In his article “An unconventional return on your investment,” Cobb Chamber of Commerce Chairman John Loud asks, “What if I told you that you can get a 30% return on an investment? You would probably jump at that opportunity, wouldn’t you?” The rhetorical answer is obviously yes, but unfortunately the example provided doesn’t describe a return on an investment.
“Return on investment” (commonly referred to as ROI) is a financial term that defines the additional revenue generated from an investment as a percentage of the initial expenditure. For example, an investment of $10,000 that results in an excess return of $3,000 would have an ROI of 30%. It reports the benefit relative to the cost.
Loud posits that SPLOST offers a 30% return because, “Over 30% of the sales tax collected in Cobb is collected from visitors that live outside of Cobb County… these visitors are providing that 30% return on our investment.” While percentage of outside funding lowers the cost to taxpayers, it tells us nothing about the financial return of SPLOST expenditures, and it ignores that 70% of the cost is borne by Cobb residents. A $1 million bridge funded by SPLOST might improve the county by an extra $300,000 through increased business, but it also may represent maintenance costs greater than the costs of construction. The percent subsidized by outsiders doesn’t tell us anything about the financial returns from SPLOST projects.
A 30% subsidy is a legitimate reason to support SPOLST, but it is incorrect to describe it as a 30% return on an investment.
Professor of Economics
Kennesaw State University