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Fletcher commits flagrant economic foul on arena

(Bowling Green, Kentucky) – In his October radio address, Gov. Ernie Fletcher claims that the new proposed Louisville arena is “good economics for all of Kentucky” and is asking the state to contribute $75 million toward the endeavor. But sound research portrays such projects as shoddy investments for taxpayers that are sold with false promises.

A report by the St. Louis Federal Reserve reveals that 55 arenas were built or refurbished between 1987 and 1999 in the United States at a cost of more than $8.7 billion, of which nearly $5 billion was taken from hard-working taxpayers in the form of government subsidies.

The Fed’s report also shows how the return on arena investments for cities and metro areas is below that of alternative projects. Also, communities that have invested heavily into arena projects have slower income growth, on average, than those who have not invested in such projects.

Fletcher offers Pikeville’s Eastern Kentucky Exposition Center as an example of successful arena. However, the facility, which was originally projected by supporters to cost less than $13 million but had a final price tag of more than $28 million. The governor’s rosy scenario would result in only a pitiful 2-percent return annually. A regular bank savings account would likely yield a better return.

“Politicians often wax eloquent about the bountiful revenues that arenas and convention centers produce,” said Joel Peyton, a research analyst at the Bluegrass Institute. “However, once these monstrosities are constructed, taxpayers often are left with the task of keeping them on life support.”

Also, revenues generated by arenas usually substitute for money that would be spent on existing entertainment options. No new revenues are generated. For example, a family may decide to go to the arena to see a ballgame rather than going out to see a movie.

“This proposal is the economic equivalent of a technical foul,” said Chris Derry, president of the Bluegrass Institute, Kentucky’s free-market think tank. “If there’s such a high demand for a new arena in Louisville, then the private sector will step up. Taxpayers should not be forced to pay for this beast of burden.”

The Bluegrass Institute is an independent research and educational institution offering free-market solutions to Kentucky's most pressing problems.

Permission to reprint Perspective commentaries, in whole or in part, is hereby granted, provided the author and his affiliations are cited. Authors are available for interviews by contacting the Institute.

Bluegrass Institute for Public Policy Solutions
400 East Main Avenue, Bowling Green, KY 42101

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