Seattle arena study lacks context, economists say, but spurs discussion

The recent study said a Sodo arena would generate three times more tax revenue than a renovated KeyArena. But “opportunity cost” was not factored in, which favored the Sodo proposal, and the study omitted up to $72 million in leasehold excise taxes the KeyArena project could pay.

A study released last month by a University of Washington professor had a can’t-miss conclusion: A new sports arena in the Sodo District would bring Seattle three times more tax revenue than a renovated KeyArena.

Chris Hansen and his Sodo arena group paid $16,000 for the “Seattle Arena Public Finance Analysis” study by UW Evans School of Public Policy and Governance professor Justin Marlowe and three graduate students. Sodo arena backers trumpeted the 3-to-1 advantage.

But a review by The Seattle Times found a high potential for fluctuation in the study — including use of raw property and sales tax data without deeper “opportunity cost” context, an approach two sports economists say favors the Sodo group’s proposal.

Opportunity cost by definition is the loss of possible gains from other alternatives when one option is chosen.

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Also, the study omitted up to $72 million in leasehold excise taxes the KeyArena project could pay “in lieu of property tax” under state law while basing other calculations — with limited factual basis — off the assumption a Sodo arena would land an NBA team four years sooner.

Marlowe said in an interview his study made assumptions — amid the city’s private, ongoing KeyArena negotiations with the Los Angeles-based Oak View Group. Altering some of those assumptions, he added, could result in KeyArena generating more tax revenue than the Sodo project: A big reason Marlowe made his study model public was so people can input various numbers, gauge their impact and further the arena debate.

Up to now, though, the study’s claimed 3-to-1 advantage for the Sodo site — a gap Marlowe pegs at $68 million — has garnered the most attention.

“I get why everyone is focused on that number,” Marlowe said. “But again, the second part is the really important part. What if what’s on the table changes? Then you get different numbers.”

The study wasn’t necessarily wrong — just narrowly focused, with a tight, one-month turnaround deadline that forced assumptions almost certain to change.

Marlowe said the Hansen group approached…

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