Stadiums and taxpayers ... avoiding post-mortems through a pre-mortem approach

Paul Brown Stadium, home of the NFL Cincinnati Bengals, is a good, albeit sad, example of the negative effects of public choice theory at work.


The representatives of the Bengals (special interests) out negotiated in every way the government representatives (Hamilton County), and the rationally ignorant (at least at that time) taxpayer is now stuck with the bill.


The project, in addition to being mismanaged during construction, missed all of its initially overly optimistic financial projections in a really big way. While the propensity for "forecast error" is present all the time, and especially in public projects, the likelihood of such error isn't often a part of the decision making process. In fact, what could go wrong is rarely, if ever, included at the front end of a public project, no matter what its size.


Unfortunately, the forecast error almost always is to the downside for taxpayers. The reason why projections consistently miss to the downside is straightforward. If the initial forecast shows that the proposed investment will be a really good thing to do, it enhances the chances of the project being approved by the taxpayers. In other words, since this project was being pursued by the team and government officials, the rose colored glasses were worn by those doing the forecasting. When presenting the project for approval, the forecast simply represented an absolutely "best case" scenario. That approach helped ensure its passage by the taxpayers.


Hence, while taxpayers are now engaged in a post-mortem concerning the stadium project, at the outset a more taxpayer friendly approach would have been a pre-mortem inquiry. Before committing to huge projects with enormous chunks of borrowed money, taxpayers need to make it a point to ask of the project's promoters the following simple question, "What could go wrong, and if it does go wrong, what will the "worst case" cost to the taxpayer be?". Then if with eyes wide open we decide to proceed, at least the risks will be better understood.


Now let's get back to the matter at hand in the land of the Cincinnati Bengals.


Paul Brown Stadium is located in Hamilton County, Ohio, a poor county where one of seven persons lives in poverty. The likelihood is that the vast majority of county residents have never seen a game played in Paul Brown Stadium. And they probably never will.


Upon completion in 2000, the actual cost of the football venue was more than $500 million, almost double the estimated initial cost of $280 million. In order to fund construction of the stadium, among other things, a one half cent sales tax increase (the almost free lunch approach) was overwhelmingly approved by the citizens. County officials promised that property taxes would be reduced later when the financial obligations related to the football stadium project had been satisfied.


As it turns out, while Paul Brown Stadium was completed more than a decade ago, the promised property tax reduction hasn't yet happened and isn't likely to happen anytime soon. Due to construction cost overruns through project mismanagement, coupled with lower sales tax receipts than predicted, the county now has big problems in addition to those caused by the weak general economy. Needless to say, the county's operating budget is and will remain under considerable stress for years to come.


A Stadium's Costly Legacy Throws Taxpayers for a Loss calls this project "one of the worst professional sports deals ever struck by a local government ---- soaking up unprecedented tax dollars and county resources while returning little economic benefit."


Unfortunately, the saga of the Cincinnati Bengals stadium is not an unfamiliar one. The Bengals threatened to relocate from Cincinnati to a new city unless the county built a new stadium. Team officials and Hamilton County representatives proceeded to negotiate a deal whereby the team would move into a new stadium to be financed solely with bonds issued by the county. When seeking taxpayer approval, both county and team officials predicted that both cash and jobs for the county would be the happy result. That was the prediction.


Here's the real world post-mortem. Last year alone the stadium's cost to the county represented $35 million, or 16% of the county's total operating budget. This 16% and growing piece of the county budget compares to a more normal cost of 2% for other cities in similar situations. As they say, the Bengals took Hamilton County to the cleaners.


The result is that the taxpayers of Hamilton County are stuck with a huge stadium related debt and an equally onerous annual charge. There are no realistic prospects for improvement anytime soon.


Look around and see what's happening in your area. Any new government funded "can't miss" projects on the drawing board? As Yogi says, you can see a lot just by watching.

Thanks. Bob.