All models are wrong, some are useful

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All models are wrong, some are useful
(Graphic/Jessica Kim)
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By Joe Sestak

City Manager Jim Parajon can hopefully use his experience as assistant city manager during the contentious construction of the Dallas Cowboys’ new sports stadium in Arlington, Texas, to caution about studies that promote the economic impact of Alexandria’s proposed sports arena. Four separate consultants were hired to do four economic impact studies by four different sponsors. 

Texas officials wanted the stadium, and its study showed it would generate $238 million a year in economic impact, and $416 million within its surrounding Tarrant County. A study by the nearby city of Irving, where the existing Cowboys stadium was located – whose officials were not interested in subsidizing another stadium – showed the Cowboys’ annual impact was only $51 million. 

Yet, a property-development company that wanted to sell land to Irving for the new stadium had a study showing $346 million in annual economic impact for Irving and its surrounding county. Contrast that with the study by those opposed to the stadium, which stated, “The best outcome Arlington can expect is that it will lose $290.5 million as a result of the building of a new stadium for the Cowboys … [and] The loss for Arlington could be as high as $325.3 million.” 

These vastly differing stadium studies prove the truism that all models are wrong; some are useful. It’s why Parajon’s familiarity with Arlington’s modeling studies behooves him and our elected officials to look under the hood of the Alexandria Economic Development Partnership’s sole study before accepting its uncertain economic forecast. It’s simple, as the IMPLAN model used is available off-the-shelf for around $1,000 and non-economists can grasp its fundamentals to produce outputs with a few hours of training. 

They’ll find the model has 25 sources to manipulate, from misincluding residents’ spending that already takes place and claiming total – instead of marginal – economic benefits, to misadjusting multiplier coefficients and selecting sales instead of household income multipliers. 

Alternatively, City Council should do what San Antonio’s Council did when it was confronted with two economic impact studies: one for a small three-day rodeo with an impact of $30 million; and one for a large 21- day festival with a surprisingly small impact of $16 million. Council had the festival consultant – an academic economist – then use the modeling assumptions within the rodeo consultant’s study for the festival’s model. The “new” economic impact was $321 million – a 2,000% increase over the legitimate $16 million initial estimate. 

But just as Arlington refused to release its study – citing Dallas Cowboy proprietary information – AEDP has also refused, citing proprietary Monumental & Sports Entertainment information. When Arlington’s economic impact from a vibrant retail, commercial, residential, entertainment urban center with parking garages had not materialized – and the Texas attorney general’s office determined that associated documents and emails were public records to be released – Arlington sued the attorney general to prevent it. 

Assessments continued to show the stadium was a raw deal for Arlington, and only in the last few years, after the city raised $1.1 billion in additional taxes, was there public investment for the long-hoped development of the entertainment and business hub, as well as to pay off the stadium’s debt and ensure the Texas Rangers baseball team stayed. 

With such a “buyer beware” forewarning, city officials would be derelict not to direct the release of AEDP’s study, and to conduct a second impartial one, using one of the two alternative methods above. After all, the city conducted close to 20 studies on the economic future of the Torpedo Factory, where the monetary and tax consequences for our residents are minor compared to the promises of AEDP’s arena study. 

-The Hon. Joe Sestak, 

Alexandria 

 

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