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Take Me Out to the Corporate Welfare Scam

by Larry Morse


On May 5, 1998, Guilford and Forsyth County voters will decide whether we want to participate—from the paying side—in a major welfare scam by adding 1 percent to the sales tax on prepared foods. The tax revenues will not go to improving our schools, but rather to paying two thirds the cost of building a major league baseball stadium.

The tax will probably be in effect for some 25 years as we pay off the $140 million bonds. It is worth pointing out that we will have paid a total of about $300 million in taxes over the 25 years, assuming annual tax revenues of $12 million and a 7% rate of interest on the bonds. Actually the public welfare and tax burden does not end with the stadium construction costs. There will be another approximately $50 in new roads, highway interchanges, and water and sewer lines. While the state will be asked to pay the bulk of these costs, all of us are also state taxpayers.

Are Major League Sports just Welfare Scams for the Rich?

Mark Rosentraub begins his book, Major League Losers: The Real Cost of Sports and Who's Paying for It, with the words, "A welfare system exists in this country that transfers hundreds of millions of dollars from taxpayers to wealthy investors and their extraordinarily well-paid employees." He's talking about sports welfare.

Will the arrival of a major league team help the local economy?

Six arguments that it will not.

Professional sports have not and will not kick off a burst of job creation and new income in a local economy.

First, professional sports simply are not all that big.

If the Minnesota Twins come to the Triad they are projected to have revenues of under $70 million. Any major league university has higher annual revenues. NC A&T's revenues, for example, exceed $110 million, more than 50% greater.

Second, the vast majority of the money spent at the stadium is not new spending, but rather spending that is diverted from elsewhere in the local economy.

Unlike millionaire owners and athletes, most households have to think about how they shell out their incomes and if they go to a game this week, that may mean they don't eat out next week. In such a case the spending shifts from a local restaurant to the millionaire team owner. Rosentraub's studies, cited earlier, found that only 12 to 34% (the actual percentage is influenced by the extent to which fans living outside the region are drawn to games) of the spending is new or additional spending. Or as he puts it, "Sports are not only small potatoes, but those potatoes may have been someone else's before the team or stadium existed."

Third, professional sports teams are not major employers and, even with phenomenal athletes' salaries, do not have such large payrolls.

According to Rosentraub they account for less than 0.5% of the total jobs and a similar share of the payrolls in the counties where they operate. Furthermore, a hefty share of the payroll goes to the athletes, and they spend the bulk of their income outside the region. In other words, the millions paid the athletes are more likely to end up in vacation condos and Wall Street than they are to buying local goods and services.

Fourth, the "multiplier effects" of new spending for sports teams are highly exaggerated for local economies.

A dollar of new spending ripples through an economy, generating more than a dollar's worth of economic activity or output. This creates what economists call a "multiplier effect."

Rosentraub contends that "blue ribbon commissions" tend to exaggerate these multiplier effects. What matters more than economic activity is the income earned from that activity.

As an illustration, picture this. When an athlete buys, say, a Cadillac only the dealership services (sales commission and car preparation costs) and profits are income earned in the local economy.

So when assessing a commission report, watch for two things: One, that earnings, not output, multipliers are used, and, two, that these multipliers are applied only to the new spending, not to total revenue.

(Should we at some point be blessed with a commission report and you wished to check whether or not the commission members have exaggerated, the output multipliers for the Triad are 1.7667 for "hotel and lodging places and amusements" and 1.7852 for "eating and drinking places." The earnings multipliers are 0.5446 for "hotel and lodging places and amusements" and 0.5269 for "eating and drinking places.")

Fifth, the "extra tax" boosters will be telling us that a professional team will put Greensboro on the national map, but there is no evidence that this changes the minds of corporate decisionmakers.

Apparently the idea is that suddenly in board rooms across corporate America, executives will be saying, "Greensboro has gone major league. They must be winners! Let's locate our next facility there!" Right!

Rosentraub, a professor of urban policies at Indiana University, says that there is no evidence that corporate location decisions are influenced by the presence or absence of major league sports. Firms making location decisions consider such factors such as access to markets and suppliers, local labor market conditions (including the percentage of workers unionized and whether or not the state has "right-to-work" laws making it harder to unionize), transportation facilities, the quality of the local schools, and so forth.

Sixth, proponents may point to the construction jobs created by the stadium, but this work will be short term and many construction workers will come from outside the area.

There will be employment in the construction trades. However, it will be short term, for once the work is completed, the jobs disappear. Furthermore, if there is a lot of other construction going on in the Triad when the stadium is built, then many of the stadium construction jobs will be filled by persons commuting into the area. Short of what local spending such commuting workers may engage in, their employment represents no economic gain to the Triad.

On the topic of job creation, it is pretty clear that the major league team will not be advertising for very many year-round jobs. In addition to bringing in the athletes, most of the well-paying front office jobs will be filled by persons currently on staff. The Triad residents may be able to pick up some clerical and accounting jobs, but not much else.

Vote Yes to Give $$$ to the Rich...Vote No to use tax money for Better Purposes

So, May 5th, vote for the new tax on prepared foods if giving part of your income to millionaire owners and athletes suits your fancy. You might also think about voting Yes if you want to see a neighbor's kid who works part time in a restaurant lose his job and see another neighbor lose her job at a video rental outlet because you and others diverted spending from eating out and watching videos to going to a couple of baseball games. If these motives strike you as perverse, then vote NO.

  Larry Morse is a professor of economics at NC A&T State University. This article courtesy of the Greensboro Gazette, PO Box 14098, Greensboro NC 27405, or call (336) 379-8494.>  

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