Monday, November 23, 2009

Proposed Regional Bailout of the Capital Improvement Board Flunks Economics 101

At least that's what a new task force formed by the Indianapolis City-County Council is proposing as a "solution" to the fiscal crisis faced by the Capital Improvement Board?

The notion is that the doughnut counties surrounding Marion County benefit from CIB's buildings such as Lucas Oil Stadium and Conseco Fieldhouse. Therefore, those counties need to pay up.

What is forgotten is that all but one of those counties has passed a food and beverage tax that goes in part to paying for the construction of those buildings.

Not good enough is the word from the task force. Members of the task force also want those counties to shoulder part of the burden as to the expense of operating those buildings. That notion, at least with regard to the professionals sports teams, the Colts and the Pacers, is misguided.

People who attend professional sporting events are almost all local. That is why economists, when evaluating the economic impact of professional sports, generally subtract out money spent by the locals. The reason why is simple. People only have so much discretionary income to spend. If they don't spend it on professional sporting events, they will spend it elsewhere in the community.

This is especially true when you look at residents who live in the doughnut counties. Professional sporting events in Indianapolis take discretionary spending out of their communities and relocate it to downtown Indianapolis. A father of four in Danville who decides to take his family to the game and spend $200 is not spending that money in Hendricks County. Hendricks County's restaurants, movie theatres, and other facilities lose the benefit of that $200.

Thus the task force is asking non Marion County residents to shell out more of their tax dollars chiefly for an activity - professional sports - that takes money out of their communities in favor of downtown Indianapolis. My guess is the residents of these doughnut counties are going to tell their legislators to reject this self-serving proposal.


Nick said...


I don't flaw this plan because of the micro-economics of arbitrary political lines which don't conform to economic and social realities in the central Indiana region.

I do support a more regional approach to our public policies and spending.

However, I do not see how giving access to the cash "surplus" that the Indiana Stadium and Convention Building Authority has accumulated from regional food and beverage taxes can solve structural operational problems.

Those funds are intended to pay for the construction of the Stadium and Convention Center expansion. Excess regional tax collections are intended to be directed to the accelerated reduction of debt, not towards operational costs under the control of the CIB and ICVA.

Here is the solution:

Spending must be brought under control and event and convention revenues needs to be increased. This will require an acknowledgement that there is no way we can afford to take on increased operational expenses from Conseco/Pacers and that the Colts expenses must be reduced.

Otherwise, opening up regional taxation for operational expenses just avoids these realities and supports the poor decision made by Fred Glass and Bart Peterson. It avoids economic and political accountability.

It takes Jim Irsay off the hook for fixing something he broke.

Nick said...

Just a reminder about the one sided Colts agreement.

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Indianapolis Colts Salaries

Jon said...

The carrot they hung in front of the doughnut counties was a cut of the last tax increase and that tax increase unlike Marion County's restaurant had a ceiling amount. If the doughnut counties need more revenue similar logic may prevail.

Unknown said...

I support regional sharing of the costs of regional assets. We've already provided the regional contribution in the FNB tax.

I also support allowing any annual surplus to be used to offset operating expenses rather than be setaside for 30 years to ensure the esecurity of bondholders. Public bodies earn about 0% interest on these funds.

I don't think the problem is ineffective management of the facilities.

This is a political issue. Public sports and convention venues are public goods that deliver benefits to the hospitality community. There is a justifications for SOME public subsidy of these facilities. We have failed to define what that level is and set contracts, rates, management and oversite accordingly.

We have the same issues with the airport and in Carmel with the Monon Center and Peforming Arts Center. We want this to be partly "break-even", but partly subsidized. Before the first dollars are approved, we should have clear expectations of the balance. This is something that the STATE bond oversight board could require for the benefit of all --- since the politicians will always have an incentive to dodge the question or kick the can down the road.

Downtown Indy said...

Still it remains fact that we'd not have any talk about 'bailouts' if the deals made on our behalf were not so damn one-sided.