Experts Question Economic Analysis Behind Butchertown Soccer Stadium

The decision earlier this week to delay a vote on a financing piece of a planned soccer stadium development in Louisville’s Butchertown neighborhood will likely make time for skeptical city leaders to scrutinize the deal.

Louisville Mayor Greg Fischer said in a news release Tuesday the postponement would “give the Metro Council additional time for review.”

Some of those questions will likely focus on the legitimacy of an economic impact study submitted to the council last week. The study was paid for by the soccer team and says the project would bring millions in added tax revenue and thousands of jobs.

But some experts say the predictions are unrealistic.

And others question the study’s integrity because it was completed by a company with close ties to city officials. That company could also stand to benefit if the development goes through.

Frank Scott, an economics professor at the University of Kentucky, suggested the relationship could pose a conflict of interest.

“That might call into question the credibility of the research purporting to justify spending public money on this project,” he said.

Councilman Kevin Kramer said it’s these types of issues that concern him about the project.

“There’s something there that someone doesn’t want us to find,” he said. “I just don’t know what it is.”

Substantial Economic Benefits — At Least On Paper

City officials, soccer team executives and fans have clamored for a dedicated soccer stadium for two years.

The team — Louisville City FC — plays in the United Soccer League, a second-professional league behind Major League Soccer. They play home games at Louisville Slugger field, but soccer executives claim the agreement to play there is not sustainable.

Mike Mountjoy, one of the team’s owners, told a Metro Council committee earlier this month the team “lose[s] money every time we play.”

To remedy this, team officials have lobbied for a soccer-specific stadium since they began playing in Louisville.

And now, that project is close to being reality. Fischer announced last month he’d commit $30 million in city funds to purchase the land needed for the stadium and prep the site for construction.

The plan calls for a 15-acre soccer stadium in Butchertown near Interstate 64, as well as retail, office space and a hotel. In all, the project is expected to cost about $200 million, according the development plan submitted to Metro Council.

And on paper, the overall economic benefit to the city is substantial.

An analysis prepared by Commonwealth Economics in September and presented to the council earlier this month found the stadium project could support more than 2,400 “statewide jobs” each year once complete.

In addition, the project would yield about $1.8 billion in labor income and more than $260 million in added state and local tax revenue in a 20-year period, according to the study.

Councilwoman Barbara Sexton Smith, who is sponsoring the legislation to advance the stadium development, praised these figures and called the project a “no-brainer.”

“I’m very interested in the jobs,” she said. “I’m very interested in the tax revenue.”

But experts in stadium development question the projections.

College of the Holy Cross economics professor Victor Matheson said he’s not surprised the impact analysis presented a rosy outlook.

“Because I expect for-profit sports team owners to generate absurdly high economic estimate numbers in order to con gullible city council members into granting subsidies,” he said.

Matheson, who is also associate editor of the Journal of Sports Economics, said the 20-year revenue projections likely rely on the ability of the team and its ownership to foster a Major League Soccer franchise in the coming years.

“But that is a long-shot for Louisville,” Matheson said, even with a brand-new soccer stadium. He noted that other cities like Cincinnati, Sacramento and San Antonio are better poised to attract a major league club.

Regardless of whether Louisville ends up landing an MLS franchise, it’s important to note these types of economic impact studies are difficult to get right, said Chris Bollinger, the director of the center of business and economic research at the University of Kentucky.

Bollinger said researchers in this particular study are relying on certain assumptions to ensure their revenues projections are realized — like taking for granted that the popularity of soccer will remain steady, or even grow.

“Which is tenuous,” he said.

Bollinger said researchers also assume the team will stay in Louisville for 20 years, which isn’t guaranteed.

Another key question is where the promised stadium revenue is coming from.

Bollinger said for revenues to grow in one area of town, they’ll likely drag in another. For instance, if people are spending more money at soccer games, they’re not spending money somewhere else.

“All you’re doing is moving money from one part of Louisville to another part of Louisville,” he said.

Chris Poynter, a spokesman for the mayor’s office, said city leaders are confident in the projections offered by Commonwealth Economics.

Casey Bolton, a partner with Commonwealth Economics, said in an interview Wednesday the projections included in the study “are fair and conservative.”

“There are a lot of assumptions in that report,” he said. “We’re certainly not saying this project will guarantee those types of impacts.”

Conflict Of Interest?

When it comes to navigating the complexities of financial structures like tax increment financing, bonds or public-private partnerships, Louisville officials often turn to the experts at Commonwealth Economics.

The Lexington-based firm specializes in these areas, and the company’s website touts decades of experience in bond analysis and “a keen understanding” of complicated financial frameworks.

The group’s founder, John R. Farris, once served as Kentucky’s Secretary of Finance and “helped draft the state’s new (tax increment financing) law in 2007,” according to Commonwealth Economics’ website.

Their client list includes some of the biggest public and private entities in the state — including the University of Louisville Foundation, Frost Brown Todd and the University of Kentucky.

The Louisville Downtown Development Corporation and Louisville Forward — the city’s economic development department — are also clients.

City data show Louisville Metro government has paid Commonwealth Economics $362,000 since 2013. In August, the group was approved for a non-compete annual contract that promises at least $108,000 to provide “financial advice and counseling on complex financial arrangements, deal structures and tax increment financing.”

At a Metro Council committee meeting to consider the contract, Laura Ferguson — an assistant director within the city’s economic development department — said Commonwealth Economics brings a “wealth of knowledge” in evaluating financial deals and structuring bonds.

Ferguson said the group has helped city officials navigate a number of complex financial deals, including those involving the Omni Hotel, the city’s parking authority and the soccer stadium project.

“We get them involved early so we have the advice that we need,” Ferguson said.

Because of this contract, Commonwealth Economics will likely be involved if Louisville City FC’s stadium project goes forward. That’s why having the company prepare the project’s economic impact study at the behest of the team is potentially problematic, said Paul S. Ryan, vice president of policy and litigation at Common Cause, an ethics watchdog group.

“Just because it’s legal doesn’t make it right,” Ryan said.

Representatives of Fischer’s office and Commonwealth Economics say there’s no conflict of interest in having Commonwealth prepare the project’s economic analysis.

Fischer spokesman Chris Poynter said “there’s no conflict from our point of view.”

Casey Bolton, a partner with Commonwealth Economics, said he doesn’t see a conflict either. He said the group works for a retainer fee and receives no added compensation for bond sales.

“That would be an incorrect assumption for anybody to think that we stand to benefit from recommending this one way or another,” he said.

But he did acknowledge how one could perceive such a conflict.

“Yeah,” he said. “We work for both parties.”

Asked about the potential conflict of interest, Councilwoman Sexton Smith said “that’s a very good question.”

“It could be posed for a legal opinion,” she said.

Councilman Kramer, who is skeptical about the deal, said the potential for Commonwealth Economics to profit shouldn’t restrict the company’s participation in examining the project.

He said if Commonwealth Economics is providing accurate estimates, and not estimates that will ensure the project is approved, there should be no problem.

“But if they’re only in it for profit, that’s a problem,” he said.

Metro Council is set to vote on whether to approve $30 million in bonds for the project on October 26.

Disclosure: Louisville City FC is privately owned by 47 investors. Two of those, Gill Holland and José Donis, are Louisville Public Media board members.

Published on 11 October 2017 
Author: Jacob Ryan