The Voracious Appetite of Urban Boondoggles

bayonnecruiseterminalHouston has had its share of urban boondoggles.

But for sheer boondogglery, the Port of Houston’s Bayport Cruise Ship Terminal may take the cake.

In so doing, it teaches us a valuable lesson for evaluating other potential boondoggles.

Years before the recent Houston Chronicle article, the Bayport Terminal’s story was well-known.

Clueless Port Commissioners authorized the expenditure of over $108 million to build the terminal on the Houston Ship Channel. The decision was dubious from the start.

First, the Commissioners spent taxpayers’ money without a commitment from any cruise lines to dock at the new terminal.

Moreover, they committed those funds when it was clear from the outset that it was much more profitable for cruise lines to dock a short ride down the road at the Port of Galveston, where ships could dock from, and depart into, the Gulf of Mexico. That saved the cruise lines the considerable time, risk and cost of traversing the Houston Ship Channel to dock at the Bayport Terminal.

So, the terminal sat completely empty for five years or so after construction was finished in 2008.

Then, the Port Commissioners compounded their boondoggle by giving in to the sunk cost fallacy.

Rather than simply walking away from the financial disaster, the Commissioners threw an additional $7 million or so at a couple of cruise lines to induce them to use the terminal.

The result? The terminal is still losing over a couple of million dollars annually. And now the cruise lines are pulling out because even Port of Houston-subsidized cruises from Bayport are not as profitable as those that depart from Galveston.

Now, that’s a boondoggle!

But what’s the lesson, you say?

Well, Harris County Commissioners are still trying to figure out what to do with the obsolescent Astrodome.

I use the word “still” because the Commissioners have been dithering over what to do with the Dome since before I started this blog in early 2004. Their machinations have been the subject of a dozen or so posts on this blog over the years.

And let me say at the outset that I really like the Dome. It is an iconic structure and helped put Houston on the world map. Along with the Texas Medical Center, NASA, the oil & gas industry, the Port of Houston, the Houston Ship Channel, Houston Grand Opera, the Museum of Fine Arts, Houston Ballet, the Houston Symphony, the Alley Theater, the Rothko Chapel, the Menil Art Museum, Rice University, the University of Houston, the Galleria, etc.

You get my point – the Dome is an important part of Houston’s legacy.

But it’s still only a part of that very large legacy.

In my view, the main problem with the Dome is that its fate sits in the hands of County Commissioners, who have consistently made unwise decisions regarding the Dome throughout its existence.

Recently, County Judge Ed Emmett, a well-intentioned fellow, has proposed a nebulous public-private partnership to raise $250 million or so in donations to renovate the Dome into an indoor park that could host events and festivals year-round.

As is usually the case with boondoggles, the financial details of Emmett’s proposal remain sketchy. Nevertheless, Emmett is reasonably sure that the money can be raised.

Maybe so. But – as with the Bayport Terminal – who is going to pay the almost certain operating deficits of the Dome after the renovation is complete?

One of the problems with projects such as the Dome or the Bayport Terminal is that they “eat” money — air-conditioning a space as large as the Dome is not cheap.

And what is Emmett’s financial model for his Dome venture? No word on that yet.

So, the lesson. Remember to ask yourself Peter Gordon’s three elegantly simple questions when confronted with government projects such as renovation of the Dome:

1) At what cost?

2) Compared to what? and

3) How do you know?

If we answer those questions honestly – and require the Commissioners to do so as well – perhaps we can avoid having the Dome join the Bayport Cruise Terminal as one of Houston’s biggest – and most embarrassing — urban boondoggles.

Oliver on the Publicly-Financed Stadium Boondoggles

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.