Not too little, but too late?

For many, the recession solution is simple: We need to build our way out.

Across the country, high-priced building projects have been heralded as a way for regions to reignite stagnant industries and kick-start consumer spending. And although Middle Tennessee’s economy is better positioned than many other markets’, we have our share of issues. Unemployment tops 8 percent, consumer spending is slumping, and, according to a recent MTSU study, consumer confidence at an all-time low.

The region has also cast its eye on construction as a feasible means of economic stimulus. An important component of that approach is a pure infrastructure play — roads, bridges and energy projects — but Nashville also has a number of multimillion-dollar projects waiting to break ground.

Chief among them is the $635 million Music City Center and a new federal courthouse worth more than $170 million. The convention center is a protracted Metro Council approval and financing process away from the green light, while the courthouse is locked in the Congressional funding morass. But backers of both say these crown jewels of construction will help Nashville rise above the recession and set the stage for a new growth spurt.

“One of the benefits of the [Music City Center] project right now is obviously it will stimulate a lot of activity in Nashville,” said Mayor Karl Dean, who has made building the convention center a top priority. “It should act as a significant stimulus.”

But a building boom might not be the cure all. Even if everything lines up perfectly — if the right type of funding materializes in the next few months and workers at the sites spend enough of their incomes — the building projects may not be a part of our recession-beating recipe. Simply put, we might have missed our window.

Spillover spending

The City Paper consulted with various area economists, builders and government officials to drill deeper into the potential impact of the construction of the courthouse and convention center. We focused on the multiplier effects of the projects — both in terms of jobs and the spending that employment creates — as well as the construction timelines for these mammoth projects.

The top-line numbers are impressive: Combined, the projects stand to pump almost $1 billion after taxes into the local economy and some $90 million into Metro’s tax coffers. What makes those numbers even more attractive is that the cash will theoretically come from outside Middle Tennessee: Plans call for tourism taxes to fund the Music City Center while the courthouse’s cash will come from the federal government’s General Services Administration.

“One of the characteristics about this type of construction activity is that it feeds through many other related businesses and most tend to be local,” Belmont College of Business Administration Dean Dr. J. Pat Raines told The City Paper. “There are a lot of backward linkages into the likes of building materials, architectural services, legal services, and insurance.”

Of the $650 million price tag of the Music City Center, $450 million will go toward construction costs, according to statistics provided by the Nashville Convention and & Visitors Bureau. The same projections state that some 3,000 construction jobs will be created during the building's four-year construction.

Raines predicts that every dollar invested in the Music City Center’s construction will produce an additional 97 cents in indirect and induced spending.

“Over time, with inflation, that could be somewhere around $1 billion,” Raines said.

Using a conservative estimate that consumers today are banking 20 percent of their earnings, Raines whittles that figure down to $708 million as the number of actual dollars that will be spent. Based on Davidson County's 9.25 percent sales tax, that means Metro could collect around $65 million over the four years from the spending stemming directly and indirectly from the project.

Crunching the numbers on the federal courthouse also produces an impressive set of figures. Numbers provided by U.S. Rep. Jim Cooper's office show the seven-floor, 358,372-square-foot structure slated to go at Church Street and Eight Avenue as having a total construction cost of $173.5 million.

Using Raines' multiplier, that direct investment in the structure would translate into total spending over three years of around $340 million and send around $25 million into Davidson County's tax coffers.

Delayed gratification

Another way of examining the impact of large project involves different — but less accurate — multipliers that predict the spending potential of a single construction job employed by the project.

Using the federal government's Davis-Bacon wage, which sets compensation levels for workers on federal construction contracts, The City Paper determined that the average salary for a construction position is around $50,000. According to Vanderbilt Associate Professor of Economics Malcolm Getz, federal and state taxes will shrink that gross income number to around $37,000.

Using a conservative consumption multiplier, the total spending effect of a single job is roughly $56,000. That figure is at the base of the numbers in our chart on page 2, which details the slow build-up of spending power as the courthouse and convention center are built. According to our calculations, workers’ ability to spend won’t peak until the fall of 2011.

Getz said his estimate is conservative because he believes the economic impact of consumer consumption in Nashville is limited by the nature of the region's economy.

“The general rule of thumb is the bigger the city and more diversified its economy, the bigger the multiplier would be. The smaller the city, the more specialized its production, the smaller the multiplier,” he said.

Getz also cautions that theoretical economic impact predictions for spending are contingent upon spending habits. Those are quantifiable in theory, but often erratic and unreliable in practice, especially in uncertain times.

For instance, if construction workers on a major project view their employment as a steady gig, they are more likely to spend their wages freely. But if they see the work on the Music City Center or courthouse as a one-time opportunity — the only sure work in the foreseeable future —they are more likely to bank more of their cash.

Another big question in the middle of this debate remains the timing of both projects. Neither has a firm start date (see our sidebar) but work on both could begin quickly once their funding is finalized. Even if the puzzle pieces fall into place — our chart on page 2 aggressively assumes a June start for the courthouse and an October launch for Music City Center work — it will still take a considerable amount of time before the incomes generated by that work trickle back into the local economy.

Much of the early site preparation and foundation work on large construction projects is not as labor-intensive as later stages such as structural and finishing work. Based on our estimates and calculations, the projects will generate the greatest spending impact starting in September of 2010 — 33 months after the official start of the current recession.

If Nashville still needs the stimulus from these projects at that point...