Yesterday, we learned that the Gwinnett Braves stadium is expected to cost $19 million more than the initial projection of $40 million. With the $5 million land purchase, the project is on track to total $64 million. Today, Michael Pearson provides some more detail in the AJC.
Here’s what county officials say goes into the increased cost:
> $7.5 million to extend the concourse all the way around the stadium, put a canopy over part of the stadium and upgrade finishes
> $1.5 million to allow for the use of highly treated wastewater to irrigate fields and flush toilets, saving 5 million to 7 million gallons of drinking water a year
> $6.8 million to put the stadium’s storm water detention pond underground, remove unexpected rock, beef up retaining walls to maximize use of the site and increase the size of sewer pipes to deal with a longer-than-expected run to hook up with county facilities
> $1 million to account for increased material costs
> $2.2 million in management fees and other costs that are charged as a percentage of the overall contract
Where will the County get the extra money?
County officials are proposing to pay for the increased costs with $19 million drawn from the county’s reserve fund, said County Administrator Jock Connell.
If the proposal is approved, the county will have contributed $31 million in property tax funds to buy land for the stadium and help pay for construction costs.
That’s more than two-thirds of the original cost of a project that Connell said at the time was expected to “pay for itself from Day One.”
The $31 million doesn’t include taxpayer contributions from a car rental tax and GVCC funds gathered from a hotel tax. And it’s not as though the County has money to spare.
Still, the price bump comes at a time when county officials are trying to cut costs to deal with millions of dollars in unexpected operating costs.
In recent weeks, the county tax commissioner’s office went to a four-day work week to save on energy costs, the county imposed a hiring freeze for non-emergency workers and public safety employees were asked to try to curtail their use of gasoline by handling some routine police calls over the phone, shut cruisers off for at least 30 minutes per shift and fuel firetrucks on the way back from calls instead of making a special trip.
More cost-cutting could be on the way this fall as county leaders work their way through the 2009 budget.
Police and fire protection are asked to cut back while Liberty Media shareholders get a shiny new concourse?
But, county officials remain optimistic.
Commissioner Bert Nasuti, who came up with the idea of attracting a minor-league team to the county in 2006, said the increased cost is unpleasant, but will bear dividends in the end.
“In the long term, it’s going to generate a lot more money for the county than it’s ever going to cost,” he said.
Nasuti is referring to an “economic impact” study that supposedly states that the project will generate $15 million in annual economic development benefits to the county. This is a study that has not been made public (I requested a copy via Nasuti’s website this morning), and I am certain this is because it violates every principle of economic impact analysis: double-counting, unreasonably large multipliers (in my book, anything over 1 is too large, but I expect this one is greater than 2), including spending by locals, etc. Why am I so certain? Because the academic literature on public spending and development has reached a clear consensus that these projects do not improve development. Here is Dennis Coates, President of the North American Association of Sports Economists, on the subject.
Academic researchers have examined the prospective economic impact studies and found a variety of methodological errors in them, all of which raise doubts about the magnitude of the predicted spending and job increases. Other scholars use data from multiple years before and after stadium construction to measure the impact of the stadium. These ex post studies reject stadium subsidies as an effective tool for generating local economic development.
I also contribute a brief comment to the article.
Kennesaw State University sports economist J.C. Bradbury, who has been critical of the county’s handling of the project, said cost increases are almost guaranteed in stadium projects, particularly publicly funded ones.
“Often times in order to seek political support you go out and fudge on the front side of it,” he said.
Here is a recent article in Miller-McCune about Bent Flyvbjerg, who has studied public spending projects around the world. The one constant he finds is the initial cost estimates typically underestimate the true cost by a significant amount.
by collecting data from 20 nations on five continents, Flyvbjerg had produced the first statistically significant analysis to show what Pickrell had argued with case studies: The vast majority of public works projects go drastically over budget and aren’t as well patronized as proponents claim. He also found that modelers didn’t seem to be improving their estimates over time; the scale of overruns remained relatively constant.
Why does this happen?
Few in the field question the existence of faulty cost and need estimates for public works projects. But the experts fight bitterly over the causes for the consistently inaccurate projections and how to address them. Flyvbjerg’s opinions on the subject can be distilled to a single theme: The politicians are lying to us. The conflict between the rationality of hard numbers and the irrationality of public officials permeates the papers he writes on megaprojects….
As Flyvbjerg views it, the economic incentives for large public construction projects are completely out of whack. Local officials predict low costs and big benefits to persuade skeptical citizens and to compete with other local governments seeking federal funds. Flyvbjerg calls the result survival of the unfittest: Instead of approving the best projects, officials end up funding those that look best on paper. And by the time accurate figures rear their ugly head — and megaprojects routinely last longer than a decade, from conception to completion — the officials who launched them are long gone from office.
“You can’t verify that a forecast was accurate unless you build the project,” [Flyvbjerg's dissertation adviser Martin] Wachs says. “If they build it and the purpose of misrepresenting the costs was to get it built, what do they care if, 20 years later, someone shows that the forecast was incorrect?”
When the Braves threaten to end the lease in 15 years, which is their right under the existing contract, don’t be surprised if Nasuti is relaxing on a Lake Lanier boat dock in Hall County.
Though the deceit with which Bert Nasuti and his cronies have acted is not uncommon, it is still unacceptable. Costs are already starting to rise, and we should expect further cost increases. The fact that county officials are coming clean so soon indicates to me that they anticipate further increases. I expect that the project is heading for a total cost of $80+ million, and the $100 million mark is not out of the question.
Addendum: As of 10am today, this doesn’t appear to be a popular decision.