Wednesday, August 05, 2009

The $6 billion lie goes unchallenged: forgetful sports economist Zimbalist gets gentle treatment in the New Yorker

A seemingly defensive Andrew Zimbalist, Forest City Ratner's paid consultant, gets gentle treatment from the New Yorker, which should've enlisted Neil deMause as the interviewer.

The online-only interview is headlined CONVERSATION: THE SPORTS RECESSION.

Q. You were a consultant to Bruce Ratner on the Atlantic Yards project—

A. I haven’t consulted with him since I wrote my last report, which I think was in 2004.


Zimbalist issued his main report in May 2004, just in time for a City Council hearing, then updated it in June 2005.

Sports facilities a boon?

Q. Part of the idea was that building Atlantic Yards—the arena, all the development—would be a major boon for business. How much economic benefit do stadiums and arenas actually bring when they are built with public money?

A. Arenas and stadiums, by themselves, cannot be expected to produce an economic benefit to the local community. It can’t be expected to increase the employment level in the community, and it can’t be expected to raise per capita income. And that’s a straightforward conclusion that comes from detailed econometric analysis that spans thirty to forty years. That doesn’t mean there can’t be a modest benefit in particular cases, though.

But the research says that, on average, there’s no economic benefit. In regards to Atlantic Yards, there were two things that were different, as I studied it. You were moving the team—the New Jersey Nets—over the tax jurisdiction line to New York State and New York City. That meant that Brooklyn was going to be able to cannibalize New Jersey revenues. The second thing that was different, and this is more typical of recent stadium and arena deals, was that Ratner’s plan at the time was that he was going to build a $500 million arena and a $3.5 billion community development that would encompass twenty-one acres and involve retail and commercial space and mixed-use housing.

So there was going to be a lot of private investment. It wasn’t simply looking at the project as a basketball arena and nothing else, but it was looking at the entirety of the project, which was seven times larger than the arena.


Cannibalizing tax revenues

Well, municipalities do try to lure teams across the state line to cannibalize tax revenues. But Zimbalist, in the interview and in his report, neglected to mention (or calculate) how Forest City Ratner aims to rely on federal taxpayers. Federal tax breaks for the arena bonds would well exceed $100 million. 

(The Independent Budget Office in May estimated $193 million on an arena costing $850 million; the Empire State Development Corporation last month said it wants to sell $650 million in bonds.)

There's no justification for the arena from a federal standpoint. I didn't say that first; Zimbalist did, in 2004: ""there appears to be no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host ball clubs."

Notably, Ratner's 22-acre plan was not simply to be "private investment." Rather, it was to rely on a significant amount of scarce subsidies for affordable housing.

Most importantly, Zimbalist's report relies on a bogus methodology: counting the incomes of new residents in a housing development. That methodology, coupled with Forest City Ratner's willingness to distort estimated tax revenues by adding them cumulatively as opposed to calculating present value (as is standard), contributed to the $6 billion lie.

Blatant hypocrisy

Zimbalist describes how stadium proponents distort the public debate:
One of the things that happens during a stadium drive is that the proponents go out and hire a consulting firm to come up with a predetermined conclusion that the stadium will be the cat’s meow for the local economy.

They hire this company, and then they publicize the results of the study, and there might be three or four or five per cent of the community, swing voters, that say, “I might not like baseball or basketball or football, but there’s a hard study that says this will help the local economy.” Those studies are used to get the people sitting on the fence, but most of the people are voting yes because they love sports and want a team.


Other than the absence of an actual vote in New York, that's exactly what Forest City Ratner did. They hired the world's most famous sports economist, who still gets a pass, even though, putting Atlantic Yards aside, there's ample reason to be skeptical of his work: three times in one year his testimony was tossed out of court or disallowed.


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