Opinion: Daily Journal

Charlotte Races Into Economic Impact Projection Hall of Shame

The JLF research staff is completing the upcoming edition of our City and County Issue Guide, and in so doing I am writing about convention centers, stadiums, and other municipal vanity projects. The projects are invariably sold to city leaders as sure-fire ways to boost the local economy and raise the city’s national profile, and they habitually fail to meet expectations. Chagrined leaders left with these high-profile money sinks nevertheless find the projects hard to shed because they carry the city’s tourism banner.

Entries for the guide are necessarily short, intended to provide an overview of issues and additional reading for those who wish for more in-depth analysis. That is why my draft leaves out discussion of Charlotte’s NASCAR Hall of Fame, which unfortunately for the Queen City provides a strong example of what other leaders should avoid.

“We’re building this to help the economy”

So said then-Mayor Pat McCrory in 2009 in announcing the Hall of Fame. To underscore that purpose, he added, “That was always the goal.”

McCrory and other city leaders, egged on by heady projections from the Charlotte Regional Visitors Authority, expected a significant boost to Charlotte’s tourism. CRVA projected a whopping 800,000 annual visitors — straightfacedly expecting the NASCAR HOF to get as many annual visitors as the Baseball HOF (300,000), Pro Football HOF (200,000), and basketball HOF (200,000) combined.

Those projections were important, not just to persuade Charlotte officials, but also because Charlotte was competing against Atlanta, Daytona Beach, and other destinations to house the HOF. In that sense, they did their job.

Nevertheless, in its first year, the HOF welcomed just 272,000 visitors and lost $1.4 million. That inspired the annual ritual of moving the HOF target from help the economy to just break even and stop hurting the economy for once, please.

This new goal has proven maddeningly elusive. The CRVA started lowering ticket prices and considering discounted tickets for convention attendees — which, as my colleague Michael Lowrey pointed out, meant that the hall “really isn’t helping to draw conventions” even though “we raised the hotel/motel tax to help pay for the racing museum, thus making Charlotte less attractive for conventions.”

Valid projections weren’t the concern

In 2010 ESPN wrote about the NASCAR HOF’s attendance woes and subsequent budget cuts. The reporter obtained a very telling admission about those hall-winning projections:

“I admit we were wrong,” said Tim Newman, the chief executive of the Charlotte Regional Visitors Authority that headed the city’s effort to get the shrine. “We should not have been talking in those numbers. Because it was a public competition, you had those numbers out there. We were trying to win the business.

“I was not as concerned about the validity of those numbers at that time.”

Newman then projected that the following year’s attendance would be “between 250,000 and 300,000 on the low end.” Which suggested the CRVA was still not concerned about the validity of projections. Actual attendance that year was just under 198,000.

The most recent year saw attendance decline ever further, to 177,000 visitors, as the hall posted a loss of $1.6 million. But never fear, Charlotte, because “Attractions like the hall often suffer attendance declines after opening but then usually stabilize in year four.”

Stabilized is some consolation prize; at what level of attendance would it settle? Certainly not anywhere near the 800,000-annual-visitors economic bonanza used to sell the thing. The best-case scenario now seems to be not to lose any more than the city takes in. Even that scenario is compared merely with any other outcome assuming the HOF, not against the combined economic impact of a taxpaying private concern on that site in conjunction with a reduction in HOF-supporting hotel/motel taxes.

Then again, do public officials actually expect valid numbers?

In its 2011 special report “Economic Impact Studies: Legitimate Or ‘Voodoo’?” WFAE radio said that impact studies had become a “cottage industry,” with economists getting “between $5,000 and $50,000, depending on the project,” with private accounting and consulting firms paying more. The reports are methodologically biased to produce “deal of a lifetime” projections that provide political cover for proponents — and additional pressure on opponents — to get a public project approved.

Mecklenburg County Commissioner Bill James noted the uniformity of report findings. “I’ve just seen too many of them to believe that it’s a coincidence that every single study that’s produced, virtually, talks about what a great idea it is,” he told WFAE. “It’s always a great idea.”

Belmont City Councilman Bill Toole told WFAE that economic impact reports are the most important thing done in the public policy arena. Why is that? “Because no elected official wants to stand up and say, ‘I’m standing in the way of new jobs,’” he said.

As WFAE reported, “These reports usually run 50 to 100 pages and are packed with statistics, graphs, and economic models. Toole says most elected officials flip to the executive summary, read the bolded sentence about the hundreds of jobs and millions of dollars the project will bring and vote ‘Yes.’”

John L. Crompton, Seokho Lee, and Thomas J. Shuster passed along a humorous anecdote in their 2001 paper on economic impact studies posted in the Journal of Travel Research. A city asked one of the authors to project the economic impact of a 10-day festival boasting over 60 different events. He returned with an estimated impact of $16 million.

City officials “vigorously contested the results, arguing they were much too low.” Turns out that two weeks earlier, they were handed economic impact projections for a three-day professional rodeo event that were nearly $30 million.

“How can we possibly accept that this festival lasting for 10 days and embracing over 60 events had a smaller economic impact than a single three-day rodeo event?” they asked.

The author obtained a copy of that rodeo presentation, then applied its erroneous assumptions to his own analysis of the 10-day festival. By so doing he was able to project an economic impact not of $16 million, but “more than $321 million.”

In other words, by deliberately violating good economic principles in order to go along with the wishes of public officials, he projected an economic impact about 20 times greater than what was reasonable to expect.

No doubt it sounded fantastic.

Jon Sanders (@jonpsanders) is Director of Regulatory Studies at the John Locke Foundation.