Economic Analysis Attempts to Prove Positive Impact of Miami Beach’s Entertainment District

Ocean Drive

Susan Askew
Susan Askew

Economic Analysis Attempts to Prove Positive Impact of Miami Beach’s Entertainment District:

Mayor says current model isn’t worth it

A new economic analysis of the South Beach Entertainment District commissioned by the Miami Beach Chamber of Commerce shows the positive financial benefits of the district known as the MXE. The report was an attempt to answer two previous cost-benefit calculations by City staff and an outside consultant.

Mayor Dan Gelber who is pushing to change the dynamic from what he calls an “anything goes” entertainment atmosphere to an arts and culture district said he doesn’t dispute the economics of the current business model in the area but said it isn’t worth it to him. “I think whenever you have that number of people buying that many big drinks in that period of time, there is going to be a financial advantage, but the question isn’t really is it a financial advantage because you just can’t pay the City enough to worry as much as we do or to have an image that sometimes projects out” of what happens in the Entertainment District.

Gelber reminded Commissioners of a presentation from Miami Beach Police Chief Rick Clements the week before in which he showed Commissioners heat maps of the City’s calls for service and arrests. “No one should be tethered to a business model that keeps people up at night,” he said. There isn’t enough revenue coming into the City for him “to be up at night worried about what call I’m going to get from the Police Chief or Manager” about an incident that occurs within the area. 

“The top five locations for all the trouble are literally in this area almost,” Gelber said. “That was the thing that was most important to me [in the Chief’s presentation] is that from this little area that we call the Cabaret District or whatever you want to call it, all of the very serious crimes happen.”

Gelber added, “It’s almost impossible to do an analysis that says what does this district mean in this incarnation and what would it mean financially in another incarnation… for me the biggest question is what would a Art Deco Cultural District do?”

The discussion at this week’s City Commission meeting was prompted by Commissioner David Richardson’s concerns about two previous reports indicating the MXE costs the City more than the revenue it brings in. The first was a simple calculation done by City staff listing revenues and expenses attributed to the MXE and detailed in what became a controversial letter to City Commissioners (LTC) in July 2018. That math exercise showed a $28.4 million deficit in revenues contributed versus the City’s costs attributed to the MXE.

A consultant hired to review that LTC narrowed the gap considerably to $6 million. The Lambert Advisory report recommended a more comprehensive study to determine the indirect revenue and cost factors that are not so easily identified.

Richardson said he was “disturbed” that members of the community were quoting what he calls a “flawed analysis” and he expressed concern that it was being used to deny additional police resources for the area. Richardson invited economist Hank Fishkind, Director of PFM Financial Advisors, an independent consultant engaged by the Miami Beach Chamber of Commerce to do a more complete analysis of the area, to present his findings to the Commission. Fishkind has some familiarity with the dynamics of the district. He was hired by a number of the restaurant and club owners to conduct an analysis for their campaign to defeat a referendum that would have reduced the alcohol service hours on Ocean Drive from 5 am to 2 am. 

In this most recent report, Fishkind said the net positive fiscal impact of the Entertainment District is $3.9 million. In addition, he said the area contributes an estimated $22 million to Miami-Dade County from property tax revenues and $33.7 million to the County school district.

 

Fishkind said the original staff analysis “did not provide an accurate representation of the total revenues generated” because it excluded “sales taxes, utility taxes, business taxes, licenses and permits, state and federal grants for law enforcement, parking fees, parking fines, police detention fines, fire inspection fees, ambulance fees, or rents and royalties for use of public facilities.”

According to Fishkind’s report, “The revenues presented also did not include any portion of taxes from properties outside the Entertainment Area that benefit from the MXE Entertainment Area. Likewise, the analysis did not differentiate the expenditures resulting from the visitors and residents that used the MXE Entertainment Area beaches and businesses and those that are directly related to the residents, employees and visitors that reside within the MXE Entertainment Area.”

With regard to expenses, Fishkind’s report said, “Many of these expenditures are a result of the City purposely locating high intensity events within and proximate to Lummus Park… The MXE zoning was developed to concentrate tourist and resident activities. This concentration of people does directly increase the demand for police services, but it also reduces the impacts of these activities to the City’s residents. In other words, it helps keep the festival goers and spring breakers within the Entertainment Area and away from residential areas. While we are not in a position to determine the applicability of the expenditures calculated by the Police Department, it appears that most of the allocated expenses are a result of the City zoning protecting the residential areas from unwanted activities and therefore, most of these expenditures should be allocated to as City expenditures, not specifically MXE expenditures.”

His analysis reallocates total staff reported expenditures of $51,782,176 nearly half and half between the MXE and citywide.

 


"Only 16.7 percent of hotel visitors and 13.6 percent of timeshare visitors are located within the MXE,” according to the report. “This data shows that the small percentage of visitors and residents within the MXE is not sufficient to support the restaurants, bars and nightclubs within the MXE. It should be clear that the majority of patrons of the restaurants, clubs, bars, and shops within the Entertainment Area come from other parts of the city and county. In other words, the MXE has developed to support the demand for restaurants, bars and nightclubs from residents and visitors from outside the MXE.”

“The MXE is a vital component of the city’s economic base, cited by a very large percentage of visitors and very large percentage of meeting planners as to why they come to Miami Beach,” Fishkind told Commissioners.

His analysis looked at the direct impact from workers employed, wages earned and money spent by businesses within the MXE; indirect impact from purchases for goods and services made by MXE Entertainment Area businesses from other companies in Miami-Dade which generate sales and employment by those companies; and the ripple or multiplier effect of money circulating throughout the local economy from money spent by employee households which lead to local businesses producing or providing other goods and services which generate additional taxes, fees and other revenues. 

“In other words,” the report states, “the revenues generated by the businesses within the Entertainment Area are only a part of the total revenues generated by the economic impacts of the businesses located there.” 

He estimates that every $1 million in hotel sales generates 12+ jobs and local sales of $1.6 million and every $1 million in sales from a nightclub generates 24+ jobs and $1.7 million in local sales.

“This means that every hotel dollar spent is increased by 60+ percent within the community and every bar and nightclub dollar spent is increased by 70+ percent,” he wrote.

One of the issues raised by Ocean Drive businesses about the City’s calculation was the inclusion of Lummus Park expenses. “Approximately one-third of the total MXE Entertainment Area is beach, Lummus Park,” Fishkind wrote. “The beach activities generate significant demand for City services (police, fire, parks, recreation, sanitation, parking) but do not DIRECTLY generate any revenue for the City. The great demand for services generated by Lummus Park alone underscores the inappropriateness of the City Staff’s attempt to compare direct costs to direct revenues.”

“The intensive use of the area’s beaches, restaurants, bars and night clubs suggests that most of the patrons of the Entertainment Area come from residents and visitors from other parts of Miami Beach and Miami-Dade County,” according to the report. “This assumption is backed up by [Greater Miami Convention and Visitor Bureau] surveys. This factor also makes it difficult to allocate the costs and revenues generated by just the MXE Entertainment District.”

“The City Staff analysis only used property taxes and resort taxes from the MXE as total revenues,” the report notes. “The revenue source [sic] need to be expanded for the same reason that expenditures need to be allocated on a broader citywide basis. Most of the tourists, visitors and residents that use Lummus Park, attend festivals and events and patronize the restaurant and nightclub establishments within the Entertainment Area come from hotels and homes outside of the Entertainment Area.”

Citing survey data showing that the primary purpose for those visiting Miami Beach is the beaches (65%), Art Deco District/South Beach (47%), any place on Ocean Drive (24%), and Clubs/night clubs (19%), he wrote, “[O]ne could make the argument that up to 47% of the ad valorem revenue and resort tax revenue from hotels could be allocated as part of the net revenues from the Entertainment Area. Therefore, some portion of the property taxes, resort taxes and sales taxes from other hotels, restaurants and retail stores should also be allocated as funding sources for Lummus Park and MXE activities… In addition, the sales tax revenue, parking fees, fines, fire assessments and fire permits and other revenues generated within the Entertainment Area should be included in the total revenue calculation.”

PFM used a fiscal impact model utilizing the City’s operating budget, resort taxes and current demographic information. 

“Periodically there are attempts to make changes to the MXE Entertainment Area, usually in the form of decreasing the business hours of operation,” the report states. “A large percentage of Miami Beach hotel visitors are international tourists that choose Miami Beach because of the ambiance and activities available within the Entertainment Area. Any modifications to these area attributes could lead to a reduction in the desirability of Miami Beach as a vacation and convention destination. These visitors generate about $30.9 million in tourist related property taxes, $90.7 million in resort taxes and $3.2 million sales taxes for the City. These visitors also generate approximately $21.7 million for the Convention Center and about $38.5 million for the School District. Any loss in visitation could lead to a reduction in property values and less resort tax and sale [sic] tax collection. A reduction in value and tax collections may significantly impact the City, School and Convention Center budgets. A reduction of only 10 percent could result in lost revenue of $6.2 million for the City and $2.1 million for the Convention Center,” the report concludes

Commissioner Mark Samuelian invited Eric Liff from Lambert Advisory to review his firm’s analysis of the original staff calculations.

Liff noted, “Our work was really focused on a revenue and expense analysis, quite different than a broader economic impact analysis.”

Evaluating the original staff memo, he said the revenue side was adjusted to include a portion of Washington Avenue that is part of the Entertainment District but which was not included in the original calculations by staff resulting in increased property taxes and resort taxes contributed. 

Richardson asked Liff if he recognized the limited scope of reviewing the staff calculations and the flaws in the analysis in terms of its incompleteness.

“We discussed that,” Liff said. “At the time the real focus [was] the city wanted to get this moving ahead and really kind of validate… the original LTC.” 

Richardson asked if he understood his company’s report is “being quoted as saying we’d be better off not having an MXE” without having done a full economic analysis. “Do you recognize that people are quoting your expert opinion and showing that the MXE is operating at a deficit?”

“We understand that,” Liff said, emphasizing that the Lambert report noted “obviously there are other factors that need to be taken into account.” As such, he estimated the MXE impact was “more of a breakeven, not really a deficit.”

Richardson challenged Liff. “The words breakeven are never mentioned in the report… People are only quoting your expert opinion that the MXE loses money” and saying the City would “be better off if we just completely eliminated it from the City.” He asked Liff if he thought the City would be better off if the MXE was eliminated.

“No,” Liff replied.

“Of course not, you don’t and that’s my concern,” Richardson said.

Samuelian said, “From a financial standpoint, we’re spending a lot of money there.” He called it a “tricky game” to try to determine why people come to Miami Beach. “It’s a very complex question.” He added, “I think we have a broad recognition that we want to bring change to that area under all circumstances.”

Richardson agreed it is difficult to make those determinations, but said, “The reason it’s so important to me… I do not believe that the Police have been given adequate resources in the MXE and I question whether or not the resources may have been more limited because people are pointing to these types of reports and saying we’re losing money in the MXE and it’s costing us more to operate the MXE than we’re producing in revenue and that is absolutely false… I wouldn’t want important decisions about resource allocations to be made on the basis of a false or incomplete analysis.”

During public comment, resident Wayne Roberts said, “You don’t have to have a PhD to figure out the economics of this MXE is actually worse, not better, based on a wider view. Fifty eight percent of the crime happens in the MXE… People avoid Miami Beach because of the MXE. Hotels are losing money, not gaining money.”

David Wallack, owner of Mango’s Tropical Café, said, “It’s a shame that there’s so much deceptive speech even today by people… Economic impact is the standard method by which all entertainment events are reviewed.” He said in 2018, Mango’s “had one million checks, one million people just at Mangos Tropical Café and out of that million, 50% minimum were repeat customers, 10% minimum were people who came to Miami Beach only to come to Mango’s Tropical Café every night of their stay.” He cited Greater Miami Convention and Visitors Bureau data that indicates guests spend an average $1,000 per day in the area during their stay.

Irene Bigger, one of the founders of the new residents group, SOBESAFE, said, “As a resident, it is very difficult to walk down Ocean Drive … it is truly difficult and it is an embarrassment … I do not want us to support a current business plan that attracts visitors and a lot of crime to Miami Beach.” She said she wants to see an “analysis of how much revenue comes in from the taxpaying residents that actually avoid the area and go elsewhere.”

Sunset Harbour resident Bruce Backman argued there has been “tax revenue lost due to decreased property values” and he noted “spillover effects” of the crowd and crime moving into the South of Fifth neighborhood. With the emphasis on Police resources in the MXE, he questioned the “policing lost to our area because so much is devoted to the MXE.”

Ocean Drive resident Jane Krupp, newly appointed to a Mayor’s Panel on the Art Deco Cultural District, said the numbers being discussed “are all over the map. It’s a body without a head at this point. In general, the MXE is only going to survive as a police state with a cop on every corner because that’s the only way it can be safe and until its changed to an arts and culture district we’re never going to be able to measure anything about revenues or crime. It just escalates until we will have a police state.”

City Manager Jimmy Morales, whose last day was Friday before leaving to take on the role of Chief Operating Officer under Miami-Dade County Mayor Daniella Levine Cava, assured Richardson and the Commission that the previous report was “not used to deny a single resource to the MXE” citing increased police dollars of “millions and millions.”

“We never withheld from the Police anything they thought was needed,” he said. 

Gelber said while the discussion was helpful, the debate is not going to be over the financial analyses. “What we’re really going to be debating over the next few months is what we’re comfortable with and what we’re proud of and what we want [the area] to be.”

“I love so many of the operators and the passion they have for our city and I’m very grateful for them. I really am,” he said. “At the end of the day, I think our residents and I think our city leaders are saying we’ve gotta reconfigure this in a serious way.”

Any financial advantages of the current model, he said, are “not worth it… we’ve really gotta not be swayed from our path of reimagining this in a very substantial way.” While important to be informed by the studies, he said, the City should not rely on any one of them but rather rely “on our judgment as city leaders that we’re not comfortable with what we’re seeing right now and it’s just not who we are, so I hope whatever we take from this we don’t change our – I believe – our unanimous interest in reimagining our Entertainment District as an Art Deco Cultural District because I think that’s got to be the future of our city.”


Photo: Shutterstock


 

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