Coronavirus

Governments Splurged on Stadiums and Luxury Hotels Before Coronavirus Shut Them All Down

These subsidies were a bad deal for taxpayers even in good times. In the midst of a global pandemic, they're devastating.

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The COVID-19 pandemic has devastated the hotel industry, and in doing so put the taxpayers who funded generous incentives for these hotels at risk of never being paid back.

This week, The New York Times reported on publicly funded hotels from around the country that are having to delay openings, or sitting empty thanks to coronavirus-related shutdowns and cancellations.

That includes the Hyatt Regency Hotel in Portland, Oregon, and the Loews Kansas City Hotel, which respectively received $74 million and $166 million in public incentives. The Hyatt opened in December. The Loews, which was already facing cost overruns, was supposed to open in early April, but that has since been delayed.

The Hyatt's subsidies, like much of the public assistance detailed in the Times article, were funded by the sale of bonds by Portland's Metro government (a separate entity from the city of Portland), which planned on paying back bondholders from taxes on hotel room stays in the city.

Metro told the Willamette Week that it has enough reserves to keep servicing the bonds on the Hyatt for the foreseeable future. But the longer COVID-19 shutdowns remain in place, the greater the risk that that governments who splurged on pricey hotel projects will have to pay back their creditors from general funds they'd otherwise be spending on public services.

It's not just hotels either. Cities across the country are scrambling to figure out how to pay for stadiums, convention centers, and other venues that received taxpayer support. These projects were all pitched as economic development tools. With large gatherings banned in most of the country, they're now a drain on city revenues that are already being squeezed by the current economic slowdown.

Wichita, Kansas, spent $75 million on a new baseball stadium that was opened in March, before being forced to close because of the pandemic. The city was expecting sales taxes from the stadium and surrounding businesses to pay for the costs of the venue. With games canceled for the foreseeable future, that's looking increasingly unlikely, reports the Wichita Eagle.

Paducah, Kentucky, had just agreed to build a new aquatic center with the hope of attracting more tourism dollars. Now city leaders are scrambling to figure out how they'll pay back the $20 million they borrowed to build the facility, according to local NBC affiliate WPSD.

Interestingly, Paducah's aquatic center was already projected to lose money, even without the pandemic.

That's because targeted subsidies for things like stadiums and hotels don't make economic sense even in good times, says Michael Farren of George Mason University's Mercatus Center.

"Targeted economic development subsidies don't work. They don't actually raise the standard of living in the communities that use them," he tells Reason.

Farren says these kinds of incentives, at best, spend scarce public dollars on economic activity that would have happened regardless of the subsidies offered. That's a loss for local businesses and residents who have to pay these taxes but don't receive any of this largess, he says.

"You're subsidizing one provider of goods and services at the expense [of] other providers of goods and services. You can certainly see winners and losers," says Farren.

Often, targeted government subsidies can end up distorting markets by oversupplying a good or service, which then creates more demand for subsidies and incentives in order for said business to stay afloat.

Pointing to the research of University of Texas professor Heywood Sanders, Farren argues that local governments have oversupplied the market for convention space, and have since tried to shore up demand for these venues by building luxury hotels.

Now both types of investment are losing money at the worst possible time. Local governments are under tremendous financial strain as sales taxes they rely on evaporate, and the demands for all forms of public services grow.

This would be the case regardless of whether governments had splurged on dubious economic development projects. It nevertheless means that cities across America are having to divert money from providing essential services to cover the costs of luxury hotels.

NEXT: A Teenager Posted About Her COVID-19 Infection on Instagram. A Deputy Threatened To Arrest Her If She Didn’t Delete It.

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  1. Almost like the government shouldn’t build stadiums…

      1. Just ban AirBnB. Q.E.D. What are the chumps gonna do? vote libertarian?

    1. >We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare
      Only anarchists, terrorists, and Russians don’t like American football. Go Ravens!

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  2. Strange is it not that those things not economically viable without government intervention are not economically viable even with it. Every government intervention in the economy is harmful.

    1. They never produced any real value anyway. They just moved money around. The flip side of that is people not using them for a while has no real effect on the economy.

      1. Don’t disagree with you at all. However, I’ve always been curious about one stadium/sports team in particular: the Green Bay Packers. Green Bay is a super tiny town as far as NFL franchises go (about 110k). I can attest (I grew up in GB) that on game days there are a TON of people from other parts of the state that flood into GB that likely would never ever go there for any other reason. So, its not like in say NYC where money is just moving from one part of the city to another part of the city. It seems on the surface that the franchise does in fact “bring money in”. On the other hand, I’ve seen enough of the “our stadium/city/sports team is different” arguments that I’m skeptical of the claim. But it seems, at least on the surface, if there was any place that the argument might hold true, it would be GB.

    2. Not to the cousin who gets the money.

  3. They’re saying sports aren’t coming back until 2022. Every venue is going to be bankrupt.

    1. And they are full of shit. 2022? They will have at least a moderately effective vaccine by next spring at the latest. And the virus will burn itself out by then anyway. Sports likely return this fall and certainly by next spring.

      And the venue doesn’t go bankrupt, the people who own it do. And too bad. The venue will still be there and someone will buy it and use it. It is not like bankruptcy means the place gets torn down.

      1. True, although most of these places are owned by billionaires with sweetheart leasing and tax deals. It’s not the owners that are going to get cornholed here, it’s the concession stand workers, ushers, parking attendants, and gift shop clerks.

        1. One of the unfortunate disadvantages of seasonal jobs is that they’re . . . seasonal.

          1. Except a lot of them aren’t, especially the arenas. They’re used year-round for various events, ranging from sports to conventions to concerts. The single-use baseball stadiums are probably the exception to the rule.

    2. 2022? I’m sure the deep pockets and influence of the NCAA will let that happen. /sarc

      If sports is affected in the fall, higher ed is going to crash harder than people like Glen Reynolds think. The big state and national private colleges are addicted to sports revenue (Stanford, Duke, Notre Dame, etc all NEED tv and conference revenue).

      1. If higher ed doesn’t get back to normal operations this fall, they’re going to take a massive hit anyway from the loss of foreign Chinese tuition.

      2. How much of that money actually makes it out of the sports programs? The coaches are the highest paid employees, the rest of the money goes for newer and better facilities, equipments, stadiums.

  4. The Gaylord Hotel in Aurora, a massive, multi-million dollar white elephant that was approved by the city to compete with the Denver Convention Center, had lost $42 million as of 26 March. I can’t imagine what a hit that’s going to be to the city coffers in lost tourism taxes and sales taxes.

    1. Higher taxes, more asset-forfeiture confiscations.

    2. They named it the Gaylord?

  5. Subsidies for stadiums are probably the worst use of taxpayer money. It’s why every moron who’s ever owned a sports team makes out like a bandit. Especially football stadiums that only operate 10-20% of the year.

    1. I’d say the real morons in this scenario are the people who supported using tax money to build them, because they think they won’t be a WORLD CLASS CITY without a bunch of sports ball teams.

      1. True…. As if Tampa and OKC suddenly became world class destinations when they got a pro team.

  6. It is clear that not one of these people has seen Parks and Rec because if they had they would not fall into the Ice Town hole.

  7. The City of Austin bought a hotrod race track. Now the property tax on our street just doubled! This is a good time to canvass for Libertarian votes in North Austin.

  8. Paducah, Kentucky?

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  10. Every time I drive by the new soccer stadium under construction in north Austin I start to giggle to myself. The city isn’t building it but it did give some generous tax abatements for use of city property.

    Can’t help but wonder if the great virus freak out will keep this place closed.

  11. This article should have hundreds of comments from the plethora of reich wingers condemning this socialism practice!

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