Tempe Subsidy of Proposed Coyotes Arena Not Covered by Economic ReturnsApril 17, 2023
This economic impact analysis examines the Arizona Coyotes arena and music venue components of the proposed Tempe Entertainment District (TED). The arena and music venue represent the project’s primary economic driver and the most critical for evaluating the subsidy arrangement agreed to with the City of Tempe.
The report also looks at other potential uses of the property and how those alternative uses compare on an overall gross (not new) revenue basis.
The Grand Canyon Institute’s (GCI) key findings follow.
Arizona Coyotes arena/music venue economic impact
- The arena events will squeeze the concert/show event market in the Phoenix Metropolitan Statistical Area (MSA) as touring shows are relatively fixed but the area will have three large arenas instead of two.
- The assumption of 45 events plus hockey games for the arena may be optimistic and the arena will negatively impact the Footprint Center owned by the city of Phoenix and/or Gila River Arena owned by the city of Glendale to the degree it hosts a large number of events.
- For every $2.70 diverted from the city to the community facilities district (CFD), the city only receives $1 in new revenue as a consequence of new spending drawn by the arena and music venue and its recirculation within Tempe.
- While the revenue gained does not match diverted taxes to the CFD, this shortfall will not create a general fund obligation.
- Since the city effectively spends $2.70 to make $1, the shortfall will impact the growth of the general fund.
- The study paid for by the city and the study the developer’s consultant provided which show net gains for the city rely on highly speculative, fairly arbitrary numbers to evaluate the entire project, rather than focusing on new spending drawn to Tempe as a consequence of events at the arena and music venue.
- Both failed to subtract the cost of any Tempe business that was lost to the CFD.
- Because the Coyotes have been in the Phoenix MSA for more than 30 years, and most entertainment spending is simply redistributed, the impact on the greater Phoenix MSA economy is negligible.
Evaluating alternative uses of the site
- Measured on an overall gross tax revenue impact (not just new), tax revenue to the city from the project is not likely to exceed alternative uses of the site that do not require a CFD.
- Added cash and noncash benefits of significance equal a net present value (NPV) of $6 million—other benefits are generally self-serving for the project or significantly overvalued such as “naming rights.”
- Overall revenue is speculative. Full build out is unlikely, e.g. one hotel instead of two.
- Overall revenue estimates do not include commerce transferred to the area away from other Tempe businesses, the substitution effect. Estimates of the substitution effect vary widely and are not reliable. So comparisons should be taken with some caution.
The Grand Canyon Institute (GCI) is dedicated to informing and improving public policy in Arizona through evidence-based, independent, objective, nonpartisan research. GCI makes a good faith effort to ensure that findings are reliable, accurate, and based on reputable sources. While publications reflect the view of the Institute, they may not reflect the view of individual members of the Board.
Contact: Dave Wells
Dave Wells holds a doctorate in political economy and public policy and is the Research Director for the Grand Canyon Institute. He can be reached at DWells@azgci.org or by contacting the Grand Canyon Institute at (602) 595-1025, Ext. 2.
The Grand Canyon Institute, a 501(c) 3 nonprofit organization, is a centrist think tank led by a bipartisan group of former state lawmakers, economists, community leaders, and academicians. The Grand Canyon Institute serves as an independent voice reflecting a pragmatic approach to addressing economic, fiscal, budgetary and taxation issues confronting Arizona.
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