Memphis Lawmakers Propose Tourism Tax Hike to Fund Construction, Sports Subsidy

Published October 13, 2015

Memphis, Tennessee lawmakers approved a plan hiking the city’s tourism taxes on hotel rooms to help fund a $900 million renovation of the city’s downtown area, including the city’s convention center.

The proposed 15-year project includes servicing municipal bonds issued in 2002 to build the FedEx Forum, a privately owned National Basketball Association arena housing the Memphis Grizzlies. 

Bad Deal for Taxpayers

Adam Millsap, a research fellow with the Mercatus Center’s State and Local Policy Project, says governments’ downtown revitalization projects are a losing proposition for taxpayers.

“If you take all of the costs into account, including the opportunity cost of the land, construction materials, tax dollars, as well as the crowding-out effect that a government-funded convention center has on privately developed convention space, I don’t think there would be a positive return on the investment,” Millsap said.

Lack of Demand

Millsap says the government should get out of the construction and tourism business.

“The private sector has no problem providing hotels and convention space in places where there is a demand for it,” Millsap said. “If a place is an attractive destination for conventions, developers can make a profit building and operating places to hold conventions. If a government builds a convention center because [it] can’t find a private developer willing to risk their own money on one, then there probably shouldn’t be a convention center there.”

Vicious Circle of Spending

Building a convention center with taxpayer money leads to spending more money to lure conventions to the center, Millsap says.

“Furthermore, once a government builds a convention center, they have a strong incentive to spend additional taxpayer money subsidizing conventions in order to make sure it gets used,” Millsap said. “Convincing taxpayers to hand over millions of dollars for a convention center that later sits empty doesn’t help the local politicians’ popularity.”

Braden Boucek, general counsel for the Beacon Center of Tennessee, says the numbers just don’t add up.

“Undoubtedly, conventions do bring in revenue for cities, but it would take an awful lot of conventions coming here, that otherwise would not without a state-of-the-art convention center, to make up for $900 million,” Boucek said.

‘Not the Role of Government’

Spending public money to benefit private companies is not fair to the taxpayers, Boucek says.

“It’s not the role of government to attract tourists and generate profits for private entities,” Boucek said. “Those entities, … the hotels, have a strong interest in attracting visitors, and it’s more appropriate for them to spend their money doing it than forcing taxpayers to foot the bill.”

Michael Bates ([email protected]) writes from Tulsa, Oklahoma.