'Gates' gravy: a typical case of dubious city math

BY DAN ACKMAN

March 8, 2005

According to Mayor Michael Bloomberg, "The Gates" was not just a happening (no question), and not just art (if you say so), but an economic boon. Last week, the mayor announced that "The Gates" "generated an estimated $254 million in economic activity" in the city.

The eerily specific "estimate" (not $250 million, not even $255 million) was reported as fact. But a look at the way the number was derived shows it to be dubious.

The accounting may not be a big deal - "The Gates" was a lark, and it cost the city practically nothing - but the city's estimate of its economic impact is an example of the kind of civic economics that is often used to justify projects that cost hundreds of millions (like the West Side stadium) or billions (like the Olympics). So it's worth giving the numbers a closer look.

The city was actually conservative in running the numbers, says Michael Sherman, a spokesman for the New York City Economic Development Corp. The city estimates that 2.5 million people visited Central Park to take a gander at "The Gates." It concedes that 1 million of those were New Yorkers but says that 1.5 million came from out of town. That 60 percent were out-of-towners strikes me as a suspiciously high ratio, but let's work with it.

The city scores credibility points by conceding that more than half the non-local visitors were from nearby suburbs, who would have come in to Manhattan anyway. All told, it counts 620,000 visitors actually attracted to the city by the saffron extravaganza.

But here's the problem: The city has lots of tourists all the time, so how do we know who came because of what Christo and Jeanne-Claude wrought? Well, the city says that last year, midtown Manhattan hotels were 74 percent occupied; this year, they were 87 percent booked. Hotels from The Waldorf-Astoria to the Amsterdam Inn shared the bounty.

In its press release, the city says: "The data translates to an increase in revenue of over $2 million or 18 percent." Sherman says they meant to say $2 million per day, which would mean $32 million over the 16 days of "The Gates'" run. The assumption is that the entire increase was "Gates"-driven.

But how do they get from $32 million to $254 million? First of all, the city doesn't claim $254 million in direct benefits. It says visitors spent $150 million, and that people they spent it on spent more in turn - the carriage driver who had a good day in tips spends that money going out to dinner. This is what economists call a multiplier effect, and it's all fair enough.

The larger question is: If visitors spent just $32 million extra on hotels, would they really spend another $118 million on everything else? That seems unlikely: New York is expensive but not that expensive.

Aside from the hotels, the city's numbers are anecdotal. Coupled with the claim that three out of five Gates viewers traveled from outside the metropolitan area, $254 million seems a substantial overstatement. I'm guessing here, but so is the mayor.

Even if the city did overestimate the economic impact of the "The Gates," it's fair to say that the project had some real economic impact and that New Yorkers should be grateful. Whatever "The Gates" added to the city's economy was gravy. This is not the case for massive civic projects like stadiums and convention centers or the Olympics. If some Christoesque benefactor offered to build a stadium on his dime, there would be little debate. The problem comes when taxpayers are asked to pay all or part of the bill.

In the case of Christo, at least the economic impact was assessed after the fact. For longer-range projects, the economic impact generally is assessed years in advance, which is even harder to do accurately. The inexactness is made worse by the fact that the projectors are often the same people who will benefit from the project.

In recent years, a number of cities have built or expanded convention halls that have stayed fairly empty, although in each case the projections had shown great profits. "The Gates" was a gift, and it would be churlish to look Christo and Jeanne-Claude in the mouth. But the problems of assessing the economic impact of even a temporary exhibit like "The Gates" show that it's wise to look twice at expensive designs promising vague but grand returns.

Dan Ackman is a senior columnist for Forbes.com.