Surly Brewing Co. fought hard this year for a state law allowing it to serve pints of beer at a massive new brewery. Now the hunt begins for the perfect location -- and metro-area cities are jumping on the beer wagon.
Officials around the region are vying for Surly's attention as the company and a consultant look for the best real estate for its $20 million "destination" brewery, complete with restaurant, beer garden and event center. The six-year-old Brooklyn Center-based company, whose cult following extends far beyond Minnesota, is expected to make the venture a major draw for enthusiasts of its Furious, Bender, CynicAle and other craft brews.
"This is something people are going to travel to," said owner Omar Ansari, who plans to build in the metro area. "It's not like it's just a neighborhood tavern."
Surly has grabbed the attention of local economic officials, who also see it as a regional attraction, not just an employer. "People would come here just for that," said Annie Deckert, the director of economic development in Elk River, one of several cities that reached out to Surly.
Here's the story by Eric Roper of the Minneapolis Star Tribune. As you would expect, there is a public-funding angle since we're supposedly referring to a vacation destination.
The search for a location might have larger implications for the public if Surly decides to ask for help in financing part of the project, which is expected to generate about 150 permanent jobs. Such assistance, which often uses projected property tax increases to defer project costs, is a common public incentive for large developments.
Ansari said they have not discussed whether to seek public help. One of Surly's consultants, Tom Hauschild of the TEGRA Group, said that if cities offer incentives -- and the company decides to pursue them -- "that could be some great icing on the cake."
The argument for public funding for Surly is basically the same one used by proponents of subsidies for sports teams. The brewery will be a destination for people outside the local area, they will spend money that, through the Keynesian multiplier, will recirculate throughout the economy. When all is said and done, the local economy expands by a multiple of the original amount injected by visitors. It's a win-win for everyone.
Not really.
The economic literature that has looked at the economic development associated with big time sports teams has shown, time and again, that cities with teams do not have higher levels of employment, employment growth, personal income growth, wages etc. One reason why this is so is that instead of drawing a large number of visitors to town, sports teams are mostly a local draw. There are some people who go to, say, a Minnesota Twins baseball game who otherwise would never have stepped foot in the city of Minneapolis. But most of those at any given game are people from the local area, in town because of business, and people who would have come to the city for another reason if the sports team didn't exist. So the spending on sports represents a redistribution of spending that would have occurred anyways, not a true injection.
On top of that, subsidies at the state and local level have to come from taxation, and taxation has its own ways of depressing economic activity. So by taxing and subsidizing, the government essentially encourages economic activity in one market while reducing it in other markets.
At best, subsidizing sports for economic development reasons will create no development over what would have occurred otherwise. At worst, encouraging people to spend their money on sports may reduce economic development if money spent on sports is more likely to leave the economy than money spent elsewhere in the local economy. There is some evidence that points to that.
This is not to say that there is no reason to subsidize big-time sports. A plausible economic rationale for sports subsidies is that sports generates benefits, such as civic pride, giving locals a sense of commonality, etc, that locals don't have to pay for. A person can be a Twins fan, for example, without spending a dime. Because locals don't have to pay for these benefits, teams have little incentive to do the things that create these externalities. Unlike the economic literature on economic development and sports, the literature on external benefits (and external costs) and sports has not generated a consensus among economists, and it continues to be an interesting area of research.
The argument for public funding for a big brewery is even less convincing than that for sports. My guess is that most of the people that would visit the brewery would be locals or people in town for another reason. So subsidizing the brewery would merely encourage people to redistribute their spending.
But what about externalities? There are externalities associated with beer as well, but they are of the negative sort (alcoholism, drunken driving, etc.). I really doubt citizens want their government to encourage these things via subsidization.
I'm a beer drinker and a homebrewer. I appreciate good beer and I like Surly's products. But I think it would be unwise for public funding to be used to encourage Surly to build its brewery in any particular place. It's better to reduce local taxes and let citizens decide for themselves where to spend their money.