The Heritage Foundation

Executive Summary #1223es on Smart Growth

October 2, 1998

October 2, 1998 | Executive Summary on Smart Growth

Cities in Denial: The False Promise of Subsidized Tourist and Entertainment Complexes

Mounting evidence from dozens of cities that rely on costly tourist-related infrastructure projects such as convention centers, stadiums, arenas, concert halls, and museums demonstrates that such projects contribute little to a community's economic vitality. Worse, they divert desperately needed financial resources from such basic government services as public safety, education, and transportation.

Because the vast majority of these new facilities are financed by tax-exempt borrowing, federal tax policy plays an important role in encouraging this sort of revitalization scheme. Indeed, the cost of the 40 professional sports facilities on the drawing boards or already underway could entail a federal tax subsidy of as much as $2.4 billion over the life of the tax-exempt bonds used to finance those projects. This controversial practice has led Senator Daniel Patrick Moynihan (D-NY) to introduce S. 1880, which would prohibit communities from issuing tax-exempt bonds to finance the construction of professional sports facilities.

To examine the impact of tourist and entertainment-related projects on urban revitalization, this paper contrasts three regional revitalization schemes currently being implemented in the greater Washington, D.C., metropolitan area. The major geographic jurisdictions in this metropolitan area operate under the laws and administration of separate governing bodies--the District of Columbia and the states of Virginia and Maryland. Thus, the Washington metropolitan area offers a unique social science experiment on the efficacy of alternative approaches to community governance and economic vitality.

Maryland's Megaplex Mentality
Maryland, historically one of the more prosperous states, has pursued economic revitalization aggressively by investing in costly tourist and entertainment-related infrastructure projects. It has built or subsidized three stadiums and a variety of tourist facilities, including convention centers, over the past two decades and is contemplating several other major projects such as a racetrack.

In the 1980s, the state and the city of Baltimore assisted in the development of a world-renowned downtown retail, museum, and restaurant complex on Baltimore's Inner Harbor. Although its attractions are impressive and heavily used, they appear to have had no significant impact on the city's or the state's economic well-being. Baltimore continues to lose residents, jobs, and businesses, and today houses its smallest population since about 1915.

Virginia's Approach
In contrast to Maryland's megaplex approach to economic development, Virginia focuses its financial resources and civic energy on providing better quality basic public services, including its substantial investment in higher education.

This approach already has netted substantial results. For example, five of Virginia's state-supported universities were ranked among the nation's top 25 public universities this year. No other state came close to its 20 percent share of top-rated institutions of higher education; Maryland saw only one of its state universities ranked in that select group.

In return for devoting a greater share of its resources to education and other quality public services, Virginia's economy has been booming while Maryland's remains stagnant. Over the 12 months ending in July 1998, Virginia created 196,000 new jobs; Maryland created just 13,400, with an unemployment rate of 4.7 percent compared with Virginia's 3.0 percent.

The District's Strategy
At the center of the Washington metropolitan area is the District of Columbia. It is administered by an elected city government with state and local responsibilities and financial resources and by the federal government, whose constitutional mandate to oversee the affairs of the nation's capital often leads Congress and the President to try the latest fads in urban revitalization.

The city--which is losing jobs and residents at a rapid pace because of high crime, high taxes, poor public services, and a dysfunctional school system--and its federal supporters most recently embraced a revitalization strategy that depends on massive investments in tourist and entertainment facilities. If pursued to the extent that many of its advocates desire, this strategy will involve the construction of a convention center, a baseball park, Olympic facilities, several museums, a new opera house, and a downtown trolley line targeted at tourists. The new convention center's total cost may run as high as $800 million, yet its projected economic impact promises an exceptionally poor return on the city's investment.

Projections produced by the convention center consultants and the cost estimates provided by the U.S. General Accounting Office indicate that each new full-time and part-time job created by the center in the city could cost as much as $450,000. Moreover, during the same period that the city pursued funds for this convention center, budgetary shortfalls and mismanagement forced substantial cutbacks in the city's only public university, the University of the District of Columbia, whose enrollment has fallen from 11,000 students in 1991 to 4,800 today.

Such infrastructure-dependent approaches to urban revitalization are being implemented across America, often with little effect but at great cost to communities in money, civic energy, and missed opportunities for meaningful reform. Even when such schemes have clearly failed, the only lesson learned seems to be that more money should be spent on second and third efforts. The evidence with respect to the three approaches to urban revitalization in the Washington metropolitan area suggests that, before policymakers commit to such entertainment-related infrastructure projects, they should evaluate both the wisdom of financing them with tax-exempt bonds and the impact of their decisions on urban revitalization.

-- Ronald D. Utt is Grover M. Hermann Fellow in Federal Budgetary Affairs at The Heritage Foundation.

About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow