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Dollars and civic pride: economists weigh in on proposed Calgary arena deal

WATCH: Citizens of Calgary have one week from Monday to give feedback on a tentative deal for a new event centre proposed to be the home of the Calgary Flames. As Lisa MacGregor reports, many want the deal finalized while others wonder what's with the rush.

Calgarians have less than a week to let city council know what they think of a proposed new events centre deal between the city, Calgary Sports and Entertainment Corporation, and the Calgary Exhibition and Stampede Limited.

The bulk of the proposal includes at 19,000-seat arena with a $550-million price tag that the city and CSEC would split evenly but would remain the city’s property. CSEC and the Calgary Flames would get a 35-year, rent-free term but would be responsible for maintenance and operations of the building during their tenure.

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The city would receive a facility fee and two per cent of ticket revenues from CSEC to a max of $3 million for the first five years. CSEC pledges community sports and community engagement funds over the length of the agreement and the city would receive a portion of naming rights for 10 years.

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Some economists are panning the deal, including Concordia University economist Moshe Lander.

“I would vote it down,” Lander told Danielle Smith on 770 CHQR. “I said all along that you don’t use public money for these types of things. If you’re going to use public money, they could have stared down ownership a little bit better and got even more out of [CSEC].”

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“The fact that they are effectively getting it rent free and all they’re having to pay is the maintenance and operating costs is kind of the quid pro quo here,” Lander said Tuesday. “I would just like to see a little bit more coming out of their pocket.

“Mayor Nenshi said it well yesterday where he said that this is something that kind of benefits both sides. I think the benefit to both sides is that neither one of them is really getting what they could have out of a deal.”

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Trevor Tombe, University of Calgary associate professor of economics, said the city-issued infographic stating a $400.3-million return by way of ticket tax and property tax revenues from the city’s initial $275-million contribution isn’t telling the entire story.

“That is very misleading in that they are adding up dollars over the next 35 years and not accounting for the fact that dollars to the city 35 years from now are worth much less to us than dollars today,” Tombe told Global News.

“The city really should be providing numbers that are expressed in terms of dollars today and that way we can compare costs with benefits appropriately.”

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Lander also pointed to the low rate of return on the city’s contribution to the project.

“The city is going to put up $275 million. And on this part they’re going to get a $4-million return on their investment [per year] — that’s barely about one-and-a-half per cent.

“You could put your money into a government bond and get better than one-and-a-half per cent. So this is a very, very low return on their investment, if that’s the way that they’re trying to sell it.”

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Brad Humphreys, an economics professor at West Virginia University who specializes in sports economics, says expecting return on an investment in a sports venue misses other areas of value.

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“Calgarians cannot expect to get tangible economic returns on this in the form of new jobs created that wouldn’t be created otherwise or higher wages or something like that,” Humphreys told Rob Breakenridge on 770 CHQR.

“You’ve got to look at this as a community and social benefit. There’s civic pride at stake. And there’s the image that Calgary has of itself as a world-class city.”

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The new events centre is part of the city’s Rivers District master plan, intended to create an urban entertainment district in East Victoria Park.

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For Humphreys, the development of such an area doesn’t necessarily need a new arena.

“You can do it with a museum. You could do it with some sort of concert venue. You could do it with many other cultural centres. And who’s to say that ancillary development in terms of new, mixed-use, retail/residential wouldn’t happen without spending hundreds of millions of dollars on an arena.”

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Tombe said the opportunity cost of directing those hundreds of millions towards a new arena in light of possible city budget cuts should be part of the public discussion.

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“It’s unclear how we should view the contribution to the arena in light of all of the budget cuts that the city is going to be debating today and over the coming days. And so we need to look at whether or not there are alternative uses for these public funds.”

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Humphreys pointed to decades worth of published and peer-reviewed economic studies showing no long-term growth as a result of a new arena or stadium in cities across North America.

“So long as you look at it as this is going to be a nice thing for Flames fans and for Calgarians in general to feel good about themselves. And if you’re OK spending $275-300 million on that, then I think go ahead,” Humphreys said.

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Tombe had a simplified way for Calgarians to consider the new events centre deal.

“Ask yourself whether $20 to $25 per year in effective per-homeowner costs is worth the non-economic benefits that come with the arena.

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“And that’s where I think a productive debate can be had.”

City council is expected to vote on the proposed deal on July 30.

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According to the city, construction would start in 2021 and be completed in three years.

–with files from Lisa MacGregor