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They’re The Same Face

29 Oct

Ok, this is getting embarrassing. In today’s Edmonton Journal, David Staples, for what seems like the millionth time, has written about the supposed virtues of the arena district in Columbus, Ohio. In doing so, Staples once again references an academic paper by Professor Brad Humphreys, of the University of Alberta, as evidence that an arena district can be a financial boon to a city. This is what Staples wrote:

After studying the Columbus model, two economists, the University of Alberta’s Brad Humphreys and fellow researcher Xia Feng, found that pro sports facilities can bring important economic benefits: “A new state-of-the art facility integrated in a comprehensive urban redevelopment program and located in the heart of a large city might be expected to generate increases in residential property values near hundreds of millions of dollars within a mile of that facility, if the location, planning, construction, and development is carried out carefully.”

What’s so frustrating is that I wrote two posts about Columbus in August, and one of those posts dealt quite specifically with the Humphreys’ paper on Columbus, and the important items Staples was leaving out in discussing that paper. For example, Staples glossed over the fact that:

1) The paper was a working paper. It had not been subject to the peer review process, an essential step in the validation of any academic work. Professor Humphreys’ methodology and conclusions have not been screened and looked over by the people who understand these issues best: his colleagues. 

2) The paper did conclude that residential property values were higher in proximity to Nationwide Arena, but it also included a great big, giant caveat that they could not determine how much of that was due to the arena and how much was due to the fact that the arena was downtown.

3) The paper did not take into account the 75-100% property tax abatement provided by the City of Columbus to encourage people to live downtown (Nationwide Arena received a 99% tax abatement).

4) A similar study Humphreys cites in his paper found no effect on property values from the new football stadium in Dallas.

5) A simple calculation shows that even if the increase in property values was a result of the new arena, it was not enough to offset the cost of the facilities.

Most importantly, I showed that even if you take all those other caveats away, you simply can’t “make an argument that the City should invest tax dollars into an arena because it will get more money back from an increase in property taxes. It won’t, because an increase in property values in one part of the city leads to a decrease in property values in another party of the city, and because the City of Edmonton doesn’t collect property taxes in the same way as Columbus.”

All of these items have been cut and pasted from my previous posts. The posts have been sitting here for the world to see for over two months. David Staples reads this website. Yet at no time have I seen him address the points I brought up in my two Columbus posts, points which I have now been forced to make again. They certainly weren’t considered in his article today. Instead, Staples is doing what he’s done on the arena issue since he started covering it: sticking by a case that is at best an outlier, choosing personal experience over sound academic research, and ignoring anything that might get in the way of the narrative he has constructed in his head and in his columns. He’s never applied any real level of scrutiny to the claims made by those in favour of a downtown arena. He’s never looked at cities like Cleveland, Baltimore, Detroit, Washington or even New York City, where massive public subsidies for sporting facilities have done little to nothing in terms of “revitalizing” the areas around them (he chose to visit two cities recommended as case studies by the Katz Group and the loaded Arena Feasibility Committee). Recently, he also decided to speak to a single source—the decidedly pro-arena Mayor Stephen Mandel—before declaring in a story that the arena project was gaining momentum. All this, from the Journal’s new urban affairs columnist.

In 2008, sociologist Rick Eckstein released an article noting that mainstream media are “noticeably biased toward supporting publicly financed stadiums, which has a significant impact on the initiatives’ success.” He stated that:

“This bias usually takes the form of uncritically parroting stadium proponents’ economic and social promises, quoting stadium supporters far more frequently than stadium opponents, overlooking the numerous objective academic studies on the topic, and failing to independently examine the multitude of failed stadium-centered promises throughout the country…”

I can’t help but read that quote and think of David Staples. I also can’t help but read that quote and think of the coverage the downtown arena issue has received in the mainstream media, in particular at the Edmonton Journal.  Has the coverage become more critical over time? Yes. Writers like Paula Simons and Scott McKeen definitely changed their course over the years and started asking for more from City Hall and the Katz Group. The problem is that, from the very beginning, media like the Journal framed this issue in a way that was extremely beneficial to the pro-arena side. And we’ve never gotten away from that. It’s never been framed in terms of a government bailout or corporate handout. Instead, it’s always been framed by the media as finding a solution to the “problem” of downtown. But that gives credence to what is ultimately a false dichotomy. It’s not arena district or nothing. It’s not arena district or horrible city. And it shouldn’t be that the Oilers get a new hockey arena because Edmonton needs to revitalize its downtown core. That’s illogical, and framing it that way has been a disservice to Edmontonians.

I’ve come to realize that David Staples is never going to stop writing pro-downtown arena articles. Nor will John MacKinnon. David’s heart and eyes have told him that what has “worked” in Columbus will work here. John wishes Edmonton was Montreal and wants a stadium close to where he lives (Todd Babiak’s call for a benevolent dictator to build a new arena still has me baffled). That’s fine. But it would be nice if the Journal found some other voices to chime in on this matter. Maybe tasking some writers to dig a little bit deeper, to provide a little more objectivity. To frame the issue in a new way. At the very least, I’d like it if they found a voice that did something other than bang the same, erroneous drum about Columbus over and over again. I don’t think that’s too much to ask, when it comes to matters of this importance.

***Update*** The blog post title for Staples’ story is even more bold in its declaration: “A downtown arena can be a jewel for Edmonton, but only if best practices are followed.” Yes, a jewel. Gag.

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On Columbus, Pt. 2

5 Aug

Now Give Me Money (That’s What I Want)

There are two other things to keep in mind in all of this discussion about Columbus. The first is that the arena district that Staples writes about, and that the Katz Group frequently uses as a model for an arena district in Edmonton, was paid for through private investment. It was not publicly funded. Through referendums, voters in Columbus repeatedly rejected the use of taxpayer dollars, so the Nationwide Mutual Insurance Company built the district mostly by itself, and Blue Jackets owner John H. McConnell agreed to lease the arena from Nationwide.  The man who was to be a co-owner of the franchise with McConnell, Lamar Hunt, backed out when voters refused to finance an arena using taxpayer dollars.

Secondly, despite voter rejection of major public investment in the district ten years ago, the Blue Jackets are now asking the City of Columbus and Franklin County for a handout. Why? Because they claim to be losing $12 million dollars a year. Nationwide owns the arena and is charging the Blue Jackets rent, keeping some revenues for themselves, and of course the team is perennially bad and has only made the playoffs once in its ten years in the league. They also aren’t making enough money with the concerts they hold at Nationwide, losing $4 million a year in non-hockey related revenue. The Blue Jackets have asked for public money in a variety of forms, including having the city take over the arena and cutting them a deal on rent. The Columbus Chamber has even warned that the Blue Jackets might be forced into relocating their franchise if they can’t get financial help from taxpayers. Sound familiar?

Some might jump all over this news as proof that the Katz Group and the Oilers really do need the city to foot the bill and give them all the revenue from a new downtown arena. But to do that one has to admit two other realties: that things in Columbus aren’t as rosy and ideal as they are made out to be, and that the economics simply don’t work. And that last one, to use a sports metaphor, is the ballgame. The National Hockey League’s current business model is so bad one of its teams can’t even afford to pay the rent (and that isn’t even counting problems in Phoenix, Nashville, Tampa Bay, and Long Island). That team, the Columbus Blue Jackets, are the Columbus Arena District’s major tenant, and they say their hockey business is losing millions of dollars a year. Furthermore, even if they got a free pass on revenues recognized as hockey-related revenues (Nationwide has actually given them a break the last two years), they say they’d still be losing $4 million on the non-hockey revenue side. Yet their owners have expressed no interest in taking financial control of the arena, nor has Nationwide offered to buy the Blue Jackets (they have offered up the arena to the Blue Jackets for the low, low price of $55 million dollars). Two private businesses, then, are refusing to invest any more of their own money into the district, the arena and the hockey team. Why? Because they know the math doesn’t work, and rather than be accountable for the bad business decision they made 10 years ago, they want the taxpayers to bail out the Blue Jackets. But why should government take on the financial risk when two private business are proving that it’s a losing venture? Why should taxpayers be responsible for cleaning up the NHL’s mess? And what kind of precedent does it set for future handouts when government eats the costs for a private business gone bad? Columbus is often identified as the ideal case, the exemplar of arena redevelopment, and yet the real lesson of Columbus, just like everywhere else, is that sports arenas are financial sinkholes. Governments should therefore treat the idea of funding them like they’re being asked to join the Mob. Think really, really hard about it, because once you’re in, you’re never getting out.

On Columbus, Pt. 1

4 Aug

Stay Puff

In November of ’09, David Staples of the Edmonton Journal wrote a four-part series on the downtown arena, with a specific focus on the “success” of arena projects in Columbus and Los Angeles. The pieces were mostly puff, full of anecdotal evidence from two of the only cities in North America where downtown redevelopment centered around sports facilities have been deemed even a moderate economic success (when asked on Twitter why he hadn’t visited any other cities besides these two, Staples said that he went to the two places mentioned in the Arena Feasibility Committee Report. If only the Katz Group’s PR work was always that easy). But in the first article in the series, Staples also referenced a paper about Nationwide Arena in Columbus, written by Brad Humphreys and Xia Feng. Humphreys is a professor of economics at the University of Alberta, and is renowned for his work in sports economics, particularly the economic effects of new stadiums and arenas. Many of his papers are in the resources section on this site. The Columbus paper was the type of hard analysis that isn’t present in most media stories about the economics of sports arenas, and because it did an increase in residential property values around Nationwide Arena, Staples went back to the well with it repeatedly throughout his series. Unfortunately, he overstated the results in Humphreys’ paper, and glossed over some important facts. These include:

1) The paper was neither new nor revelatory. It had been publicly available since 2008. In fact, Humphreys referred to the paper in an interview I did with him back in February of 2008, and it was debated in the comments then whether the higher property value argument had any merit (more on this later).

2) The paper was a working paper. It had not been subject to the peer review process, an essential step in the validation of any academic work. Professor Humphreys’ methodology and conclusions have not been screened and looked over by the people who understand these issues best: his colleagues.

3) The paper did conclude that residential property values were higher in proximity to Nationwide Arena, but it also included a great big, giant caveat that they could not determine how much of that was due to the arena and how much was due to the fact that the arena was downtown.

4) The paper did not take into account the 75-100% property tax abatement provided by the City of Columbus to encourage people to live downtown (Nationwide Arena received a 99% tax abatement).

5) A similar study Humphreys cites in his paper found no effect on property values from the new football stadium in Dallas.

6) A simple calculation shows that even if the increase in property values was a result of the new arena, it was not enough to offset the cost of the facilities.

Staples also referenced a study by the John Glenn School of Public Affairs at (The) Ohio State University, which reported that property values in the Columbus arena district had shot up by 267% in ten years. Scott Hennig at the Canadian Taxpayers Federation has already scrutinized the findings, but I’ll add that Staples failed to mention that the study was paid for by the Columbus Blue Jackets and the owners of the arena district, Nationwide Realty Investors. Not really a surprise, then, that the result of the study saw the arena district as having a positive economic effect on the region.

It Doesn’t Really Matter

In one of the accompanying pieces, Staples wrote a line that immediately stood out to me and some fellow arena news watchers:

“The increased property values in Columbus can be translated into increased taxes for the city, Humphreys says.”

The reason it stood out for us was that it was an issue that had come up in the interview I did with Professor Humphreys in February of 2008. In the comments, there was a question raised about whether or not it was the case in Alberta that an increase in property values would mean more tax revenue for a city. The general consensus was that an increase in property values doesn’t lead to more tax revenue for the City of Edmonton. It just means that the distribution of taxes between properties will change. I asked Scott Hennig of the Canadian Taxpayers Federation to explain why an increase in property values doesn’t lead to any extra money for the City of Edmonton. This is his response:

1) If a certain area magically becomes more desirable and property values go up, it should have an equal reduction in another area, based solely on the fact that unless the incomes of the people change, the ability to purchase property stays the same. If this wasn’t the case, every house in Edmonton would be the size and price of Katz’s. I get this might not be immediately clear, but there’s a reason why not every house in Edmonton is a mansion or a little shack. The distribution of income across the population is not even, and therefore their desire and ability to purchase homes isn’t the same. There is only a certain percentage of the population that will want and be able to purchase housing at say the $700,000 level. If the supply of $700,000 houses go up, while the demand stays the same, those houses will either sit empty or be decreased in price. Or if everyone who lives in Riverbend moves to an arena district, it’s likely that the houses in Riverbend will have to be decreased in price to find buyers. Therefore, there should be no change in overall property value in the city.

2) Even if I’m incorrect about #1 and there is an overall increase in the market value of property in the City of Edmonton (more rich people move in than any other income level), the way that property taxes are set and collected would prevent an increase in revenue. Unlike the federal and provincial governments, who set their tax rate first and then just collect whatever money comes in (and if incomes do increase, or employment goes up they collect more money than expected) the city decides first how much money they want to collect, check what the assessment is, and then they set the tax rate. So, if they decide they are going to collect an extra $40 million, they just divide that by the total assessment and set the mill rate. That combination of the rate and the assessment will dictate your portion of that $40 million. So, those people with a higher assessment will pay more than those with a lower assessment. In the end, the city doesn’t collect any more money, just some people pay more than they did before, and some people pay less.  Or in reality, some people see an even larger tax hike than they expected, while others see a slightly lower tax hike than they expected.

This really doesn’t change much for businesses.  I just use houses as an example that most people can wrap their head around.  But the same goes for businesses.

You can’t, therefore, make an argument that the City should invest tax dollars into an arena because it will get more money back from an increase in property taxes. It won’t, because an increase in property values in one part of the city leads to a decrease in property values in another party of the city, and because the City of Edmonton doesn’t collect property taxes in the same way as Columbus, Los Angeles, or any other American city.