This post is part of a series on the NOB/Navy Hill downtown development plan.
When Mayor Levar Stoney announced his ambitious downtown development plan, he called it “the largest economic development project in our city’s history.” He also threw around a lot of numbers – 21,000 jobs, 2,800 apartments, and $1.7 billion in new revenue for the city. Similarly, the Navy Hill development group’s website claims an “economic impact” of $1.9B during construction, and another $1.2B afterwards.
Where do these numbers come from?
The Mayor and the Navy Hill group seem to using two sources. One is a report from a Chicago-based group of consultants, hired by the Mayor, to analyze the development plan. The other is an economic impact study from VCU. As you’ll see, we should take one of these more seriously than the other. Still, both have their flaws.
HUNDEN STRATEGIC PARTNERS
The first source of information is a 177-page report prepared by Hunden Strategic Partners, a consultancy practice that specializes in what they call “destination assets.” That means big developments like theme parks, fairgrounds, convention centers, and sports stadium and arena projects.
The Hunden group was hired by the Mayor. He paid over $100,000 for the report - which means, of course, that Richmond city residents actually paid that amount. (This is in addition to the almost $500k in fees the city has paid to Davenport, its contracted financial advisor, and other lawyers to review the NOB proposal.)
What did the Mayor get for his (our) money? Not disinterested analysis from a neutral third party. Instead, it’s better to think of Hunden like an expert witness in a trial – they are there not to evaluate both sides for the court, but to help support the argument of one side or the other. And Hunden does this job very well. You can find a number of reports similar to Richmond’s online, but you’ll be looking a long time if you want to find one where Hunden recommends AGAINST a development project. They don’t say no – it’s not their job.
I could spend a few thousand words detailing the problems with this report, but luckily someone else already has! Richmond-based contract lawyer Justin Griffin has a detailed breakdown of the report’s numbers here. You should absolutely read it, but the TL;DR of it is that if even if you grant all the many, many unwarranted assumptions the report authors make, the best-case scenario for the NOB development isn’t there. The Mayor is essentially asking us to invest $600M to return less than $400M.
[One thing I will add to Justin’s analysis: it doesn’t take long to see how shoddy this report is. The report’s Table 2-6 is supposed to provide an overview of “Richmond Area Colleges and Universities.” But the table’s enrollment numbers are all over the place – it looks like the consultants pulled them from multiple sources (as in, Google searches) rather than a single source with comparable numbers like College Navigator. And they list my college, Randolph-Macon, as only providing an associate’s degree – I’m sure my alums with bachelor’s degrees would be happy to know that.]
So if the Hunden numbers fall short of the pronouncements of the Mayor and the developers, where do these other numbers come from?
At some point in preparing their response to the Mayor’s call for proposals last year, the Navy Hill District Corp. commissioned a report from the Center for Urban and Regional Analysis at Virginia Commonwealth University. It’s not clear if this report was included in the group’s response to the Mayor’s call for proposals, but it was clearly shared with the city administration at some point. And it is this report that seems to be the source of the claims of the Mayor and developer that there will be billions of dollars in new revenue and economic impact, and thousands of jobs.
The fact that this report was paid for by the developers may already disqualify it for some coliseum opponents. But unlike the Hunden report, this VCU study is created by qualified, academic researchers, including the center’s director Fabrizio Fasulo. And the report does seem to follow what is often considered standard practice in these kinds of economic impact studies. There’s every reason to believe that the researchers who produced this report were giving it their best effort, and not trying to deliver the good news required by their employer.
Still, it is interesting that this report hasn’t been publicly available until the past few weeks, when the Navy Hill group started sharing it with reporters. CURA has not posted this report on its website, or acknowledged the Navy Hill group on their list of clients. While I am an academic, I am not involved in this level of academic research – where a research center produces work for outside clients on a contract basis -- so I can’t really speak to the appropriate ethics. But I’m curious about the lack of transparency here.
Still, if we give the VCU researchers the benefit of the doubt, and even if their report follows the standard practice for an economic impact study, there are several reasons to be skeptical of the report’s conclusions:
The report estimates a one-time “direct” economic impact from construction of the NOB project of $1.9 billion. That sounds like a big number (and it is!) – but readers need to recognize that forecasts like this includes the SPENDING on the project – the investment from private developers, but also the $600M in public funds needed to fund the arena, Blues Armory renovation, and regrading of Leigh Street. This model essentially translates costs into benefits – literally EVERYTHING becomes an economic “impact.”
The report does not acknowledge time, condensing years of construction into a one-year period. It measures the impact of construction, and then the impact of the resulting facilities/ventures, and then consolidates this all into a table of “Total impact after 1-year” as if everything magically appeared during that time. But it will take years for construction to ramp up, and for the various developments across the NOB area to come online.
The report does not acknowledge any costs brought by the new development – something that has not really been a part of the discussion about the project at all. As one Detroit-based critic of these kinds of impact studies noted, “Incentives may create an influx of new jobs and residents; but those newcomers also create increased costs of public services for schools, traffic management, police protection and more. Those extra costs are almost never considered when assessing the net gain or loss of using incentives.” Do these new residents have any kind of impact on city staffing, schools, etc.? Or are these just more “impacts”?
Forecasts like these mainly evaluate the impact of the proposed plan in a vacuum. They do not do a good job of capturing “opportunity costs,” an economic term for the lost value from the path not taken. The city could spend $600M on OTHER priorities, for example, that may produce even greater benefits – something like, I don’t know, renovating public schools?
Similarly, for all the supposed economic impacts from this study, there is no accounting for the existing revenues from the area – the “do-nothing” option. For example, part of the plans for hotel space apparently includes moving The Doorways (VCU's hotel for patient families) to a new location. This is an existing facility that already has staff and expenses; but the VCU report seems to treat it like it is a completely new venture. Overall, there is no indication in the report of how much of any of this “economic impact” would happen without the development.
I suspect that once citizens see the actual math, particularly in a year-by-year breakdown, these billion-dollar numbers won't be quite so impressive. (Especially because I’m positive that the developers’ timeline is wildly optimistic; any delay in construction, financing, etc. and the whole deal gets much worse.) Such a breakdown may be impossible to put together until we get more detailed plans, but this is something a City Council’s review commission should absolutely do - and why that Commission is absolutely essential.
One final word about economic impacts: both reports are based on the assumption that new development downtown, especially the new coliseum, will drive tourism to the area, thus producing new tax revenues for the city that would not be there otherwise. But economists are extremely skeptical about these effects actually materializing.
To help illustrate this, I often use my donut shop analogy. Imagine a “distressed” city street with shops and businesses. A baker goes to the city and offers to set up a donut shop, but only if the city builds the structure for her. “People will come from miles around just for my donuts, and then stick around to buy clothes, hit the restaurants, and even stay at a hotel to get a second donut the next day!” But when the city agrees and builds the shop, they find that the expected “spillover” effects aren’t there. Guess why? MOST PEOPLE JUST WANT A DONUT. They don’t buy their donut and then suddenly decide to stay overnight at a hotel.
The coliseum is the donut shop. And like the analogy – and based on everything we know about large-scale developments – the “impact” of a new coliseum almost certainly will not justify the cost.
Later this week, I’ll look at more numbers, specifically the claims of the developers about jobs and minority contracts. Spoiler alert: these numbers also are not what they seem.