by Dr. David Robinson, economist at the School of Northern and Community Studies, Laurentian University
Part 1 — You may pay more taxes
As an economist I am often asked what I think of the various proposals for a new Sudbury Event Centre. About a year ago I made a list of what I thought were the economic implications of different locations. I gave the list to Downtown Sudbury. Since the issue has heated up, and city council is approaching a decision point, I thought I’d share some of the major observations.
Not surprisingly, I found a long list of ways that the proposed projects affect the economy of the City. Some are very simple, some are more subtle.
One important effect works though the impact on downtown businesses.
The effect on downtown business
Oraclepoll conducted a poll of downtown business people on behalf of Downtown Sudbury. Downtown Sudbury is an organizations of downtown businesses, which may raise doubts in some minds. Oraclepoll Research is a Canadian based polling and market research company with offices in Toronto and Sudbury, Ontario. It was founded by Dr. Paul Seccaspina of Sudbury. I am an economist, not a pollster, so I am inclined to take Oracle’s survey of business people downtown as the best available source of data.
According to the poll, 66.6% of respondents in the Hospitality sector and 64.3% of respondents in the Retail sector stated that their business would experience negative or very negative impacts if the new multi-purpose arena facility were not to be located in the downtown. Half of downtown businesses reported they would be would be negatively or very negatively impacted if the Event Centre is not built in the downtown. According to the poll, as many as one fifth of downtown businesses could be lost.
52.1% of respondents believed their business would be positively or very positively affected if a new facility were built downtown and the number of entertainment events and conventions were doubled.
Downtown businesses are reporting something pretty obvious: they are likely to lose business if the current arena is removed from the downtown and a new event centre is built on the outskirts of the city.
Let’s assume that the downtown business people understand their businesses. They are telling us that revenues for some downtown properties will fall and there will be more vacancies. That will result in lower rents downtown, falling property values, and ultimately, lower tax revenue for the city. The downtown is the City’s biggest revenue generator, and even a small hit to rents will result in significant loss to the City.
Conclusion? If the new Event Centre is built on the outskirts, property taxes will rise for everybody.
Maybe you think that the new developments will bring in enough new tax revenue to make up for the loss. Not a chance. Why? The Event Centre either will not pay taxes or if it does pay taxes, an event centre outside of the core will pay lower taxes than one in the core. The attraction from the point of view of the developers is that properties farther from the centre will be on cheaper land. Cheaper land pays less tax.
The real tax impact comes from spillover effects. There is a lot of valuable property downtown, so the spillover effects are large. Farther out, the amount of high value property nearby is much lower. End of story.
You will pay higher taxes if the Event Centre is not kept downtown.
How much higher? It is hard to say without access to the tax rolls, but the lost of revenue will be in the millions of dollars each year. How many millions? I don’t know. More than one, almost certainly. Less than 20? Probably. But even one million per year for 30 years is a lot of money, so Council should be taking this change into account.
The story here is very simple, but it seems pretty compelling to me. Council has a choice, and the people of Sudbury have a choice, but as economist I have to warn them that one alternative means higher taxes.
Part 2 — What does a new Event Centre add to the economy?
The answer to this question is simple: Not much. The location decision is important though. Location affects how much of a subsidy the Event Centre will need. I’d like to share some observations location and marketing.
There are four main sources of revenue for Event Centres: sports teams, conferences, trade shows, and touring performers. The economics of each of these favours downtown.
The key factor in location is attracting a local audience. The big contribution of an Event Centre is that it improves the quality of entertainment in a community. For the people who go to events, it is good thing. It may also help keep people in Sudbury or help attract new residents.
An Event Centre for Sudbury is not a money-maker. No matter where it goes it will not bring a lot of money into the community. The city subsidizes the current arena. It will subsidize any replacement that goes downtown. It will subsidize Dario Zulich’s proposal if that goes ahead. That isn’t a reason not to build a new Event Centre if we want one.
But lets look at the marketing issues for each of the major users of an event center.
Sports teams depend on local fans. The bigger the local base, the more revenue they can bring in. Unfortunately the revenue all comes from the local economy. Sports teams simply capture a share of the local entertainment budget.
The only important question economically is whether which location will draw the most attendance. This is important because the better the attendance, the more the team will pay to use the facility and the smaller the deficit for the City to cover.
Ideally a sports facility is located the population is concentrated. In Sudbury that is where the current arena is located. As you move the facility away from the centre, attendance will drop off. There is a good reason most pro arenas are situated in their city cores.
It is true that a small number of fans come from other areas for home games. It is also true that local fans go to other towns for away games. The net effect is nearly zero. It is also true that a new facility might support new professional teams. The big issue is still location.
Road access is extremely important to the success of an Event Center. Downtown has roads coming in from five directions - possibly six. That makes for quick access from everywhere in the region. With many exits drivers leaving an event can get home quickly. Since sporting event are usually in the evening downtown has a large and very flexible amount of parking available. I am not an investor, but I would not put my own money into a sports facility outside of the downtown. This is especially so in an area with a declining and aging population.
Conferences can be a source of outside money. There has been talk for at least 30 years about needing a conference centre. Since no private operator thought that it would generate profits, we still do not have a large conference facility. We do have hotels, a university and colleges that handle smaller conferences. These organizations would benefit if the city could attract larger conferences, but the market is very competitive, and Sudbury is very badly located. It cost a lot to get here. The airport is a long way out of town, which makes it even more costly compared to - for example, Thunder Bay, where the airport is right on the edge of town. Large conferences run downhill toward larger population centres like Toronto - not uphill to places like Sudbury.
Improved conference facilities can bring in some new revenue. Ideally that revenue would help existing businesses. With a shrinking population we need to make sure existing hotels restaurants and entertainment facility can survive. A downtown location reinforces existing businesses. Locating a major magnet outside of the core will undermine the existing businesses.
Some of the conferences that we can attract are related to the university. This is true of many of the mining events. The closer to the university the easier it will be to attract these conferences. That in turn strengthens the university, and the university is a major revenue earner for Sudbury. With 9000 students, each worth half a job, Laurentian is actually one of the largest economic drivers in the city.
Finally downtown offers conference planners much better 'amenity' than peripheral locations. It has the best restaurants, performing arts, Science North and walking access to Ramsey Lake. A downtown location is likely to add more to the economy than any other site can. And if conference facilities downtown are expanded there will be more pressure to improve and beautify the downtown.
Trade shows help pay for a facility, but they only bring in net revenues when they attract visitors from outside of the region. Trade show travellers have greater spending power than typical business travellers and they typically spend a longer time at a destination. The big winners are hotels and restaurants. That suggests a downtown location.
Many exhibitors, however, pay fees that so they can sell things. Sellers want to make a money. Where does most of the money come from? Usually local people. Outside exhibitors are there to take money out of a community. The fraction of local spending that leaves the community is a loss to the local economy. The rest is simply money moved around within the community.
Performers also visit Sudbury to make money to take home. We want touring performers, not because they bring money to us, but because we want to enjoy their performances. We spend part of our entertainment budget to import their services. And if we as taxpayers want to build a facility to have them perform, that is fine. No one should pretend that these performances contribute economically to the community.
The people who pay for tickets help pay for the facility, though, so a venue for touring shows should be designed to attract as many patrons as possible. That will usually mean picking a central location with very good access.
Conclusions: Downtown is the best location in terms of marketing and serving the local population. Municipal Event Centres generally don’t make money for their communities, but they lose less when they are located downtown.
Part 3 — Infrastructure: How to kill two birds with one stone
Choosing a location for the Event Centre requires council to think ahead. If the Event Centre goes in a green-afield location, it will take new infrastructure. If it goes downtown, the city will have to fix old water and sewer lines and upgrade downtown roads. Either way it will cost money that is not included in the project proposal.
Which location leaves the city better off financially? Since the city has to fix the downtown infrastructure anyway, it seems to me that putting any new Event Centre downtown leaves us ahead of the game. Putting major project farther out means adding new infrastructure and postponing repairs to the infrastructure we already have.
Sudbury already has an “infrastructure deficit” of $1.4 billion. An infrastructure deficit is just the cost of repairs that you will have to pay for. My house needs a new roof, the old maple at the back needs a tree doctor, and my driveway needs paving. I will have to have spend close to $10,000 soon. That is my infrastructure deficit.
Sudbury’s collection of potholes are the just most visible signs of the its infrastructure deficit. The city is $700 million behind for roads. Another $345 million in needed work is hidden beneath the ground in the older parts of the city. Water and sewer pipes that are more than 50 years old is past its stale-date. Much of the infrastructure for the most valuable land in the city will have to be replaced or repaired soon.
If Council members are thinking ahead they will use the construction of an Event Center as an opportunity to catch up on our infrastructure deficit rather than taking on more future expenses. The good news is that the city could bundle a downtown Even Center project with major infrastructure upgrades in the downtown and probably get Federal and provincial assistance. Council could kill two bird with one stone.
Part 4 — What happens when it snows?
Last year, the city ran a deficit of nearly $2.3 million on snow plowing and removal. According to the City’s Director of Roads, David Shelstead, the deficit for the first two months of 2017 was just shy of $700,000.
The annual budget to plow roads and sidewalks, as well as salt and maintain the roads, is $4.28 million. Climate Change may reduce thew total precipitation a bit, but it is not likely to reduce the costs.
One thing we can be sure of is that if we build a new Event Centre on new land at the edge of the city we will be plowing more roads and more parking lots. We will still have to plow downtown. Snowplowing costs for the City will go up. How much? Ask David Shelstead. I would guess that we would add around one percent - less than $50,000 per year - 30 cents per man woman and child. It is not much to add to taxes.
On the other hand, if we build a new Event Centre downtown, we will not pay for more plowing because the plowing is already done for all he businesses and services in the downtown.
Council should add between one and two million dollars to the lifetime cost estimate if it decides to build outside of the downtown.
Dr. David Robinson is a leading expert on Northern Ontario economic development, he was the first person to identify and promote the Northern Ontario Mining Supply and Service sector as our leading sector. He was also the first person to propose Northern Ontario School of Architecture, launched the community committee that brought it into being, wrote the business plan and helped select the director of the new school.
He has consulted for forest-dependent communities and written on the economics of community forestry. He is best known for columns in Northern Ontario Business Magazine that focus on Northern economic issues. He does frequent interviews for the broadcast media.