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Privately funded arenas best in the long run

By Joel Peyton

Gov. Ernie Fletcher is heralding the success of the MCI Center in Washington, D.C. to support his assertion that the proposed Louisville arena would be “good economics for all of Kentucky.”

The governor is partially right. The MCI Center has been an economic success. However, the incentive structure used to generate its prosperity is not the one Fletcher promotes for a proposed Louisville facility.

The vast majority of the funding for the MCI Center was privately capitalized by D.C. businessman Abe Pollin, owner of the NBA Wizards and NHL Capitals. Pollin invested his own money because he considered the project a worthy risk capable of yielding a profitable return on his investment.

Others reinforce the idea that his private investment could yield enormous public benefits. The governor cites a study by the Downtown D.C. Business Improvement District that predicts the MCI Center will generate $4.4 billion worth of additional private-sector investments and $141 million in local taxes per year by 2007.

Obviously, Fletcher believes a publicly financed arena in Louisville will attain the same kind of financial success as Abe Pollin’s private investment in D.C. In fact, most such taxpayer-funded endeavors are fiscal failures. While it may yield some short-term benefits – like warming up Jefferson Countians for the governor’s reelection campaign – it certainly is not in the best long-term interest of all Kentuckians.

If the MCI Center turns out to be unsuccessful and loses money, it will be the owner – Abe Pollin – who bears the burden of his failed investment. However, if a publicly financed Louisville arena is not successful, taxpayers from Pikeville to Paducah and from Corbin to Covington will be left to finance a venture about which they know or care little.

And the $75 million in taxpayer dollars that Fletcher wants to fund construction of the project may just be the tip of the funding iceberg, too. Unsuccessful arenas often require government officials to tack on even higher local taxes on restaurant meals, hotel rooms and rental cars to keep stadiums above water.

The Louisville arena predicament violates our principle of sound public policy that states: Nobody spends somebody else’s money as carefully as he spends his own. A publicly funded arena is everyone’s problem – so who takes the blame if it fails?

The MCI Center’s construction costs were paid through private funds. There’s no reason why a Louisville arena – if sufficient demand exists for such a structure – cannot be funded entirely through private funding.

It turns out the MCI Center is a good precedent for the Louisville arena – just not the kind Gov. Fletcher intended.

– Joel Peyton is a research analyst for the Bluegrass Institute, Kentucky’s free-market think tank.

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