Economic Development or Corporate Welfare?

Economic development subsidies and grants are a proven way to attract businesses, and jobs, to the areas that need them the most. Businesses are concerned about the return on their investment, and appropriate government subsidies can make certain areas attractive that businesses would otherwise avoid. The government’s investment is recovered in payroll taxes and economic growth.

On the other hand, it amazes me to read about how many government subsidized stadiums and convention centers are constantly being built. Many sports arenas do return the government’s investment, in economic development as well as taxes. Unfortunately, there are too many stadium deals that fail to make basic economic sense, with most of the benefits being realized by wealthy team owners.

My personal gripe is the large number of publicly-funded convention centers that are being built and expanded. A quick Internet search shows that the convention business is basically flat; businesses are cutting corporate travel wherever they can, and technology like WebEx is eliminating the need for many kinds of meetings. In spite of this, paid consultants are creating reports that paint a rosy picture for the convention business. Too many cities have built or expanded convention centers, only to find that it is impossible to meet even their minimum expectations. If you take the time to do a Google search on <"convention center" lose money>, you will find dozens of stories that prove this point.

There have been a number of academic studies that reveal the fiction of the convention center success story. Several have been presented by Dr. Heywood Sanders Ph.D., Professor, Department of Public Administration, University of Texas at San Antonio. A recent paper he wrote says in part, “In city after city, massive public investment in convention facilities has been justified by feasibility and market studies that consistently portray a booming national demand for exhibition space.” “These market and feasibility studies thus offer no real basis for public investment and serve to bias public decision making and choice.” (click here to read more)

In southeastern Pennsylvania is the city of Lancaster, best known as being the heart of “Pennsylvania Dutch Country”. Lancaster’s downtown has been in a state of increasing decline for more than 35 years, starting with a disastrous “Urban Renewal” project in the 1960s. In the mid 1990s, the last major department store in downtown Lancaster closed. The Democratic mayor at the time had reached an agreement for a community college to move into the building; when a Republican mayor took office before the move had started, he cancelled the deal, claiming that the many young people attending the college would dramatically increase crime in the area. Since then, the community college has built a new facility just outside the city limits, and has done so well that the facilities have recently been doubled in size to keep up with demand.

In 1997, a group of businessmen proposed that a publicly funded convention center be built around the empty department store, to be accompanied with a privately-funded luxury hotel (in an area that currently has only one run-down hotel). This group commissioned an “independent” study, which described a convention center as the answer to all of Downtown Lancaster’s economic problems. Consequently, the county government appointed a Convention Center Authority, and approved a hotel room tax to subsidize its operations. Over 100 local businesses appealed the tax in court; legal actions eventually reduced the number of participants to 11, who only gave up in 2003 when the Convention Center Authority threatened to counter-sue. To this day, the ongoing delays in starting construction are still blamed on these lawsuits.

The original plan released in 1999 was for a $30 million convention center, to be built alongside a $45 million privately funded hotel. As time passed, these numbers shifted: the latest estimates are $93.65 million taxpayer dollars to fund both the convention center AND hotel; private investment has been limited to $35.3 million, much of which is to come from future earnings. This “business plan” almost guarantees that the private developers will earn huge sums of money, while more than $36 million in debt will be guaranteed by local governments; if the proposed convention center and hotel do not meet their very ambitious goals, local taxpayers will be stuck making up the difference.

There has been local dissent, but it has been actively suppressed by intimidation and threats. Amazingly enough, none of the parties supporting this project have made ANY effort to provide any additional evidence that there will be any positive return on this investment, beyond the original questionable study. Efforts to organize opposition have failed; most Lancaster County residents don’t seem to care that their taxes could go up a lot as a result of this proposed project.

There is a LOT more to be said about this, more than what can be presented here. For more information, a local activist has been fighting this project (among other things) since its beginning; you can read much more on his site at www.5thestate.com. More details about the project can be found at the Convention Center Authority’s web site, www.lccca.com.

– Artie See

Leave a Reply

Your email address will not be published. Required fields are marked *

Connect with Facebook