Minneapolis and the siren song of economic impact

James Corner Field Operations Team
Rendering of the "Nicollet Groves" area of a Nicollet Mall redesign.

It barely matters what the idea is — a new transit line, a baseball field, a hospital, an apartment complex, a widened road or expanded sewer system. Many of us, like terrible 2-year-olds, react with a petulant “no.”    

But that resistance is often overwhelmed by the sweet yoo-hoo of the economic-impact study. Generally, one comes with each new proposal for civic improvement. Almost invariably, it predicts that the new project, whatever it is, will produce goodies beyond compare — jobs in the hundreds or thousands, spending in the millions, higher real-estate values and plushy tax revenues. Impressed, we say, “OK, let’s do it.”

Perhaps, however, we should, like Odysseus, who had sailors bind him to the mast of his ship to avoid being lured to doom by the Sirens, resist the “sweet enchantment” of those economic projections, take them with a pinch of salt or at least try to understand what they mean. (Sorry, I have been into the Homeric epic since viewing Charlie Bethel’s hilarious retelling of “The Odyssey” at the Open Eye Theatre over the weekend.)

If we don’t, maybe not doom, but disappointment will rise up to meet us.

Take, for example, a new report  from Donjek and Anton Economics, a St. Paul consulting firm, charged by Minneapolis with measuring the economic impact of a $50 million renovation of Nicollet Mall in downtown Minneapolis. The design, which was created by James Corner Field Operations, one of the architects of the acclaimed Highline park in New York, would, among other things, spruce up the pavement, the lighting and the landscaping, add stairways that would allow people in the skyways to descend to the sidewalks and create a “Mississippi Woods”-style park to the north. Private and public sources are supposed to split the cost — although Gov. Mark Dayton has called for only $20 million in bonding, which amounts to 40 percent.

No serious overhaul since it was built

Although the plan isn’t perfect in my opinion (buildings on Nicollet definitely need more doors, and maybe there could be elevators up to some of the skyways), renovating the mall makes sense. Minneapolis is the state’s leading city, and Nicollet is its major avenue. The mall hasn’t had a serious overhaul since it was built in 1968. Back then, Formica countertops and avocado green appliances graced the average kitchen. Without a fix-up our mall is in danger of becoming the style equivalent thereof.

Jon Commers, Donjek’s principal (he also represents District 14 in St. Paul on the Metropolitan Council), says that Minneapolis did not pressure the firm to produce any particular verdict. But the study’s economic outcomes look very sunny. A modernized Nicollet mall, says the 16-page report, would generate $105 million in new spending and 860 full-time-equivalent jobs downtown.

But when you take a closer look, the numbers aren’t quite as buoyant. Those 860 full-time equivalent jobs would mostly involve the folks charged with designing, building and installing the mall upgrades. Their jobs would pretty much disappear when the project is complete.

“We did not project the number of long-term jobs that might be created,” says Commers. The report mentions another 1,900 new jobs, but those are coming from other construction already under way in the area.

Rendering of proposed theater in the round area of Nicollet Mall.
James Corner Field Operations Team
Rendering of proposed theater in the round area of Nicollet Mall.

The multiplier effect

Similarly, the $105 million is simply the multiplier effect of the $50 million in hard cash that is to be spent on the refurbishing. In case you’re a little rusty on the multiplier effect, it consists of three components: direct impact — that is the expenditure of the original $50 million; indirect effect — the amount of dollars recirculating as a result of the original expenditure; and induced impact — the spending that occurs when employees, business owners and others spend money they earned. Nobody should mistake that for sustained economic improvement. That would only occur if the renovated mall draws more visitors, shoppers and tourists — and there’s no real way to predict that.

The introduction of an amenity, like a park, or in this case, its renovation, usually boosts real-estate values. Using comparables, Donjek and Anton estimated that property values on the mall would rise by $57 million, generating an additional $10.9 million in revenues for local government and $2.1 million for the state — which is not a windfall and not long term but not nothing either. Commers adds that they assiduously avoided the overblown and thus hard-to-believe conclusions of the usual impact study on purpose.

“We wanted an emphatically conservative estimate,” he says. Fair enough.

Typically, however, impact studies suggest such grossly bloated numbers that John L. Compton, distinguished professor in the Department of Recreation, Park and Tourism Sciences as Texas A & M University, subtitled his paper about them “Instruments for Political Shenanigans?” He noted, “Because the motivation undergirding them usually is to prove the legitimacy of the sponsor’s economic case, the temptation to engage in mischievous practices is substantial.”

The 2018 Super Bowl

And so it goes with projections about the economic might of the Super Bowl, which Minnesota is now trying to win for 2018. According to Gov. Dayton, a booster of the project, the game should plump up local purses by some $500 million. Where he’s getting that number is anybody’s guess; his source could be the NFL, which does its own sunshiny estimates but keeps the studies behind the number-crunching secret.

Or he could be loosely basing that number on a post-game economic study [PDF] performed for Indianapolis after it hosted the Super Bowl in its brand-new stadium in 2012. That study concluded that the big game’s gross contribution to the local economy was $384 million.

I suppose if you add in some inflation and a little optimism, you can come up with the governor’s $500 million. Tax revenues going to local government came to about $40 million, which is the number that the more restrained Michele Kelm-Helgen, chair of the Minnesota Sports Facilities Authority, estimates that we would take in for hosting the game.

But there are offsets to these glowy figures. As Crompton points out, expenditures by people who already live here shouldn’t really count. Those dollars are already circulating within the Twin Cities, and if they aren’t spent on the Super Bowl, they’d likely be spent on something else. Second, there will be costs to hosting the event: increased policing, garbage pick-up, traffic congestion and disruption. Those offsets are never calculated by enthusiastic hosting committees — at least, I’ve never seen them added up.

A Super Bowl should plump up local purses by some $500 million.
Minnesota Vikings
According to Gov. Dayton, a booster of the project, a Super Bowl should plump up local purses by some $500 million.

What’s more, to qualify as host city, the NFL requires the local area to provide a batch of tax exemptions — on game tickets, Super Bowl-related events and the game-day salaries of NFL players, officials and staff. New Orleans allowed the NFL tax freebies on hotel rooms and meals, costing it $800,000 in revenues when it hosted in 2013. (And, of course, there’s the cost of the billion-plus new stadium, which the NFL also seems to require these days for its host cities.)

More discouraging is the fact that much of the revenue generated by the Super Bowl does not stay local. As Victor Matheson, a professor of economics at College of the Holy Cross in Worcester, Mass., noted in a 2004 paper on so-called mega-events, “Expenditures in industries dominated by nationally-owned chains such as large hotels, rental car agencies, and airlines, and to a lesser extent motels, restaurants, and general retailers may rise significantly due to a mega-event, but local incomes will not increase substantially.” And the Vikings and the NFL will haul a good deal of the money from sales of tickets and jerseys, knick-knacks and bobble heads back to New York and New Jersey. 

Comments (12)

  1. Submitted by mark wallek on 03/25/2014 - 09:41 am.

    The super bowl problem

    In past years, other cities have moved the homeless away from the general area of the Super bowl and it’s parties. One assumes that this is for the comfort, physical and moral, of the revellers, who would not want their excessive style cramped by the appearance of profound need. I would like to know that, if we do get a superbowl here in Minneapolis, and all that juicy money that comes with it that will flow into all the open hands of the city, we have a good plan in place to get these homeless away efficiently and quickly, with a minimum of press and a maximum of speed. So far I have not seen such a plan, and could never get behind a superbowl here if our guests would have to deal with reality.

  2. Submitted by Hiram Foster on 03/25/2014 - 10:29 am.

    Benefits and costs

    I am a skeptic, although not a total disbeliever in cost benefit analysis because I think that the outcome of such analyses are almost totally pre-determined by what is include as a cost and a benefit. Where the Super Bowl is concerned I think it’s very hard to dispute that such an analysis would favor bringing the game here, for the simple reason that we have already incurred the costs, and there isn’t any point to refusing to receive the benefit.

    A billion dollars was spent, half of it by taxpayers, to build a building that could only be used effectively 8 times a year. There are those who say, that decision was irrational. Maybe it was and maybe it wasn’t. but the decision was made, and we will soon have this gargantuan structure taking up a huge swath of extremely valuable downtown real estate. It has only one use, one saving grace. It’s a venue at which NFL football can be played. Once the thing is built, it simply doesn’t make sense not to use it for the purpose it was intended.

    • Submitted by Leonard Foonimin on 03/25/2014 - 01:07 pm.

      Does the concept of throwing good money after bad come to mind?

      With regard to the economic analysis, If only the Governor had the moral courage to say to the NFL and the Wilfs; Fool me once shame on you, but fool me twice shame on me.

      True we have the Stadium as a reality but that shouldn’t imply that we will continue to shovel money to millionaires and billionaires.

      I would suggest the stadium be used for all the “other local sports events” it was touted to be used for and then mothballed. Lets see, if its used about 4-5 days per year and shutdown in between my economic analysis says the taxpayers would still come out ahead.

  3. Submitted by David Frenkel on 03/25/2014 - 11:13 am.

    No free superbowl

    There is no mention of what an event like the Superbowl will cost the city in terms of added security, cleanup and potential upgrades required by the NFL. There is no free lunch. Some how economists paint a less than rosy picture of major sporting events while politicians can stop falling over each other glowing about the money and jobs from these events.

  4. Submitted by sheldon mains on 03/25/2014 - 12:37 pm.

    Fact Check Please

    “No serious overhaul since it was built”

    There was a significant overhaul in the 1980’s–new pavement, new sidewalks, new bus shelters, new lighting, new electrical system.

  5. Submitted by jody rooney on 03/25/2014 - 12:42 pm.

    Economic impact studies are just one tool

    that can be used in the decision process.

    The most accepted tool is IMPLAN which just moved from it’s Stillwater headquarters to Hudson. I have used it several time for a community I work with. It is a pretty simple but well maintained black box for most folks but it can be more.

    Construction has a pretty good multiplier the jobs are well paid and for the most part the labor income is retained in the area as household income. That is why during economic down turns building public infrastructure is a good strategy.

    Displacement i.e. if they weren’t doing this what would they be doing – is not considered in the model.

    Mr. Foster is correct that a benefit cost ration which is entirely different from an impact study does need to carefully consider what it is counting as a cost and what it is counting as a benefit. That’s why there is published guidance. The most frequently edited is The Green Book https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent In the US various agencies also have “Green Books”.

    Keep in mind there are three different mathematical systems for looking at monetary returns and they are all slightly different: economics, accounting, and finance. They all have their place but they don’t use the same rules.

  6. Submitted by Ginny Martin on 03/25/2014 - 01:00 pm.

    benefits

    I am very skeptical about the benefits of having the superbowl in the TC and in renovating Nicollet Avenue in Minneapolis. I think the whole NFL business exists to make a very few people wealthy and the rest of us will never share in the largesse. These are very powerful people; the NFL is already given the status of a “nonprofit” and is therefore not taxed. Let’s quit giving them so much money.
    I live in St. Paul, but occasionally get to Minneapolis and I think the mall should be updated and improved. But cities do this time and time again and expect that people will flock to downtown and spend money. It never happens. A few years later, there are plans to “revitalize” downtown because the last one didn’t work.
    I was talking to a friend about seeing Macy’s flower show and she immediately said, “But parking is terrible, and expensive!” Why don’t those who benefit make parking downtown free? Has anyone ever tried to run those numbers?

  7. Submitted by David Markle on 03/25/2014 - 04:01 pm.

    St. Paul is even worse

    The worst recent example of a municipality following the siren call of development has to be St. Paul, lured by supposed development opportunities and federal money to place the Central Corridor LRT on University Avenue rather than let it run along the Soo Line tracks on the upper south edge of I-94. Planners and public officials completely lost sight of the purpose of LRT which is to provide RAPID TRANSPORTATION, not promote development. Yes, it will spur development near the stations, but it will probably hurt value and business between stations because of reduced public transit (less bus service) and loss of parking. The I-94/Soo Line route would have enabled fast enough service to attract commuters. Instead, on University Avenue, LRT will stop at red lights and run at about the same speed as the No. 16 bus and slower than the No. 50 (which will be discontinued.) Thus St. Paul ends up with a questionable development tool that’s actually a step backwards in terms of transportation: a train that’s no good as a train and no good as a streetcar, for a billion dollars.

  8. Submitted by Steven Bailey on 03/25/2014 - 05:51 pm.

    The multiplier effect

    Years ago when I lived in Tucson a very funny writer for the Tucson paper took the Cities multiplier effect and applied it to his parents visiting for two weeks once a year. The result was that his parents staying at his house, renting a car and going out to eat resulted in over $90,000 in economic impact benefit. He then said his next step would be to ask for half of that in city development funds or his parents wouldn’t visit the following year.
    When the dust settles on most projects the “smart money boys” get theirs and the rest of us get the bill. I do agree that Nicollet Mall could be done much better and needs it.

  9. Submitted by Ray Schoch on 03/25/2014 - 07:39 pm.

    Two similar songs

    I’m inclined to agree with Marlys that public reaction to development proposals is often a knee-jerk, automatic “no.” That doesn’t mean that every, or even most, development proposals are genuinely good ideas, it just means that the automatic, unthinking “no” makes it that much harder for an innovative proposal that does have some potential to get past all the local obstacles.

    I also tend to agree with the skeptics, Marlys included, who are inclined to dismiss studies of a particular development’s economic impact. Most of what shows up in those studies is, to be kind, sheer speculation, since the future is largely unknowable. It would be interesting and worthwhile for some grad student to make a study of how well those studies of economic impact fare once a project is built and in use for some reasonable number of years – say, 5 or 10.

    • Submitted by Hiram Foster on 03/26/2014 - 07:47 am.

      The economic argument

      The public reaction to developments is often a knee jerk “no”, in part I believe, because the economic arguments the boosters choose to make for them are so transparently weak. Brightening up the Nicollet Mall is not going to make us millions of dollars. Building a stadium that will be used 8 times a year, 9 times when we get a Super Bowl, is not going to make us rich beyond the dreams of avarice. I still check my mailbox every day for the Super Bowl check from 1992, and it hasn’t arrived yet. We even have before us the example of the Twins Stadium which after several years of novelty wearing off, is gong to attract about the same numbers of fans as the despised Metrodome, which pretty much means that in terms of economic impact, after however many millions of dollars we spent on the building we are pretty much back to square one.

      No, the reason we want a pretty new mall and a nice ballparks, is pretty much the same reason we decide to get a new set of drapes, which is pretty much that we just got tired of looking at the old drapes. That may seem like a weak argument, and it certainly isn’t an argument that the movers and shakers seem to want to make, but it is, in fact, the kind of argument that motivates much of what we do and decide in life. Without going into a whole long laundry list of specifics, I would suggest that most if not all important choices we make in life would fail a cost benefit analysis, because, quite simply, most of the important things in life are beyond evaluation and cannot be reduced to a number.

  10. Submitted by Hiram Foster on 03/26/2014 - 06:30 am.

    The difference

    Just to clarify we need to understand that there is an important distinction between deciding to develop something and taking advantages of developments we have undertaken. While the jury might be out on whether it makes sense to spruce up the Nicollet Mall, if we do decide to spruce it up, it’s a pretty good idea to put pictures of the spruced up mall on the brochures.

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