New Cost/Benefit Analysis of Miami Beach’s Entertainment District Shows $6M deficit

Susan Askew
Susan Askew

New Cost/Benefit Analysis of Miami Beach’s Entertainment District Shows $6M deficit:

More comprehensive study recommended to better define indirect revenue and costs

An outside consultant’s analysis of the cost/benefit of Miami Beach’s Mixed-Use Entertainment District (MXE) in South Beach shows a $6 million gap between revenues and expenses though the report from Lambert Advisory, LLC recommends a more comprehensive study to determine the indirect revenue and cost factors that are not so easily identified. The City contracted for the analysis after a controversial July 2018 Letter to Commission (LTC) showed a $28.4 million deficit in revenues contributed versus the City’s costs attributed to Ocean Drive.

In a new LTC released Friday, City Manager Jimmy Morales noted the updated review of revenues and expenditures includes the entire MXE, not only Ocean Drive from 5th to 16th Streets but also the portions of Washington Avenue zoned CD-2 from 5th to 16th Streets.

In a Technical Memorandum included with the LTC, Lambert notes revenues include property taxes, sales taxes, licensing fees, permitting fees, and assessments, among other sources. Costs include wages, goods and services used, and administration/management of the City.

“The differential between these two is theoretically the net benefit or cost,” they write. “However, the fact is, it is not that straight-forward. On both the revenue and cost side, there are challenges associated with shared resources and operations between the MXE District and other areas of the City which cannot be easily distinguished and/or simply allocated to a specific boundary.” They note expenditures by visitors who may come to Miami Beach for the MXE District but stay in a hotel outside of the Entertainment area. “[A]t least some portion of that expenditure applies to the MXE District since a primary reason for some visitors is associated with visiting the MXE (South Beach).”

“In contrast, there may be some costs that are not being allocated to the MXE District that should be otherwise allocated to it – for example, given the international prominence of the “South Beach” and “Miami Beach” brands there is a cost of reputation from serious crimes or a steady stream of traffic accidents or fatalities which follow those involved in the accidents leaving the MXE late at night. Likewise, those accidents or crimes while potentially occurring outside the MXE may involve individuals who spend the majority of their time prior to the incident within the MXE,” according to the report.

 

The updated analysis identifies several revenue sources not included in the original LTC. There are also adjustments for costs “based upon a modification to departmental allocations in the MXE based upon updated processes that were adjusted as a result of greater insight as to how best distribute certain shared revenues and/or costs.” In other cases, the consultants noted, the previous LTC “may have included either budgeted vs actual 2016/17 and/or 2017/18 figures.”

“In sum, the Update analysis, though still reflecting a deficit and subject to modification, shows a more balanced cost to benefit ratio within the MXE District,” they wrote. “However, this updated information, leads us to the question – what does this really mean for future policy decisions? Is the area performing at peak, or should it be contributing more of a benefit since it is often regarded as the centerpiece of economic activity within the City?”

Their analysis also noted the 8,600 jobs in the MXE “represents 15 percent of the City’s employment; however, 85 percent of these jobs are in the more modest wage Accommodation and Retail sectors. This compared to the 55 percent of the Accommodation and Retail jobs within the City, which has a more balanced proportion of higher wage FIRE [Finance, Insurance, and Real Estate] and Profession[al] Services sector jobs.”

The report notes “[T]his singular analysis does not fully answer these questions” and recommends “further clarification associated with certain revenues and costs that can only be vetted through a more comprehensive process than what was undertaken as part of this scope of service.” 

The consultants suggest visitor, stakeholder, and business surveys “to better define what other sources of revenue and costs should be attributed to the MXE District that is not currently being captured in the district. There is no possible way to precisely account for these ancillary/indirect revenue and cost factors, but more comprehensive data will certainly help to narrow the window.”

“Secondly, it will be beneficial to identify certain elements within the MXE District for which the City can help to improve and maximize the benefits in relation to costs that flow into the City. This specifically includes physical planning related adjustments and policy modifications – which the City already recognized through its recently approved Entertainment District Study,” the report concludes.

Due to the timing of the release of the Letter and the holiday weekend, RE:MiamiBeach was not able to get reaction to this story from the stakeholders. 

Full Letter to Commission and Lambert summary here.


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