History repeats itself: the government picks more losers
In 2013, my beloved Atlanta Braves agreed to begin the process of relocating to Cobb County. The deal included providing $300 million in taxpayer funds toward the construction of a new stadium and mixed-use development. Officials attempted to justify this subsidy by claiming that the stadium would generate ample tax revenue and provide an enormous return on investment.
A host of voters weren’t pleased by the deal, but they couldn’t derail it. By 2017, the Braves played their first game in the new stadium, but just months after they won the World Series, disappointing—albeit predictable—news emerged around Truist Park. It wasn’t generating the tax revenue that voters were promised. Instead, it is costing Cobb County millions of dollars a year.
This shouldn’t come as a surprise. Stadium subsidies have long been terrible investments. The Brookings Institution wrote in 1997, “Sports facilities now typically cost the host city more than $10 million a year.” There are plenty of other studies and experts decrying the folly of new stadium subsidies too.
A more recent poll found that more than 80 percent of economists believe that “providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated.” Despite the Braves stadium being a boondoggle in the making back in 2013, officials plowed forward, but this was hardly the first time Georgia made a misguided investment.
Starting in the early 2000s, Georgia began to court film companies in hopes that they would begin operating in the Peach State. They’ve done so by offering income tax credits of up to 30 percent for qualified productions. Many film companies have since taken Georgia up on its offer, which now costs the state over a billion dollars a year, but what’s Georgia’s return on investment?
In an effort to quantify it, the state decided to multiply every dollar a film company spends here by 3.57 and assert that the resulting number is the dollar value of their economic impact. So, after crunching some numbers, the state claimed that film tax subsidies generated a $6 billion economic impact in fiscal year 2015. Unfortunately, the state doesn’t seem to know why they settled on the 3.57 multiplier, and the economic impact figure has people calling foul.
What is known is that 88 percent of the companies who have taken advantage of the film tax credit are from out of state, and if Georgia taxpayers’ return on investment is anything like other states, then lawmakers have some soul-searching to do. “The California government collected 65 cents, Florida 43 cents, Louisiana 36 cents and Virginia around 20-30 cents for each dollar spent or lost to film subsidies,” I wrote in a prior column. Clearly, that’s a poor investment.
Similarly, back in 2009, Georgia officials approved a plan to let a conglomerate of electricity providers build two new nuclear reactors—reactors three and four—at plant Vogtle. An official decree was necessary to begin construction since electricity providers operate under a regulated monopoly—meaning for big decisions, they need the government’s approval—but their deal was sweetened. The General Assembly passed legislation permitting them to begin charging captive ratepayers for the not-yet built reactors. Vogtle’s owners claimed that reactor three would be finished by 2016 and reactor four in 2017, and the project would cost $14 billion.
Fast forward to 2022, and neither reactor is finished. The project has been marred by delays and cost overruns. The latest estimates allege that the reactor construction will be done by 2023 and it will cost more than double the original estimate. Sadly, one way or another these costs will be passed onto consumers in the form of increased utility bills, which is just a tax by another name, but this was easily foreseeable. Plant Vogtle’s first two reactors cost nine times their original estimate, and nuclear construction is fraught with regulatory obstacles.
While there are always risks in every endeavor, it’s best to try to mitigate them, but it doesn’t appear that many government officials took past experiences or studies to heart. Instead, they increased the government’s engagement in the private market—leaving taxpayers to foot the bill when their gambles turned sour. Had they adopted a free market approach, we wouldn’t be in this predicament and wouldn’t be wondering why the government keeps picking losing projects.
Image credit: Rajesh