City can’t find data used to justify USOC deal

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Author of economic impact analysis describes study as ‘the ultimate downside risk analysis’

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.”

8 Responses to City can’t find data used to justify USOC deal

  1. I have read Bamberger’s Reports and find them to be “less than insightful.” PROVE the so-called $11 million economic impact of the State Games! It has to include “pass along” dollars with multipliers of AT LEAST two or three. No way that glorified track meet with 65-70% of the participants coming from the Front Range could even come close to generating $11 million in a seven day time period.

    RJF
    September 9, 2009 at 12:49 pm

  2. More good reporting by Hazlehurst. Kudos, John. Would have been nice to see this brought forward before the second deal was approved. But given that the city moved from announcement to approval in just a week, there really wasn’t time for this sort of in-depth analysis.

    Another point worth making is that the Bamberger estimates (I believe) take into account the executive offices and training center, though no one ever said the training center was in danger of leaving town. I assume the economic impact of having a number of USOC top execs decamp to some other city would be small, relative to the whole. But that point was consistently ignored or glossed over by the cheerleaders. This is obviously an inflated estimate, done as part of a sales job. But as anyone who sat through the one town hall meeting on USOC understood, most on this City Council had the rubber stamp at the ready and weren’t interested in picking nits.

    Here’s more of my take on the issue: http://www.locallibertyonline.org/paige_blog.php?blogid=1562.

    Thanks

    Sean Paige
    September 9, 2009 at 1:52 pm

  3. I’d like a Bammer on the costs to this community’s tax base because of ALL the real estate owned by non-profits in this town. Of the total leaseable square feet in the county, what is the ratio of payors to non-payors. How does that compare with similar-sized communities? What is a reasonable percentage for our community to absorb — what can our public treasury afford to give away. What do we taxpayors get in return? Why is an office building, now on the tax roll (though apparently delinquent), more valuable to our community when it is removed from it? I get the cache of Michael Phelps swimming a few laps at the OTC; cool to know Apollo and that sweet soul patch is spinning some turns on the World Arena ice. Are a bunch of pencil-pushing bureaucrats really that important to our community’s self-esteem to be brusing ourselves in this fashion? Somebody, please, make this stop …

    owleye
    September 9, 2009 at 2:33 pm

  4. It’s hard for me to figure out what John’s angle is in this story and the recent series on this topic by CSBJ?

    1. Is it to provide a critical voice in the face of the Gazette’s easy endorsement of the Council’s action to retain the OSOC?

    2. Is it to defeat the retention of the USOC? If so, why?

    3. Is there serious conviction on the part of Hazelhurst and CSBJ that retaining the USOC in the manner in which the Council has proceeded will have a negative economic impact on the city? If so, what is the basis for that certainty? If the base data for the Bamburger report is missing or unavailable, is there other data that John and the CSBJ are using to justify their opposition?

    4. Is the purpose simply to require a public accounting of the basis on which the Council has made its decisoin?

    I have enormous respect for John Hazelhurst’s work and I like him personally. And I am pleased that CSBJ provides and alternative voice on important public questions, but it is beginning to feel like the CSBJ is just playing the role of the spoiler in a very high stakes game for the economic future of Colorado Springs.
    -Jim Speer

    James A Speer
    September 9, 2009 at 3:26 pm

  5. in my 30 or so years as an adult, I’ve lived in big cities and small, and read the newspapers in all of them. The main difference between, say, the newspaper of Artesia, New Mexico, and that of Seatlle, Washington, wasn’t so much the political point of view – it was the lack of blind boosterism in the latter. What distinguishes a real, grown-up newspaper, it seems to me, from an advertising rag, is the motivation and skill on the part of its reporters and editors to pursue information, wherever it might lead. In that sense the BJ is an actual newspaper – and, unfortunately, the daily of record, in Colorado Springs, is sometimes lacking.
    Besides. You don’t have to be a part of the CSBJ to have substantial reservations about the deal the city made with the USOC – just walk down the street and ask your middle-class neighbor.

    ES
    September 9, 2009 at 5:46 pm

  6. Just one more thing, John. You cite a “Cato Foundation” study in this story but I’m unaware of such an organization. There is a libertarian think tank in Washington called the “Cato Institute.” Maybe that’s what you meant. You probably got it mixed-up with the Heritage Foundation, which is conservative. No biggie. It’s a mistake any newsie could make. I know the right-of-center world in terra incognito to most media types, but just call me next time you stray into such unfamiliar territory. I’m there to help sort it out for you, if you ever need me to. Solid story, otherwise.

    Sean Paige
    September 9, 2009 at 8:24 pm

  7. Opinions are like noses and crazy family members: everybody has one.

    At the end of the day, Mr Bamberger knows who signs the checks, so the information is going to be what the city , or the mayor, or the council, or all of the above, want. The guy form Texas A&M is right…. the information will support a particular political position.

    The city conveniently can’t find the supporting data…maybe somebody better check Heimleichers moving boxes before he leaves town…….

    And, once again, the mayor is not talking.

    Streeter has finally gone public with what some of us have suspected all along: that she has an agenda that may include moving the USOC out of here, to Chicago or someplace else supported by her friends and the other Board members that engineered her appointment…..and the city is playing right into her plan…..if any part of this deal fails, she can move the USOC and it’ll look like its the city’s fault……and, unfortunately, she’d be mostly right……….

    Jan Martin has apparently hitched her political star to the mill levy increase. She is absolutekly right to push for it….the town needs it, the issues it address’s (albeit only partially) have been coming for a long time, way before the USOC deal. Even the press is on board……

    But, whether we like it or not, the political fallout from the USOC debacle will carry over to election day. The sad reality may be:

    -The mill levy won’t pass because council can’t be trusted to do the right thing with the money;
    -If Badboy Bruces initiative has any chance, it’s because council can’t be trusted to do the right thing with the money;
    -Candidates for city council may tell you that they should be elected because the current council can’t be trusted to do the right thing with the money……

    And when police and fireman are being laid off, there’s no money for basic city services, and downtown Tejon Street looks like a war zone, its hard not to believe it…….

    Its all about credability…real or perceived…..one small step toward regaining credability would be to have a couple of other council people join Heimlicher in the resignation parade……

    John Whitten
    September 10, 2009 at 11:01 am

  8. What? My “honest” city government “lost” documents and information pertinent to a decision to disburse $53,000,000 in public funds to a project to subsidize the USOC with luxury office space? With no supporting documents?

    Well, I must say I am just stunned.

    If the economic projections Bamberger made or didn’t make (take your pick) turn out to be “wildly optimistic” do you suppose he will refund the fee he took or didn’t take, (take your pick)?

    It’s kinda like having integrity, or not having integrity, take your pick.

    FactFinder
    September 11, 2009 at 7:34 pm