Thursday, 22 June 2006
Arena Project to Boost Economy
« Democrats are for a New Direction | Main | The Left's Favorite Chant »The Lieb group has released a new study that shows the new riverfront arena will create $154 million dollars of revenue annually. The article from the Courier goes on to talk about how wonderful this will be for Louisville. The problem occurs when you delve into the details of the study. The study breaks spending into two groups, direct spending and indirect spending.
The total direct spending associated with the construction and operations of the arena complex and direct support businesses, on an incremental basis (net of current Freedom Hall), are referred to as ���direct economic impacts.���
As this spending takes place in the local and regional economy it represents revenue tothe arena complex and to area hotels, restaurants, and shops. These entities, in turn,spend this revenue for various goods and services both inside and outside the local andstate economies. Further, the employees who work for these businesses spend a portionof their income in the local and state economies. As this additional spending occurs,referred to as ���second-round spending,��� it becomes income to other entities which inturn re-spend that money. In each round of spending, some money stays in the localeconomies and some ���leaks��� to outside economies. The sum of these secondary roundsof spending is collectively referred to as ���indirect economic impact��� and the process isreferred to as the ���multiplier effect���.
What this means is that 61 million is used to support the businesses and the 54 million is from money that is spent by those making the 61 million off of goods and services.
This leads to the following chart
| Direct | 61.3 Million |
| Indirect | 55.4 Million |
| Jobs | 779 Employees |
This would mean that we are spending $350 million dollars for the new stadium to create 780 jobs. That is over $448,000 per job created. That is an expensive jobs package. Now if that money had been kept in private hands and they spent say $100,000 on hiring each new employee.
$350,000,000 / $1000,000 per new employee = 3,500 new employees
If these new jobs had an average a salary of $30,000 a year we could calculate the direct revenue generated by these employees.
$30,000 year per employee * 3,500 employees = $105,000,000 year
So our direct revenue would be 71% more than from the arena. If we used the same ration for calculating indirect revenue, we could calculate the total gain from those jobs created by the private sector.
55.4 Million / 61.3 Million = 90.3%
$105,000,000 * 90.3% = $94,815,000 Indirect Revenue
All of which leads us to the final chart of what the private sector could have done with that money.
| Direct | 105.0 Million |
| Indirect | 94.8 Million |
| Jobs | 3,500 Employees |
So what the private sector with the same amount of money would have generated more than 2700 more jobs and generated over 83 million dollars more a year. And this gets to my beef about the arena. I know it will create jobs and will probably generate some revenue. It just won't do it with the same efficiency nor profit that would have been derived if this money had just been left in the private sector. It is a horrible waste of money on a "chance" it will be profitable. That is an expensive gamble that could have been put to better use elsewhere.
