Betting on a new convention centre
19/04/2012 § 5 Comments
Psst! Wanna new convention centre? It won’t cost you anything. I can give it to you free. Just, y’know, look the other way while I set up a few pokie machines. You won’t even notice.
Or, at least, that’s how the story seems to be shaping up in the news media.
The deal is in the same category as sports stadia. I’m busy and lazy, so I’ll send you to Eric Crampton and Sam Richardson for the literature and analysis from that perspective. The theory is that the city gains all kinds of revenue from some big facility, but no single business can get enough of the profits to build the facility. If the city (or state) intervenes, they can fund the facility. They get the increased tax revenue, business is boosted, and everyone gets free ponies and wi-fi.
Only, it doesn’t work that way according to people who’ve actually run the numbers. From the outset, it doesn’t really seem like a good use of public resources.
The Sky City deal is more convoluted than simple public financing, so the analysis is more complex. That doesn’t make it a good deal, it’s just harder to see the con.
First, let’s set aside the worrying about who knows whom. Sorry, but this is New Zealand. All that stuff about two degrees of separation is true. There are only so many people in government and business. In a country this small, they are going to know each, have gone to school together, attended a function with each other’s first cousins, or whatever the complaint is. Tied into that is that experience is thin. There are only so many people or companies with the required expertise to build a convention centre. The same problem arises in academia all the time. If you want a peer review of a proposal or paper, only a handful of people in the country can do it competently.
What about this financing deal? The government doesn’t have to pay anything, it just has to allow more pokie machines. Lotteries have been called a tax on stupidity. As a practical matter, supporting government through lotteries and other gambling is a tax on lower-income and less intelligent earners. Yes, I do know that people choose to gamble, that no one is making them feed the slots. But, we know that the practical effect is a regressive tax.
What this means is that the effect of the deal is to have lower-income people fund a convention centre. Coupled with the findings that these sorts of projects don’t tend to make money, it sounds like the plan is to have poor or stupid people to put what money they have into a bad investment. I’m not sure that’s good public policy.