Should Virginia Beach Subsidize a New Arena?

Image credit: ESG Companiesby James A. Bacon

United States Management (USM), a Virginia Beach development company, wants to build a $200 million, 18,000-seat arena and sports complex adjacent to the city’s convention center, which, it claims, will create jobs, boost the local tourism industry, bolster city property values and bring events to Hampton Roads that enhance the regional quality of life. Backed by $150 million in financing from Chinese interests, the company would spend $200 million of its own money.

All it will take from the City of Virginia Beach is a $52.7 million contribution to infrastructure costs for road improvements, utilities and parking. … Plus $26 million in optional streetscape improvements and additional road improvements…. Plus $7 million yearly in tax revenue generated by the project to pay down USM’s debt.

This project has consumed the attention of Hampton Roads much in the way that the Shockoe Bottom baseball stadium has absorbed Richmond residents. The arena is back in the local news thanks to the release of a consultant report detailing the commitment the city would have to make under the terms of the deal proposed by USM. That commitment, though large, is significantly smaller than called for in a proposal made and rejected earlier in the year, which makes it look good by comparison. Virginia Beach Mayor Will Sessoms is supportive of the project, although some City Council members have expressed concern about the public cost.

If Hampton Roads residents wonder why their region has been such an economic laggard in the current business cycle, the fact that Virginia Beach is debating how much to subsidize a sports arena should tell you all you need to know. Sessoms had shown a penchant for grandiose public projects — extending light rail from Norfolk to the Virginia Beach resort area is another — that require the expenditure of massive public funds for highly speculative benefits. Rather than focusing resources on making Virginia’s largest city more competitive in a technology-intensive knowledge economy, the mayor is doubling down on the city’s past as a tourism destination — a second-tier tourism destination, at that.

It is undoubtedly true that the proposed arena, which could host everything from a pro basketball team to monster truck rallies, would stimulate economic activity. In a 2012 study, economist and former Old Dominion University James V. Koch estimated that an arena would generate $98 million in revenue throughout Hampton Roads, two thirds of it in Virginia Beach itself. (Two critical caveats: Koch’s study assumed that the arena would attract an NBA team that would play regular games there, and it included a multiplier effect as initial spending rippled through the economy.)

As Koch made clear in his study, he drew no conclusions regarding whether the arena should be built or how it should be financed. Nor did he, nor anyone else that I have been able to find, analyze the city’s Return on Investment of public dollars. Nor did he or anyone else conduct a risk analysis of what could go wrong, and what exposure the city would have, if, say, a recession came along and the wonderful assumptions behind the economic forecasts fell short. Risk analysis, as citizens of Southeastern Virginia should have learned from the U.S. 460 fiasco, is critical. Finally, I have seen no analysis of what alternative uses Virginia Beach might have for $53 million to $79 million.

Personally, I can think of many other ways for Virginia Beach to invest sums of that magnitude, although none would be as flashy as a new arena. The city could invest in creating islands of mixed-use, higher-density urbanism that bring in far more taxes, with fewer offsetting spending liabilities, than traditional suburban-style development. The city could invest in “smart cities” technologies that could cut energy expenditures, reduce water consumption and do a better job of managing traffic. The city could invest in integrating online learning into the curriculum of Virginia Beach schools. If city officials were feeling especially adventurous, they could foster the creation of innovation districts that would stimulate sustainable, entrepreneurial-based economic growth. Most of those priorities, however, require a decidedly un-sexy, stick-to-the-basics approach in which government focuses on those things that government can do well while leaving risky development schemes to the private sector. Alas, stick-to-the-basics doesn’t garner headlines or add to the aura of activist mayors.

Local governments in Virginia face chronic fiscal challenges. Virginia Beach doesn’t have a lot of money to waste. City officials need to show discipline in allocating tens of millions in discretionary spending. Once they commit to spending that money, they foreclose alternatives that could offer bigger payoffs at less risk.

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15 responses to “Should Virginia Beach Subsidize a New Arena?”

  1. seanparnell Avatar

    I’ve written several articles on taxpayer subsidies for stadiums and arenas for Budget & Tax News (publication of the free-market think-tank The Heartland Institute) and these schemes tend to always leave taxpayers with little to show for the lucre they shower on team and stadium owners.

    If this arena is built with private dollars, it MAY make sense for the city to fund the needed infrastructure. The $7 million per year giveaway in what I’d assume are TIF rebates almost certainly don’t make sense though.

    The economics of arenas are usually better than stadiums (more events,) especially if you can get a major league tenant and negotiate a reasonable lease with them. That doesn’t happen often though.

    Bottom line: the use of private dollars to actually build the arena means it’s at least worth considering supporting with some public funds for infrastructure, but even then it’s very easy for these things to become a boondoggle where you realize 5 years down the road it would have been cheaper to build a giant toilet and flush the initial ‘investment’ down, and then be done with it.

  2. DJRippert Avatar

    All the experts claim this never works. Then you go to Pittsburgh and see what that city has done. Or go to Washington, DC and see what that city has done. Funny thing … they all seem to include urban stadiums and / or arenas.

    The reasons that some cities succeed are far too complicated to break down the success into discrete pieces and measure each piece.

    You get comments like this, “The city could invest in creating islands of mixed-use, higher-density urbanism …” What does that even mean? Does the city become a land developer? If it means subsidizing development I can hear the very man who suggested this shrieking about crony capitalism. This is code for – DO NOTHING. Cities should do nothing, invest nothing, plan nothing. Cities should just eliminate all zoning and reduce the city government by 90%. Trust me Jimbo – I’ve been to New Dehli, you wouldn’t like it there.

    A city is no more the sum of its parts than a human being is the totality of his organs. I can almost hear one of these new age urban planners of the conservative persuasion as a doctor, “Studies conclude that liver transplants fail to live up to the specific criteria identified for healthy livers in isolated measurements.” Ahhh … but the dude don’t be dead there doc.

    For all those who know for sure all the things that don’t work (which seems to be everything) – help me: What made Austin become such a hot city? What brought Pittsburgh back from the dead? Why is DC now considered a premiere locale for the creative class?

    And one more – why doesn’t Virginia have a single real city (where a city is defined as having at least 500,000 people with a population density of at least 2,500 per sq mi)?

    1. “The city could invest in creating islands of mixed-use, higher-density urbanism …”

      Yeah, changing zoning codes that *prohibit* mixed-use development would be a really good start. Cities should not subsidize development of any kind, and that includes mixed use. But cities should pay for the things that cities legitimately do — such as build and maintain sidewalks and streetscapes.

      As for your question about why Virginia doesn’t have any “real” cities…. Do you really want to argue that Richmond, Norfolk, Roanoke and Charlottesville aren’t “real” cities because they don’t meet your definition of population and density? Good luck with that!

      1. DJRippert Avatar

        Just because Virginia calls something a city doesn’t make it a city. In fact, in Virginia, what something is called is a pretty good indicator of what it is not.

        Roanoke is a fine place but a city with less than 100,000 people? That’s a town Jim. A nice town but a town.

        Virginia has America’s 12th highest population for a state. Yet the only city in Virginia in the top 50 for population in the US is Virginia Beach. I notice you don’t even count Virginia Beach in your list of example cities. That’s probably fair since it was a county not long ago. Next on the list is Norfolk at #81.

        All of the 11 states more populous than Virginia have bigger cities than Virginia. In fact, the 10 states after Virginia on the population list (#s 13 – 22) also all have a city bigger than any city in Virginia.

        The closest thing Virginia has to a city is Fairfax County.

        If Fairfax “pulled a Virginia Beach” and converted itself to a “city” (by the Virginia definition) it would be the 10th most populous city in America. It would have about the same population density as Phoenix, San Antonio and Austin.

        Maybe that’s the solution to the “no real cities in Virginia”, Jim. Convert Fairfax County to city status. Then, we can build the stadiums and arenas there – where there is sufficient population and population density to support such things.

        The Fairfax Ferrets?
        The Fairfax Foxes?
        Reston Rattlesnakes?

        See, Jim – we like sports and subway systems and all the other things that actually make a city a city.

        1. Local legislators have predicted Fairfax County could become a city if it so desired. It would have a problem with a name since we already have a Fairfax City that enjoys not being a part of the County.

          But the BoS does not want to be a city. It looked at the issue very seriously a few years ago. Becoming a city would give the government additional powers, including in the area of taxes. But it would also put the new city in charge of its secondary roads – something all but one supervisor strongly opposes. I suspect there would also be opposition to an arena or stadium in Fairfax County because of the additional traffic that would be generated.

          1. DJRippert Avatar

            McLean / Great Falls should become a city. That’s about 65,000 people. Big enough for “city” status in Virginia. Take the area served by McLean High School and the area served by Langley High School and call it a city.

          2. larryg Avatar

            re: various parts of NoVa becoming their own separate, independent cities.


            why would it not be better to consolidate into one large city and not have duplicative administrative functions?

            wouldn’t a larger city be better than the sum of it’s parts – when deciding the best place for a new arena or any new infrastructure?

            In Virginia, adjacent cities and counties – compete against each other for commercial businesses, sales taxes, and localized assets like water supply or wastewater treatement, etc.

            make the case for numerous smaller cities than one large one.

        2. Fairfax Ferrets has a nice ring to it — unless the Ferret Anti-Defamation Society gets involved. I’d ride up to Fairfax to see them play!

          1. larryg Avatar

            city name – Fairfaxia

            mascot – Fairfaxia Fukers.

            not sure what the real distinction is between a city or town but Roanoke is a major rail and intermodal hub.

  3. larryg Avatar

    not sure if this fits with the subject but here goes:

    ” A “nationwide gentrification effect” is segregating us by education”


    ” These figures, though, reflect only part of the inequality that has pushed the lives of college and high school graduates in America farther apart. As the returns to education have increased, according to Stanford economist Rebecca Diamond, the geographic segregation of the most educated workers has, too — and not by neighborhood, but by entire city.”

  4. wesghent Avatar

    Va Beach is hard to anticipate about its future. It has never given public education a high priority, but benefits from fewer urban problems and higher graduation rates. Also, it has or shares some of the best private high schools in Virginia, fro which most grads get top higher education. However, older observers fault Va Bch for putting personal lifestyles ahead of cultural and educational infrastructure (yachts before museums or libraries), and there is truth to that. As for job opportunities, there are few in technology, knowledge based industries or intellectually-oriented academic careers. Main reason? In Va Bch no significant higher educational institutions which attract professors and advanced degree seekers; to compare Va Bch with Pittsburgh or Raleigh or even Richmond in these learning based fields of endeavor is to put Va Beach at an insuperable disadvantage. The only answer is a Norfolk-Virginia Beach joint venture (like RDU); meanwhile, better build that arena near the Tide terminal on Newtown Road. If you do, Norfolkians may come, specially if the Admirals hockey team moves there. And we already share those needed academic attractors at ODU and EVMS.

  5. wesghent Avatar

    It may sound like faint praise to suggest that Virginia Beach is the largest and best resort destination in our state or region, at least to those like the mayor, who have illusions of metropolitan magnificence. In fact, decisions have been made over time to be a resort king, and to now become diverse requires more than VB’s major asset, the Atlantic Ocean. It will have to include Norfolk International Airport, the International Terminals for seaport access, the Naval Base Norfolk for Defense, and the world’s great shipping basin of Hampton Roads and all of its estuaries to make this the most diverse and dynamic city in Virginia. The illusive cooperation required still streaks occasionally across the Tidewater sky, but few can see the light. Hope lies beyond Fraim, and probably post Sessoms, too. It springs eternal, though.

    1. DJRippert Avatar

      I think the whole Tidewater area has immense natural beauty. Sometimes you have to look past the man made structures to see the natural beauty but it’s there.

      If I discovered an uninhabited Virginia and had to choose where to put the state’s major city it wouldn’t take me long to decide. I’d put it in Tidewater.

      Unfortunately, Virginia is cursed by phony conservatism. The phony conservatives in Richmond hate big government and over-regulation … unless, of course the big government and over-regulation comes from Richmond. They don’t want income redistribution and will be the first to criticize Obama for redistribution. Of course, they redistribute income to beat the band within the state.

      Virginia doesn’t have any real cities because we have an over-powered General Assembly with too many corrupt politicians who still think it’s 1935.

      The best thing that could happen to Tidewater, and most other regions in Virginia, would be a new state constitution granting regional autonomy – including the autonomy to tax and use the proceeds for whatever the region believes in necessary. The General Assembly could assume its rightful place as a ceremonial organization. They could hold an annual convention, get drunk(er), march through the streets of Richmond waving “Don’t tread on me” flags, confederate flags and posters of Thomas Jefferson. Their only legislative authority would be to pass laws commending the life of so-and-so or such-and-such.

      As discretionary Federal spending shrinks we are getting to see just what a useless mob of miscreants we have elected in Richmond.

  6. larryg Avatar

    Have you guys seen the new Virginia Laws website:

    it has some interesting categories that I think DJ especially might enjoy:

    Code of Virginia
    The Code of Virginia contains the laws passed by the General Assembly and signed by the Governor for the Commonwealth of Virginia. Updated July 1 to reflect the legislation passed during the previous session.

    Code of Virginia »
    Administrative Code
    Virginia Administrative Code
    Constitution of Virginia

    Uncodified Acts

    check it out!

  7. billsblots Avatar

    “Koch’s study assumed that the arena would attract an NBA team that would play regular games there”

    Yeah that ain’t gonna happen. Remember, other cities like DC have their own interests in filling up the VZW Center and neighboring restaurants as often as possible and do not look kindly upon the home team giving up one of its home dates. An exhibition game, perhaps, but nothing frequently from the regular season.

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