It would be nearly impossible to make the folly of government economic development more obvious than two recent announcements in the Washington, D.C., area.
On Dec. 13, Virginia Gov. Glenn Youngkin announced a $2 billion arena project in suburban Alexandria, Virginia, that would be the new home for the NHL’s Washington Capitals and NBA’s Washington Wizards of the NBA, who now play in Capital One Arena in downtown Washington.
To placate pro-transit city officials in Alexandria, the project calls for just 2,500 parking spaces and would be built near the recently opened Potomac Yard rail station.
The following day, the Washington Metropolitan Area Transit Authority held a public meeting to discuss its latest budget proposal.
Facing a deficit of $750 million, WMATA officials outlined plans to increase fares, reduce the frequency of trains and buses, close up to 10 rail stations, and end rail service at 10 p.m. each night.
To say this was unwelcome news for the arena project would be an understatement.
Amazingly, such painful service reductions would reduce WMATA’s yawning deficit by only 42%. The system suffers from high fixed costs, such as labor costs of more than $147,000 per employee due to expensive benefits and onerous union contracts.
In addition, the sharp rise in remote work and the loss of population since 2020 have eaten into passenger volume and revenue.
Under these conditions, making the proposed arena in Alexandria highly dependent on the flailing transit agency is a recipe for disaster.
WMATA officials are calling for a dramatic increase in subsidies from federal, state, and local governments. It seems likely that Virginia would need to pay a heavy toll to ensure full rail service for evening Capitals and Wizards games, since many fans would be stranded if trains stop running at 10 p.m.
In addition, the Potomac Yard station could require costly upgrades to ensure it can handle the rush of people before and after a game.
Both the proposed arena and the WMATA system exemplify the countless problems associated with the heavy hand of government planning.
When it comes to large subsidies for arenas, the evidence is clear: They aren’t an effective tool to promote growth.
In 2022, three leading sports economists reviewed more than 130 studies on the effect of subsidized stadiums and arenas. Their conclusion: The benefits were nowhere near the costs.
Most of the economic activity associated with an arena comes from area residents spending their recreational budgets in a slightly different location. In other words, governments are spending hundreds of millions of dollars (or more) just to move money around.
Similarly, large government “investments” in mass transit systems regularly fail to deliver public benefits that are anywhere near the cost to taxpayers.
In fiscal year 2008, WMATA’s total ridership was just under 350,000 per day. Despite billions of dollars spent on new stations and rail cars in the following years, along with population growth in the region, ridership fell to just over 300,000 per day in fiscal year 2019.
Then the COVID-19 pandemic dealt a body blow to WMATA.
But while other forms of transportation have mostly or completely recovered since 2020, WMATA ridership is still down by more than 25% relative to pre-pandemic levels despite the addition of rail service to Washington Dulles International Airport.
Rather than throwing good money after bad, governments linked to WMATA should resist calls to increase subsidies and instead seek reforms to improve efficiency and reduce excessive labor costs.
Meanwhile, Virginia should think twice before sinking roughly $1 billion of state and local taxpayer resources into the Alexandria arena project. The primary beneficiary would not be Northern Virginia residents, but billionaire Ted Leonsis, owner of the Wizards and the Capitals.
America’s prosperity is primarily the result of hard work and smart investments in the private economy, not “investments” from governments on behalf of politically connected special interests. Mr. Youngkin would do well to remember that.
Originally published by The Washington Times
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