Home > Press > FFRP Supports Return on Investment for Dr. Phillips Performing Arts Center

FFRP Supports Return on Investment for Dr. Phillips Performing Arts Center

May 19th, 2011

BACKGROUND: The appropriateness of infrastructure investment in our nation’s cities has been a hot topic of debate for much of our history. Ever since the American Revolution, the ways in which our governments raise and spend tax money has been a defining public policy issue. The interplay of these two concepts – essentially how Government invests our tax dollars – has been an underpinning in our national dialogue and framed the context for many elections in our history.

That conversation becomes even more heated during times of economic trouble, when citizens rightly intensify their scrutiny of how Government is performing as a steward of their tax dollars. Today, we see that same dynamic playing out across the country, as a crumbling national infrastructure comes face to face with the realities of an economic recession that has limited prospects for major improvement in the near future.

However, despite economic uncertainty, cities and local governments still have to find ways to continue investing in their communities, in competition with other locations, to make them places where people want to live, work and raise their families. Maintaining basic urban infrastructure such as roads and utilities are critical. But study after study has demonstrated that quality of life investments are also important to maintaining population and attracting and keeping high wage jobs. In fact, as cities such as Atlanta and Charlotte have demonstrated, there are few investments governments make that yield as significant a return as building and enhancing cultural, civic and other community venues.

ANALYSIS: Any time government chooses to invest in infrastructure other than schools, roads, jails, water treatment plants or other essential projects, the public should take special interest. It is essential that such projects are debated by and justified to the taxpayers. The merits of such investments are often subjective, and what is one taxpayer’s “gem” is another’s “boondoggle”. Elected officials must weigh the pros and cons of such investments to come to an educated decision on a “return” for the taxpayer and governing entity. However, unlike the private sector where a “return” is easily calculated on spreadsheet, governments and elected officials must more appropriately consider a return, not only for the governing entity, but for the taxpayers. This is a complex exercise.

The Dr. Phillips Performing Arts Center (DPAC) in Downtown Orlando is an interesting case in point, as are other similar large scale projects like arenas, stadiums or convention centers.

It is not difficult for taxpayers to attack such infrastructure projects and the projects themselves can become a symbol of “waste” as competing politicians write a script that fits their interests. However, FFRP believes that it is important for governments to invest in such projects when they meet certain criteria. Our support for projects like the Dr. Phillips Performing Arts Center is predicated on the following:

Return on Investment: It is important for taxpayers to understand that when urban redevelopment occurs, it can provide an incentive for additional development. Often, the private sector is unwilling to be “first in” because investors seek maximum return with minimal risk. Fortunately, governments can take a longer-term view. In the case of DPAC, it is believed that such an investment will spur private development near and adjacent to the site, which will in turn generate additional tax revenue for the City. A vacant lot in Downtown Orlando generates little in taxes. However, development of that vacant property, spurred by government investment nearby, may well generate income for the locality for many years.

Tourist Development Taxes (TDT): Not all taxes are created equally. The TDT is a tax that is administered by Orange County Government. It is important, however, to understand the genesis, purpose and limitations on how the TDT revenue can be spent. The TDT is an additional amount on hotel rooms, originated by the Florida Legislature with the support of the Central Florida tourism, convention and hotel communities. It was designed to generate additional revenue to help build and maintain the Orange County Convention Center, bolster marketing for the tourism industry AND invest in “community venues” such as stadiums and performing arts centers. The tax generates large sums of revenue, almost exclusively from visitors, to re-invest into our community. But it is important to note that this is not revenue that can be put into roads, schools, or more police officers; it can be used only to fund specific projects. (The rationale is that while tourists contribute in many other ways to the tax base, generally speaking they do not burden our school system, jails or many of the roads used by local residents.) The TDT will contribute $130 million towards the construction of the DPAC. Just as the tourism and hotel community supported the implementation of the tax in the first place, they have offered public support for using some of the revenue to build the DPAC. Such partnerships are clearly advantageous when considering civic infrastructure projects. Investing the TDT in the new performing arts center creates a mutually advantageous ‘win-win’ circumstance. The residents of Central Florida receive the benefit of significant investments, and the tourism industry is recognized for the important role it plays in the community as well as the regional economy.

Downtown Orlando Community Redevelopment Agency (CRA): The CRA was created in 1980. A tax increment trust fund was established which serves as a revenue source for project and program activities that occur in the 1,642 acre area generally known as Downtown Orlando. Revenue generated from the CRA can ONLY be used to re-invest in Downtown Orlando. Similar to the TDT, it cannot be used for basic government needs. The CRA, not local residents, is contributing approximately $130 million towards the construction of the DPAC, creating yet another partnership that will benefit the entire Central Florida region.

Private Investment / Philanthropy: When private investment is coupled with government spending, the taxpayer typically sees a greater benefit from such a partnership. In the case of the performing arts center, private citizens, corporations and foundations will be DONATING a planned $135 million to the project ($110 million for construction and $25 million for an endowment), approximately one third of the total project costs. To date, the DPAC board of directors has raised nearly $90 million, most of which is available for Stage 1 of the project. Such philanthropic partnerships do not occur for roads, jails or schools, and Central Floridians should welcome and support such an opportunity.

Entire Funding Plan: As a whole the construction of the DPAC is being funded through a partnership that benefits the residents without a serious or direct impact to the taxpayer. The TDT, CRA and private philanthropy are essentially equal funders. If the performing arts center were not built, the TDT could be spent in other ways, the CRA would simply bring forward other projects beneficial to the downtown, and private philanthropy would disappear. In terms of “bang for taxpayer buck”, $395 million that could go to other, less “citizen-friendly” projects, or disappear altogether, provides an opportunity that everyone involved should work to make a reality.

Regionalism and Economic Development: Just as residents travel around Central Florida to go to the beach, attend a theme park, travel to Tampa or Jacksonville for a football game and shop on Park Avenue in Winter Park, residents from throughout the region will also visit Downtown Orlando to attend events at a new performing arts center, dine and shop. This contributes to the economic return for the City, downtown businesses and ultimately the taxpayer. And in difficult economic times, the importance of construction jobs and eventually the positions needed to operate the center cannot be ignored or underestimated.

Arts & Culture as a Tool for Economic Development: Central Florida is blessed with great weather, a relatively strong economy and diverse population. Time and time again, citizen surveys have pointed to “Arts and Culture” as important to their families as well as to businesses considering relocating to the region. A world-class performing arts center in Downtown Orlando is a wise investment as our region competes with other great cities for healthy population growth, and as a tool to help keep and lure more industry to Central Florida. It is widely believed and our survey (to review survey, visit: www.FloridiansforResponsiblePolicy.com) confirms that the performing arts center enjoys strong support from the public. In other cities, such an investment has become a focus of pride for citizens and has drawn positive attention from the national media (the New Jersey Performing Arts Center is a good recent example).

SUMMARY: We are living in a time when major civic infrastructure projects are few and sometimes hard to justify. That is not the case with the Dr. Phillips Performing Arts Center, where a unique and fortuitous combination of revenue opportunities has made the project both beneficial to the community and financially feasible.

Those that consistently advocate that government operate more like a business should be applauding this effort as the gold standard of return on investment. In our view, the project is a classic demonstration of an important role for government: bringing together our leading industries and our leading private benefactors to build a world class cultural venue at almost no cost to our local citizens. This is inspired leadership that should be celebrated by citizens, businesses and governments across the Central Florida region.

Floridians for Responsible Policy supports the funding and construction of the Dr. Phillips Performing Arts Center.