The Eclectic Economist

The Eclectic Economist

Will Cleveland get an economic boost from Trump’s GOP coronation?

The GOP claims its convention in Tampa gave a big boost to the economy, but the evidence suggests otherwise. Joe Skipper/Reuters

The Republican National Convention is coming to Cleveland, and boosters are cheering the millions of dollars it will bring to northeast Ohio’s businesses.

There are lots of impact studies of previous Republican and Democratic nominating conventions. Each seems to produce more eye-popping figures than the last. However, some academics and journalists suggest these conventions really have no impact on the local economy.

Which is the true story?

The official impact

The host committee in Cleveland for 2016 estimates the current convention will result in 50,000 visitors who will spend a total of US$200 million.

They base this figure on the official analysis of the last Republican convention, which was held in Tampa Bay in 2012. Organizers claimed this convention had a total economic impact of over $400 million. This was more than double the almost $170 million estimated as the official impact of the previous 2008 convention in Minneapolis-Saint Paul. The Tampa Bay convention estimates are high because roughly half the spending was for infrastructure improvements that were not needed for the other conventions.

It is not just Republican conventions that produce huge figures. Democratic conventions are reputed to have just as big an influence, if not more. The hoopla surrounding the upcoming 2016 Democratic convention in Philadelphia claims it will bring in $350 million, which leaves Cleveland’s $200 million figure looking almost paltry.

Official post-mortems of the 2012 Democratic convention in Charlotte stated this event injected $164 million into the local economy, while the 2008 convention in Denver, Colorado, officially resulted in a $266 million windfall.

Together the six nominating conventions held from 2008 to 2016 appear to have generated a whopping $1.5 billion for their host cities.

Is there really an impact?

There is reason, however, to suspect the benefits of political conventions are overstated, especially since the “official” post-mortems are paid for by the organizers.

Research by economists Robert Baade, Robert Baumann and Victor Matheson, which looked at the impact of every convention held from 1970 to 2004, found no discernible impact. Research done by Brian Mills and Mark Rosentraub at the University of Michigan points out four reasons why the large impacts touted by convention organizers are actually exaggerated.

First, visitors and locals that normally come to the city during the convention are displaced by delegates, offsetting the positive impact. Conventions result in street closures and detours to ensure security.

In addition, many conventions are marred by protests. The Democratic convention in Chicago during 1968 was the scene of large riots. These cause people to want to stay away. In 2004, I lived quite close to the Democratic convention. To avoid the chaos, my family and I left on vacation until the craziness was over. When locals and other visitors avoid a city because of a convention, spending is lost.

Second, boosters report the total spending by visitors. However, the local impact is much less since a large part of that spending is based on items imported from outside the local area. For example, if a delegate in Cleveland goes into a restaurant and orders $50 of steak and wine, that entire amount goes into the impact statement. However, Cleveland has no cattle ranches and only one tiny winery. If the steak the delegate eats was imported from Chicago and the wine being drunk comes from California, the true local impact is $50 minus the cost of the beef and alcohol.

Third, convention organizers often claim that they boost local employment temporarily. Some of that temporary employment, however, is by workers who come from outside the region and whose spending and pay will go back outside the region once the convention ends. For example, media specialists, high-level political operatives and even extra waiters who don’t live in Cleveland, but are brought in for the convention, are counted in the total event’s expenditure. However, these people will be paid after the convention is over and typically use this pay elsewhere.

Fourth, spending by locals who don’t flee during the convention is often included in the boosters’ figures. For example, conventions bring in lots of local volunteers. Cleveland is hoping for 8,000 people to help out for free. These volunteers buy lunches, take taxis and spend money, all of which is counted by the boosters. Much of this money, however, would likely been spent anyway in the local economy.

A fifth point, not on Mills and Rosentraub’s list, is that the boosters ignore the effects of taxes in their calculations. These taxes significantly reduce the convention’s overall benefit. For example, let’s assume organizers highlight that income in the local area rose by an extra $100 million. They are overlooking the fact that both the federal and state government will take a share of that new money away in taxes.

Can we see an impact?

One method of determining which side is correct is to look at official sales figures collected by tax officials.

Hotels, restaurants, florists, caterers and transportation companies are all required to tell state officials exactly how much they sold. This facilitates tax collection. The last Republican convention held in Tampa Bay provides a straightforward method of checking the economic impact since the state of Florida maintains a website that shows monthly sales by category and county.

The below graph shows total monthly sales in Hillsborough and Pinellas counties, which are the two areas comprising Tampa Bay. The graph is centered on August 2012, the date of the last Republican convention, which boosters claimed brought in over $400 million. Visually, however, Florida’s Department of Revenue shows no boost in actual spending.



Why do cities fight to hold a convention?

If there is no economic benefit, why do cities fight each other to hold conventions?

In my mind the answer is simple. While there is no overall impact, select groups clearly profit. Local municipal employees, like the police, rack up tremendous amounts of overtime. Cleveland’s 150 most senior police officers will all be paid time and a half during the week of the convention. Local politicians are feted on national television, which boosts their political profile and increases their chances for reelection, if all goes smoothly.

In addition to benefiting specific groups, there is a clear publicity advantage. Convention news coverage focuses on more than just the political speeches. The key tourist attractions, regional specialties and local facilities are highlighted for television viewers, which can increase tourism in the long run.

Overall, I believe there is a benefit for holding a convention, but it is not the financial benefit coming from large numbers of visitors renting hotel rooms, eating in restaurants, drinking in bars and enjoying other forms of entertainment. Instead, what this year’s organizers will get is a brief period of time when the eyes of the world are focused on Cleveland. Good luck, Cleveland, during your moment in the spotlight.

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