Allentown & the Failure of Sports Venue Subsidies

The $80 million taxpayer-funded hockey arena in Allentown will have to wait a couple years, as in addition to the stadium, it requires a multi-million new highway. Allentown is already heading towards a financial crisis. In fact, the city may even go bankrupt before the arena is ever completed.

But while Allentown leaders cling to the hope that a new sports venue will stimulate vast amounts of economic activity, they should be ready to be disappointed.

Research by Denis Coates and Brad Humphreys, however, suggests that stadiums do not spur such economic development. Their work concludes that “the professional sports environment -which includes the presence of franchises in multiple sports, the arrival or departure of teams, and stadium construction – may actually reduce local incomes.” They also discovered that professional sports actually caused wages and employment in the retail and services sectors to drop in many areas.

Further, Coates noted,

Whether the stadium subsidy comes from raising local taxes or from slashing public services-or from both-its effect is to reduce the net spending generated by the stadium project. Plus, imposing new taxes introduces new administrative costs and makes the economy less efficient.

This is exactly the opposite of the effect Allentown leaders would hope to receive from the arena construction. Instead of trying to spend their way out of financial problems, maybe city leaders should consider actually cutting unnecessary spending and adjusting to the economic climate instead of gambling that their projects will spur the economy enough to keep them out of bankruptcy.