During the past 18 months, as City Council and city staff worked to create and finance a hefty incentive package to retain the U.S. Olympic Committee, they often cited an “economic impact analysis” prepared by David Bamberger & Associates.
Several councilmembers, just prior to voting last month to approve a $43 million injection of city funds into the national nonprofit, said that their votes were based on the data contained in the report.
“There’s been a very significant amount of misinformation about this,” said Councilman Jerry Heimlicher during an Aug. 25 council meeting, referring to concerns that the city’s finances would be adversely affected by the cost of the proposed retention package. “This is actually going to create funds for us. This is not a calculation that the city prepared. The Bamberger report shows that (if the USOC leaves) we would throw away $3.4 million, for a net loss of $1.6 million to the general fund.”
Councilwoman Jan Martin, noting that she had “struggled” with the decision to support the incentives, said that her decision was largely based upon the economic benefits described in the study.
Other councilmembers and city administrators, including Mayor Lionel Rivera, Vice Mayor Larry Small, City Manager Penny Culbreth-Graft, and Assistant City Manager Mike Anderson, also have frequently cited the report.
In a Colorado Open Records Act request, CSBJ requested a complete copy of the study, the base data provided by the city for the survey and copies of the economic impact studies provided to members of City Council.
The city said in its response to the request that it doesn’t have anything other than a single-page summary that is posted on its Web site. It also doesn’t have the “base data,” although the summary says that the city provided it, and it neither commissioned nor paid for any study by Bamberger.
Here’s the full text of the city’s response.
1. You requested the complete economic impact analysis prepared by David Bamberger & Associates during 2007, believed to be titled “Olympic and related sports industry economic impact Colorado Springs, 2007.” We do not have the document(s).
2. You requested the “base data” for the analysis, from a survey of Olympic and related sports organizations conducted by the city of Colorado Springs Office of Economic Development during February of 2008. We are still researching this request. Our initial review showed no information available, however due to the fact the summary information cites the City as a source for base data we are taking another look.
3. You requested the summaries of the economic impact study supplied to members of the Colorado Springs City Council during 2007, 2008 and 2009. Any summaries we have are posted on the City’s Web site.
4. You requested the contract, agreement, or informal understanding between David Bamberger and Associates and the City of Colorado Springs regarding the preparation, creation, and dissemination of the above-referred economic impact analysis. We have no such agreement with Bamberger and Associates.”
Based on an e-mail from Bamberger to Mayor Lionel Rivera, it appears that the one-page economic summary (http://www.springsgov.com/units/communications/8-13homepagestoryinfo.pdf) so often cited by councilmembers and city staff was created by Bamberger at the request of the mayor a few weeks before the original council vote authorizing the USOC deal.
Bamberger confirmed that he had created the study without charge at the request of the mayor.
“It was based on really detailed survey work collected by the city,” he said. “It was good data. But neither Bamberger & Associates nor the city can release the base data because of confidentiality agreements with the organizations that provided it. The conclusions were no surprise – they were similar to those in a previous study that we did for the Sports Corp. nine or 10 years ago.”
However, judging from the city’s response to the Business Journal’s CORA request, city officials are unaware of any such confidentiality agreements – they claim they just can’t find the data.
As transmitted to the mayor, the report consists of a four page memorandum. It includes a 200-word introduction, the single-page summary and a list of 42 “Olympic, national, and Pan American sports organizations located in Colorado Springs during 2007.”
The assumptions, methodologies, and statistical models that underlie the conclusions of the memorandum are not mentioned, and the “base data” used to arrive at the conclusions are largely absent.
In addition to organizations that are clearly USOC-related, such as National Governing Bodies, the memorandum also lists sports-related nonprofits that appear to have few affinities with the USOC.
Included are, for example, the Professional Rodeo Cowboys Association, the Pacific Coast League, the Mountain West Conference and the Major League Baseball Players Alumni Association.
During the yearlong-plus timeframe that the USOC deal was approved, unraveled, was re-structured and finally re-approved, it appears that neither City Council nor city administration asked for the data sets or the input-output methodology that might support the figures they so publicly relied upon.
Moreover, when the deal was restructured nearly a year and a half after Bamberger prepared the original document, city leaders did not ask him to re-do the numbers in light of changing economic conditions.
The Bamberger memorandum appears to assume:
* That the State games of America, which were held in Colorado Springs during 2007, will be held here every year.
* That 2007 levels of sports-related employment will either remain the same, or increase. In fact, many of the organizations listed in the memo, including the USOC, have announced layoffs.
* That the 910 “sports industry” jobs, combined with the 570 “visitor industry” jobs said to be directly created by the sports industry, pay an average wage of more than $51,000 annually.
Additionally, the memorandum does not consider the negative economic impact of any then-hypothetical retention package.
“You have to realize that this represents the ultimate downside risk analysis,” Bamberger said. “It’s a picture of what would happen if the whole sports establishment picked up and left after the USOC departed. If the USOC did leave, there would be an immediate impact, but would all of the NGB’s leave? Would the Olympic Training Center close? Probably not.”
This measured response seems to be at variance with frequent claims by city officials that the city’s $43 million investment was critically necessary to protect the jobs, tax revenue and other economic impacts associated with the local sports industry.
Many economists view economic impact studies with skepticism.
John Crompton, a professor of recreation, park, and tourism sciences at Texas A&M University, is one of them.
“Most economic impact studies are commissioned to legitimize a political position rather than to search for economic truth,” Crompton wrote in the Journal of Travel Research. “Often the result is mischievous procedures that produce large numbers that study sponsors seek to support a predetermined position.”
During 2005, Michigan economist Patrick Anderson said that economic impact analyses are often flawed, “because the claimed economic impact of a proposed development can affect political support for a proposed project – and sometimes taxpayer funding – an incentive often exists to exaggerate the benefits.”
Such exaggerations are, critics say, embodied in the “the mythical multiplier.”
“The methodology used by impact studies has been criticized on a variety of grounds,” wrote Dennis Coates and Brad Humphreys of the Cato Institute in a study of public subsidies to professional sports teams. “All impact studies use multipliers to estimate the effect of each dollar spent … on the wider local economy. Critics argue that at best the multipliers used (to determine) impacts fail to differentiate between net and gross spending and the effects of taxes. Despite the beliefs of local officials and their hired consultants about the economic benefits of (public subsidies), the consensus of academic economists has been that the sports environment has no measurable effect on the level of real income in metropolitan areas.”
Bamberger’s memorandum, based on city-supplied “base data,” claims that the local sports industry, which directly employs 910 people, generates outsized economic impacts.
These impacts include economic output of $314.3 million, 3,480 total jobs, employee earnings of $146.7 million, city and county sales tax revenue of $3.6 million, and property tax revenue (to all taxing entities) of $4.6 million.
The latter would appear to be suspect because property taxes are paid by property owners, regardless of their occupation.
University of Colorado at Colorado Springs economist Fred Crowley offered an explanation.
“I can’t comment on the specific study,” he said, “but the assumption is that a part of the income generated by the particular (economic activity) goes to pay property taxes.”
In a worst-case scenario, Crowley said, the property once occupied by the impacting organization would never be re-occupied and the assessed value of the improvements would eventually decline to zero.
However, all of the USOC’s improved property, which will include the new headquarters building at 27 S. Tejon, is tax-exempt, so that the immediate result of a USOC departure might mean that local property tax receipts would increase, if the property was no longer owned by a nonprofit.
The Business Journal e-mailed Crowley the four-page memorandum in its entirety, and asked him to comment.
“It does not tell me anything,” Crowley wrote, “there is no stated methodology. I can say there is always an economic impact associated with an economic activity. I do not know how large it is.”