadium in an article with the AJC and GWCCA website, so a plan to build this stadium goes back to 2006.

Since 2007, the problem with hotel-motel tax revenue has been in decline by 16%; from $50,917 in 2007 to $42,560 in 2010.  Hotel-motel tax is not a constant form of revenue every year, to repay the stadium debts.

The current Dome still owes over $100M in debt that was due to be paid off by 2020 on its 30 year bonds, but was extend until 2050 thanks to H.B. 903.  It will add more public debt with the $200-300M in Atlanta bonds.

Heaghney study shows that hotel-motel tax revenue comes from the City of Atlanta, unincorporated Fulton County and the GWCCA.  The total tax revenue collected is distributed:  22.5% to the Atlanta Convention & Visitors Bureau; 28.56% to the City of Atlanta General Fund; 39.3% to the current debt for the Dome (agreed in 2010 by the General Assembly to fund the Dome); and 9.64% to the GWCCA.

Another issue is the hidden cost, like the streets, sidewalks and sewage infrastructure in the area for the new stadium.  No one has done a study on what the infrastructure will cost local taxpayers, which will increase the total cost and not come from hotel-motel taxes.

Ryan Splitlog, Assistant Director of Common Cause Georgia tells Patch that “No group that we know of has given any sort of detailed cost estimate for infrastructure.  If you look on page 12 of that BSG study you'll see 'To be Determined' on the line for 'Other Public Resources.'  Mayor Reed said he's pushing for a city-wide infrastructure package that would include some monies for the stadium, but did not detail how much.”  He is referring to BSG lease analysis report done for the GWCCA in August 2012, where there is no cost determined yet for the hidden costs of the infrastructure.

Splitlog suggested when it comes to the hidden cost to look at Maria's Metro blog that details “how the funding mechanisms will most likely change.  It looks like we will have to wait with cautious optimism until we hear from the Mayor, then adapt our position.”  Maria's Metro projects that by 2020-50, the annual tax collected would be $20M a year, and $600M over the 30 year life of the city bonds.

Dr. Matheson said “I don't really believe the economic impact figures that are claimed regarding the current Dome, ultimately it really doesn't matter.  What is important is not how much economic activity is generated by the Georgia Dome but instead how much extra economic impact will be generated by a new Dome.”   Do Atlantans believe that “the SEC and Supercross and other dome users are going to abandon the Atlanta metro area (one of the nation's largest and fastest growing, I might add) unless a new dome is built?”

Dr. Paul believes “Overall - if there is going to be an economic impact due to a sports stadium (or anything else), there needs to be new economic activity generated.  If a new Falcons stadium would just take fans away from the Hawks, it really does not do anything new for the city (it does affect the owners of the Falcons and Hawks, however)…Most economist studies (ex-post), do not find much of an overall economic impact from new stadiums.  It really all comes down to if the stadium will generate new economic activity or if the level of entertainment spending overall (in Atlanta) stays the same.”

With the debate on studies, hotel-motel taxes, hidden taxes for local taxpayers on infrastructure, to even suggestions by lawmakers to split up of Atlanta and Fulton County.  Atlantans need to look at the larger picture, with these new laws from 2010 that shaped this issue of the new stadium.

Common Cause Georgia, one of the few groups against these closed-door decision makers, has three main points of action with the new stadium that are: 

1.  The GWCCA and the Falcons, prior to any legally-binding agreement, to support all necessary information for a peer-reviewed economic impact analysis, by an independent academic, analyst or entity;

2.  To fully publish the full terms and conditions of their tentative agreement to the public and media;

3.  The General Assembly of Georgia should withhold any vote, legislation, ordinances, budgets or other proposals; to enable funding or construction of the stadium until the terms and conditions between the Falcons and GWCCA have been published, the economic impact analysis has been completed, and a 90-day public comment period has passed.

If Georgians want a word in local government, then this is the Local Control they should practice when it comes to tax dollars locally and from tourists to fund a new stadium.  This local control should be decided by Atlantans not be closed-door decisions, before Atlanta has buyer's remorse like other cities that built stadiums, which did not know what it actually would cost them.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Baker Owens February 19, 2013 at 07:06 PM
Save Falcons Habitat - Keep the Dome http://www.facebook.com/pages/Save-Falcons-Habitat-Keep-the-Dome/147025202029129?ref=hl

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