Light Rail Scams

How Football Fleeces Us

The Dome

The Dome from Texas Crew on Vimeo.

How cities grow, slump and recover

How cities grow, slump and recover.

Tory Gattis’ Open City of Opportunity

Houston’s next urban boondoggle?

MetroRailAs in most major metropolitan areas, Houston has its share of urban boondoggles.

Let’s see now.

First and foremost, Houston has the financial black hole known as Metro Light Rail, which will continue to require enormous subsidies for decades to come.

But Houston also has the $100 million Bayport Cruise Ship Terminal, which has never docked a cruise ship since its completion in 2008.

Of course, who could overlook the continuing dither over what to do with Houston’s expensive and obsolescent Astrodome?

Or the Harris County Sports Authority’s problems servicing the junk debt it issued in connection with financing the construction of Houston’s Reliant Stadium for the NFL Texans?

And don’t forget the City of Houston’s decision to build a downtown convention center hotel that is almost certainly a huge money-loser, as well as the City’s ill-advised financing of several smaller downtown hotel projects and Metro’s dubious real estate development deals.

Which brings us to the most recent boondoggle — the local governments’ decision to throw about $50 million or so into the construction of a minor-league soccer stadium.

With that track record, I guess I shouldn’t be surprised with anything that local politicians might cook up as the next urban boondoggle.

But really. Financing of grocery stores?

Public Choices

cincinnati-paul-brown-stadium2This Reed Albergotti/Cameron McWhirter/WSJ article provides an absolutely devastating account of the way in which Hamilton County, Ohio political leaders pledged an enormous portion of the county’s resources to pay most of the cost of a new stadium for the NFL’s Cincinnati Bengals:

At its completion in 2000, Paul Brown Stadium had soared over its $280 million budget–and the fiscal finger-pointing had already begun.

The county says the final cost was $454 million.  .  .  .

But according to research by Judith Grant Long, a Harvard University professor who studies stadium finance, the cost to the public was closer to $555 million once other expenditures, such as special elevated parking structures, are factored in. No other NFL stadium had ever received that much public financing. [.  .  .]

On top of paying for the stadium, Hamilton County granted the Bengals generous lease terms. It agreed to pick up nearly all operating and capital improvement costs–and to foot the bill for high-tech bells and whistles that have yet to be invented, like a "holographic replay machine." No team had snared such concessions in addition to huge sums of public money, Journal research shows.

To help finance its stadiums, Hamilton County assumed more than $1 billion in debt by issuing its own bonds without any help from the surrounding counties or the state. As debt service ratchets up, officials expect debt payments to create a $30 million budget deficit by 2012.

"The Cincinnati deal combined taking on a gargantuan responsibility with setting new records for optimistic forecasting," says Roger Noll, a professor of economics at Stanford University who has written about the deal. "It takes both to put you in a deep hole, and that’s a pretty deep hole."

The stadium’s annual tab continues to escalate, according to the county’s website. In 2008, the Bengals’ stadium cost to taxpayers was $29.9 million, an amount equivalent to 11% of the county’s general fund.

Last year, it rose to $34.6 million–a sum equal to 16.4% of the county budget. That’s a huge multiple compared to other football stadiums of the era that similarly relied on county bonds for financing. Those facilities have cost-to-budget ratios of less than 2%. [.  .  .]

The Bengals had said that with a new stadium, the team’s revenue would increase, allowing it to sign better players, win more games and attract more fans to the area. In 2000, the new stadium’s first year, the Bengals had the same record they’d had the previous year, 4-12. Since then, the team has managed just two winning seasons in the new facility. Its attendance levels have actually dropped.

Houstonians might be tempted to shake their collective heads at how badly Bengals management took Hamilton County to the cleaners in the stadium financing negotiations. But then we are forced to confront that Houston has more than its share of similar boondoggles, such as the financial black hole known as Metro Light Rail, the $100 million Bayport Cruise Ship Terminal (which has never docked a cruise ship since its completion in 2008), the continuing dither over what to do with the obsolescent Astrodome, the Harris County Sports Authority’s problems servicing the junk debt it issued in connection with financing the construction of Reliant Stadium for the Texans, and – most recently – the City of Houston and Harris County’s dubious decision to throw about $50 million or so into the construction of a minor-league soccer stadium.

The expenditure of a billion or two of public money on building a lightly-used light rail system and stadiums for privately-owned businesses has real consequences, such as leaving inadequate funds available to make the improvements to Houston’s flood control system, road infrastructure and other improvements that actually improve the safety and welfare of Houstonians.

As I’ve pointed out before, the relatively small interest groups that benefit from urban boondoggles have a vested interest in preventing citizens from ever examining those threshold issues. The primary economic benefit of such public projects is highly concentrated in a few interest groups, such as representatives of minority communities who tout the political accomplishment of shiny toy rail lines while ignoring their constituents need for more effective mass transit; environmental groups striving for political influence; engineering and construction-related firms that profit from the huge expenditure of public funds; and real-estate developers who profit from the value enhancement provided to their property from the public expenditures.

As Peter Gordon has wryly-noted: "It adds up to a winning coalition."

Unfortunately, once such coalitions are successful in establishing a governmental policy subsidizing such urban boondoggles, it is virtually impossible to end the public subsidy of the boondoggle and re-deploy the resources for more beneficial projects.

How do these interest groups get away with this? The costs of such boondoggles are widely dispersed among the local population of an area such as Houston, so the many who stand to lose will lose only a little while the few who stand to gain will gain a lot. As a result, these small interes
t groups recognize that it is usually not worth the relatively small cost per taxpayer for most citizens to spend any substantial amount of time or money lobbying or simply taking the time to vote against such boondoggles.

But would citizens react differently if their leaders advised them that their lack of action in the face of an urban boondoggle might prevent the funding of much more beneficial projects?

No one knows for sure. But I’d sure like to see local political leaders engage in some truth-in-advertising before the financing of such boondoggles is placed before the voters.

We all might just be surprised.

Bubble Monuments

boondoggle-logo2Well, Houston has its share of boondoggles, such as the Metro Light Rail, the $100 million Bayport Cruise Ship Terminal (which has never docked a cruise ship since its completion in 2008) and the continuing dither over what to do with the obsolescent Astrodome.

But I have to admit, in terms of sheer number and scope, Houston’s boondoggles don’t come close to matching those of Las Vegas (H/T Calculated Risk). Check out the photos.

I wonder if a bus tour of these mothballed projects has been put together yet?

Expensive Toy Trains

Houston Metro-1Cory Crow posted a good overview this past Friday on how Houston’s Metropolitan Transit Authority has failed to develop and operate a transit system that meets the special needs of the Houston metropolitan area (Metro’s debacles have been frequent topics on this blog, most recently the here and here).

Cory’s post coincided with this Richard White/NY Times op-ed in which he previews one of the themes of his new book on the financing and construction of the the 19th-century transcontinental railroads – that governmental guaranty of the bonds used to finance the construction meant that “if there be profit, the [private] corporations may take it; if there be loss, the government must bear it.” As White notes, that dynamic is again at play with regard to the Obama Administration’s high-speed rail proposals:

Proponents of the transcontinental railroads promised all kinds of benefits they did not deliver. They claimed that the railroads were needed to save the Union, but the Union was already saved before the first line was completed. The best Western farmlands would have been settled without the railroads; their impact on other lands was often environmentally disastrous. For three decades California commodities could move more cheaply, and virtually as quickly, by sea. The subsidies the railroads received enriched contractors and financiers, but nearly all the railroads went into receivership, some multiple times; the government rescued others.

As more astute members of Congress came to recognize, the subsidies were a mistake. .  .  .

After 1872, the country turned against the subsidizing of large corporations. It was a little late. Fraud and failure left a legacy that would lead to four decades of government attempts to get back what had so carelessly been given away. In the 1890s, Congress was still trying to recover money from the Pacific Railway.

Yet here we are again. The Obama administration proposed a substantial subsidy, $53 billion over six years, to induce investors to take on risk that they are otherwise unwilling to assume. Such subsidies create what the economist Robert Fogel has called “hothouse capitalism”: government assumes much of the risk, while private contractors and financiers take the profit.

The reality is that virtually all light rail systems and most high-speed rail systems are unsustainable without massive federal subsidies, which are hit and miss, at best. Besides, the financial benefit of these rail systems are highly concentrated in only a few interest groups. Unfortunately, those groups do not include one that is comprised of a substantial number of users.

A strategy of "build as much light rail as possible now and then figure out how to pay for it later" is not a coherent transit plan for the Houston metropolitan area.

What is it going to take for Houston’s local governmental leaders to understand that?