November 21, 2011
August 11, 2011
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.
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?
July 13, 2011
This 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 interest 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.
June 26, 2011
Well, 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.
I wonder if a bus tour of these mothballed projects has been put together yet?
April 25, 2011
Cory 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?
February 14, 2011
Earlier posts here and here noted the real possibility that the problems that the Harris County Sports Authority is currently experiencing in paying the debt incurred in the construction of various stadiums in Houston may be a sign of a bubble in the professional sports business that is about to burst.
S. M. Olivia of the Ludwig von Mises Institute picks up on that theme in analyzing the very real possibility that National Football League owners may elect to lock-out NFL players because of stalled negotiations over a new collective bargaining agreement:
The NFL encapsulates, perhaps better than any other single business entity, the popular conceptions -- and misconceptions -- about capitalism and the nature of markets. The league is the epitome of statist "crony" capitalism. Its franchise operators demand huge government subsidies for stadiums while jealously guarding its prerogatives as a "private" business. Governments (and their media enablers) largely go along with this because they've been led to believe the NFL's popularity is so immense that no respectable city can go without a franchise.
Professional football is the ethanol of the entertainment industry. Since 1990, nearly every NFL franchise has either opened a new stadium, made substantial renovations to existing stadiums, or is currently in the process of obtaining a new stadium. Over this 20-year period the league's franchises obtained over $7 billion in taxpayer subsidies raging from direct taxes to publicly backed bonds. Ten stadiums are 100% government-financed, while another 19 are at least 75% government-financed. Every single franchise receives some amount of government subsidies. [ . . .]
[The ongoing NFL-NFLPA dispute is] . . . simple really: The owners overspent on unnecessary stadiums, and now they want the players to work more for less pay to help pay down the debt. That's your entire labor dispute in one sentence. The league expects -- nay, demand -- the NFLPA to act like a local government in a stadium dispute and simply give the franchise operators what they want for little or nothing in return. Maintaining the "owners'" social standing is of paramount importance. [ . . .]
The NFL produces three things: stadium debt, intellectual property, and bureaucracy. None of these things should be confused with "free market" values. The league is a prime example of what happens when you mix politically influential egos with easy credit and a media environment that largely promotes economic ignorance. You have the perfect boom business.
But all booms eventually end. NFL acolytes -- and they are presently the majority -- will insist, as Homer Simpson once did, that "everything lasts forever." One media writer I correspond with insisted to me recently the NFL will be even more popular in 20 years then it is today. Go back to 1991 and think about all of the businesses you could have said that about, incorrectly, at that time.
That's not to say professional football will cease to exist, nor even that the present labor situation will yield some disaster beyond imagination. What I am saying is that all the positive, pie-in-the-sky press in the world can't alter economic reality. The NFL isn't just a house of cards. It's a house of cards built atop a pile of toxic waste. The only thing keeping the house from sinking is a support structure composed of television contracts.
But the networks face their own economic challenges, and unless you can guarantee that Fox, ESPN, CBS, et al., will be stronger then they are now in 2031, then you can't say with any confidence the NFL will survive and thrive indefinitely. The league is built on consumption, and when you adopt that model, eventually you'll eat yourself out of your $1.3 billion house and home.
My sense is that the NFL owners will endure a public relations debacle if they force a work stoppage, particularly if they allow it to last a long time.
For one thing, the entertainment market is far different and more diverse now than it was during prior NFL work stoppages. Thus, the market for entertainment has many alternatives to the NFL.
Moreover, the market appreciates the grave injury risk that the players endure far better than it did during prior NFL work stoppages. The public is unlikely to side with wealthy owners who are attempting to force players to take more economic risk in the face of that injury risk.
Funny thing about those financial bubbles - they are far easier to see in hindsight.
February 2, 2011
Metropolitan Transit Authority CEO George Greanias makes his best case for building expensive light rail systems here. It's all about investing for what will eventually be a "first-class public transit system."
Metro is in desperate need of leadership that will develop a transit plan for the Houston area based on something other than a strategy of "build as much light rail as possible now and then figure out how to pay for it later."
Greanias does not appear that he will be providing such leadership.
So it goes with Metro.
December 1, 2010
Eight years ago, as the St. Louis Cardinals aimed to build a new baseball stadium, team owners signed an agreement with the city worth millions of dollars a year in tax breaks.
In exchange, the team agreed to a series of annual perks for the region's residents - 100,000 free tickets, 486,000 seats for under $12 and $100,000 in donations to recreation for disadvantaged youths.
The Cardinals also agreed to give the city a cut of profits made if any portion of the team was sold.
Then, last year, owners sold a sizeable chunk of the Cardinals - more than 13 percent. Now, a group of anti-public-stadium advocates is alleging that the team owes the city hundreds of thousands of dollars.
And, despite another multimillion-dollar budget gap anticipated for the coming year, the city isn't checking into it. City officials acknowledge that they have never really kept tabs on the agreement.
. . . Several city officials, including Barb Geisman, the former deputy mayor for development, said there was no reason to double-check. They trust the Cardinals.
Which reminds me of what the late Milton Friedman used to say about the dynamics of using other people's money:
"There are four ways in which you can spend money."
"You can spend your own money on yourself. When you do that, why then you really watch out what you're doing, and you try to get the most for your money."
"Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I'm not so careful about the content of the present, but I'm very careful about the cost."
"Then, I can spend somebody else's money on myself. And if I spend somebody else's money on myself, then I'm sure going to have a good lunch!"
"Finally, I can spend somebody else's money on somebody else. And if I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get."
"And that's government . . ."
November 13, 2010
Harris County Sports Authority Board Chairman J. Kent Friedman is not concerned that the Sports Authority has had to dip into its cash reserves for the first time in order to make a debt service payment on the junk debt it issued to finance construction of Reliant Stadium:
Friedman said paying off a 30-year mortgage in five years could produce a windfall.
"The savings on that is staggering" as the authority avoids years of interest payments, Friedman said. "The Sports Authority, and, by extension, the community, will be a lot better off if we can pay these bonds off early."
Which raises the question that, if such is the case, why did the Sports Authority finance the bonds over 30 years in the first place?
What's most interesting about this situation is the change that it reflects in regard to public financing of stadiums. JP Morgan Chase has evaluated the situation and concluded that tax revenues dedicated to the bonds are so risky in the future that it is better off forcing the Sports Authority to dip into reserves and pay off the bonds in five years.
Could the fact that Harris County continues to dither over the mothballed Astrodome - which still is subject to over $30 million in bond indebtedness - have something to do with JP Morgan Chase's decision?
Or is JP Morgan Chase simply hedging its risk regarding another bubble?
October 19, 2010
So, the Renew Houston organization reasons, who could possibly be against Proposition 1 in the upcoming election? That's the referendum that seeks to raise about $8 billion of dedicated taxes over the next couple of decades to fund flood control projects and other infrastructure improvements.
Well, I doubt many Houstonians oppose improving flood control and other reasonable infrastructure improvements. But reasonable folks can certainly differ over how to pay for it. And more precisely, whether local governments have already committed limited tax dollars to boondoggles such as the Metro light rail system that should have been used for the more beneficial projects that Proposition 1 proposes.
Metro's defenders - many of whom are supporters of Proposition 1 - typically rely on the 2003 referendum as the primary basis for their continued support of the light rail boondoggle. But the problem with the 2003 referendum and Proposition 1 is that they ask voters to approve large public projects in a vacuum while ignoring Peter Gordon's three elegantly simple questions regarding economic choices: 1) At what cost? 2) Compared to what? and 3) How do you know?
For example, let's assume that voters in 2003 had been informed that the expenditure of a billion or so of public money on building a lightly-used light rail system has real consequences, such as leaving inadequate funds available to make the improvements to Houston's flood control system and infrastructure that Proposition 1 now proposes.
No one knows for sure, but my bet is that voting results would have been dramatically different if the foregoing alternative had been a part of the 2003 referendum.
Unfortunately, the relatively small groups that benefit from urban boondoggles have a vested interest in preventing the voters from ever examining those threshold issues. The primary economic benefit of such public projects is highly concentrated in only 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 Professor Gordon wryly-noted "It adds up to a winning coalition."
Unfortunately, once such coalitions are successful in establishing a governmental policy subsidizing boondoggles such as the Metro light rail system, it is virtually impossible to end the public subsidy of the boondoggle and 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 interest 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 a boondoggle such as a light rail system.
But would the citizenry react differently if they knew that their lack of action in the face of an urban boondoggle might prevent the funding of much more beneficial projects?
Writing about Phoenix's new light rail system, which is just as uneconomic as Houston's, Warren Meyer analogizes the funding of these systems to dubious household purchases:
[The] Phoenix light rail reminds me of a home I visited recently that had a $50,000 super-size 100-inch flat screen TV. That TV was gorgeous. Everyone who saw it immediately fell in love with it. It worked flawlessly, and everyone at the party wanted one. In fact, it was probably the greatest, most sensible and successful purchase of all time . . . as long as one never considered the cost. This is exactly how light rail seems to get evaluated.
In building a light rail system, did Houston buy an expensive flat-screen TV with funds that would have been better utilized taking care of the drainage problem in the back yard? Or are things going so well at work for Houston that it can do both?
We will soon find out.
August 27, 2010
So, to the surprise of absolutely no one who follows such things, Moody's Investors Service lowered the ratings of the already junk bond debt of about a billion dollars that the Harris County-Houston Sports Authority issued to finance construction of Reliant Stadium, MinuteMaid Park and Toyota Center:
Moody's believes the liquidity reserves are sufficient to cover the November 2010 payment, but their depletion may result in a payment default from pledged revenues as early as March of 2011, the report said.
If hotel occupancy tax and motor vehicle rental tax revenue continues to decline through 2010, the ratings could face further pressure, Moody's said. Revenue from those taxes to the Sports Authority dipped by 11.7 percent in 2009 and are continuing that trend in 2010.
Of course, the romantics among us think it would be peachy to borrow even more money and resurrect the Astrodome into another kind of white elephant. This despite the fact that the markets has been telling us for over a decade now that there is no profitable purpose for it.
Meanwhile, most professional sports franchises are not doing all that well these days even with local governments providing these huge public subsidies
So, highly-leveraged debt, a high-priced product, increasingly unprofitable operations, and intense competition from a myriad of different (and substantially cheaper) forms of entertainment.
Does anyone else think that this pro sports bubble is about to burst?
August 24, 2010
Now even driving causes obesity?
So, does that mean we should subsidize light rail boondoggles to help curtail obesity?
Thankfully, Peter Gordon asks that always knotty question: "At what cost?" After analyzing the data, he concludes:
"Cynics started doing the math many years ago and found that buying rail transit users a car would be far cheaper [than public subsidies of inefficient light rail systems]. But that would never fly with the smart set."
"So consider the 2010 update which suggests that buying them a bus pass plus health club membership is the way to go. The various "cash-strapped" governments would save money."
June 18, 2010
Earlier in the week, Steve Malanga wrote about the municipal debt racquet in this WSJ op-ed. Not surprisingly, a good part of the article examined dubious decisions that local governments have made in financing sports palaces:
State and local borrowing as a percentage of the country’s GDP has risen to an all-time high of 22% in 2010 from 15%, with projections that it will reach 24% by 2012.
Even more disconcerting is what the borrowing now often finances. One favorite scheme for muni debt is giant and risky development projects.
California’s redevelopment regime is an object lesson. Starting in the 1950s, the state gave localities the right to create public agencies, funded by increases in property taxes, which can issue debt to finance redevelopment. A whopping 380 such entities now exist. They collect 10% of all property taxes—nearly $6 billion annually—and they have amassed $29 billion in debt never approved by voters for projects ranging from sports facilities to concert venues to retail malls, museums and convention centers.
Critics, including taxpayer groups, say most such agency projects add little economic value. Sometimes the outcome is much worse.
In 1999, Fresno conceived plans to revive its downtown area with various projects, including a baseball stadium for the minor-league Grizzlies, which it had lured from Phoenix. The city’s redevelopment agency floated some $46 million in bonds to build the stadium. But the Grizzlies fizzled in their new home, demanded a break on rent, threatening to skip town and stick taxpayers with the entire $3.4 million annual bond payment on the facility. The team is now receiving $700,000 in annual subsidies to stay in the city.
Adding to the city’s woes: Last June, another development project, the Fresno Metropolitan Museum, went bust, leaving the city’s taxpayers on the hook for three-quarters of a million dollars in annual debt payments.
Cities now also use taxpayer-financed debt to engage in fierce bidding wars that benefit private enterprises. Charlotte, N.C., for instance, won the bidding for the new Nascar all of Fame with a $154 million offer, funded by a new hotel tax dedicated to servicing bonds for constructing the hall. But the venue employs only about 115 people—and an economic development study estimated the increased annual tourism from the venture won’t even equal what a single Nascar race generates.
Why did politicians offer the deal? For the dubious and hard-to-quantify purpose of “branding” the city with a major attraction, according to the Charlotte Observer.
Yeah, we in Houston know all about financing those minor league stadiums. Anyone taking into consideration what we are going to do with that thing if the Dynamo and/or the MLS doesn’t make it?
If that weren’t bad enough, the WSJ’s Chris Rhoads chimed in yesterday with this article on the wasting, publicly-financed “assets” that Greece built for the 2004 Olympic Games:
Georges Kalaras used to view with pride the sports hall built near his home here for the 2004 Olympic competition in rhythmic gymnastics and ping pong. Now, he gets mad every time he jogs by.
"Look, it's locked!" shouted the 38-year-old Mr. Kalaras, who works for the Athens city water company. Two stray dogs tangling with each other behind a padlocked metal fence accounted for the only activity in the complex, which seats 5,200 people.
Mr. Kalaras figured the steel and glass hall, costing taxpayers $62 million, would provide recreational space in his neighborhood. Officials envisioned concerts or shops.
Instead, when the Olympic torch went out after the Athens Summer Games six years ago, the doors closed here, as well as at many of the 30-odd other sites built or renovated for the Olympics that summer.
The vacant venues, several of which dominate parts of the city's renovated Aegean coastline, have become some of the most visible reminders of Greece's age of excessive spending. Sites range from a softball stadium and kayaking facility to a beach volleyball stadium and a sailing marina. [. . .]
Even boosters of the Olympics are having second thoughts.
George Tziralis, a technology investor, in 2007 co-authored a glowing report declaring the venues as "greatly improving the quality of life of the inhabitants of these areas, providing valuable resources to the community and the economy."
On a recent afternoon, staring at a pile of bricks on the unfinished entrance behind a locked metal fence encircling the Olympic sailing marina, he was less upbeat.
"I hope you're calling this article 'The Nonsense of the Olympics,'" he said. Boats filled about a third of the 120 slips at the marina, which remains closed to people who aren't boat owners.
Later, Mr. Tziralis, 28, gestured out the window of his Opel Corsa at a huge, locked complex of mostly vacant Olympic properties, located on the former site of the city's old airport.
"There's no way there shouldn't be a park here six years after the Games!" he shouted.
That complex, which cost taxpayers $213 million, includes stadiums for field hockey, softball and baseball—sports with little or no following in Greece. The facility for canoeing and kayaking slalom at the site was to become a water amusement park. It didn't.
June 11, 2010
This blog started in February 2004 and the first post about what to do with the Astrodome was in September 2004.
Over the intervening six years, there have been a couple of dozen posts about the various boondoggles that have been proposed for the Dome. To date, no one has put up a penny to redevelop the Dome.
Despite this dismal track record, Harris County officials are still dithering over what to do with the Dome.
At least the current proposals are similar to the one that I made a couple of years ago. That is really the only one that makes much sense for the facility. Typical to Harris County’s handling of this situation, there is no mention in the Chronicle article that Harris County officials have had any discussions with Texas Medical Center officials about development and financing of such a venture. Thus, at this point, it would appear that the only financing for such a project would be on the County's dole.
And in an amazing display of blindness, County officials are planning not to convert the land that the Dome sits on into badly needed additional parking for the Reliant Park area if the decision is made to raze the facility. Why not generate some revenue from the land to help pay off the $35 million in bond debt that still exists on the Dome?
Oh well. There are many lessons to be drawn from this experience, but two in particular:
1. If you can’t figure out what to do with something in six years, then it’s probably time to get rid of it; and
2. Don’t ever rely on governmental officials to make sound decisions.
June 2, 2010
Over the past couple of years, Bill King has done a great job (and see generally here) of explaining how Houston’s unfunded public pension obligation represents a horrific burden on the city government’s financial condition.
Given that such obligations are clearly unsustainable, why does the city government continue to provide them?
Edward L. Glaeser provides the following particularly lucid explanation of the dynamic that leads to such profligacy:
On Friday, The New York Times ran a front-page article about pensions that took note of a 44-year-old retired police officer who receives an annual pension of $101,333 despite never having earned more than $74,000 a year in base pay. The article reported that in Yonkers alone “more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working” and that “about 3,700 retired public workers in New York are now getting pensions of more than $100,000 a year, exempt from state and local taxes.”
The emotional response of many people is to vilify the retirees, but that’s a mistake. The individual police officers and firefighters were following the rules. They have jobs that require them to risk their lives in service of their communities, and large pensions are one payoff for accepting those risks and accepting relatively lower wages up front. I’m sure many of them are no less impatient than the rest of us and would have preferred to get more money in their 20s and less in their 50s.
The fault lies in the political process that makes their negotiating partners — state and local governments — more impatient than their employees. State and local governments don’t want to face the short-term consequences of paying higher wages, so they structure compensation in ways that defer the costs of each new deal for years.
Politics doesn’t just favor delayed compensation; it also favors forms of compensation that are particularly hard for people to evaluate. Governments almost always love obfuscation. The appeal of Fannie Mae and Freddie Mac was that they could subsidize homeownership without appearing to cost the taxpayers anything. Of course, they ended costing us plenty, just like hard-to-evaluate pension promises.
The rest of Glaeser’s post is here.
May 6, 2010
In this most recent Chron puff piece, Chronicle reporter Jose De Jesus Ortiz suggests that, based on the anecdotal observations of several stadium supporters, the new stadium will be an economic boon for the area near the stadium.
Of course, Ortiz doesn’t even mention the bountiful economic research that shows scant evidence of large increases in income or employment associated with professional sports or the construction of new stadiums.
If the Chronicle admitted that the economic benefits of the minor-league soccer stadium are questionable, but that the intangible benefits to the community override the financial risk of the deal, then at least the Chron’s support of the deal would be based upon an honest presentation of the issues.
Is that too much to expect?
April 20, 2010
But it’s always nice to realize that things could be worse. For example, we could be dealing with the San Francisco Bay Area’s Metropolitan Transportation Commission, which actually is one of the models that Metro has used in establishing its absurdly inefficient light rail system. Check this out:
The 2009 annual report from the Metropolitan Transportation Commission (MTC) is a bombshell, a wake up call, a Klaxon - choose whatever metaphor you like - if you care about public transit in the Bay Area, this report is probably going to affect your life.
It shows, more clearly than any of the reports of budget woes coming from the individual transit agencies, that the entire system is unsustainable.
Think the fare hikes and service cuts are bad now? Just wait. The MTC added up the projected budgets of the agencies and found that operating costs would exceed revenues by $8 billion over the next 25 years (emphasis supplied), while planned improvements (like new buses, and the Warm Springs BART station) will require someone to dig up an additional $17 billion in spare change from under the couch.
And that’s not even the worst of it:
In the last decade [Bay Area residents] almost doubled the amount of money [they] put toward transit, while increasing service only 16 percent and ridership only 7 percent.
Meanwhile, Houston Metro is currently proposing to sell $866 in general obligation bonds, yet it does not have non-tax revenue that is even close to covering debt service on that level of debt. Metro has not even floated what credit enhancement it proposes to provide in order to sell those bonds.
Hopefully, Houston’s leaders will nip this type of lunacy in the bud. If they need any incentive, then the Bay Area MTC is a useful reminder of the even bigger mess that Metro could be.
March 22, 2010
Following on this post from last week, there were a couple of good pieces from over weekend on the cascading boondoggle that is Houston's Metropolitan Transit Authority.
In this post, the always-insightful Tory Gattis comments on Randal O'Toole's Wall Street Journal op-ed from over the weekend in which O'Toole focuses on the short-sighted nature of huge investment in light rail systems. At a time of fast technological innovation, why should a community place a substantial amount of its chips on an increasingly obsolescent form of mass transit such as light rail?
Meanwhile, Bill King followed his fine blog post from last week with this devastating Sunday Chronicle op-ed in which he disassembles each of the primary myths that Metro supporters use when defending the light rail system. In particular, King explains why the 2003 referendum is not a reasonable justification for what Metro is proposing now with regard to its light rail system:
The 2003 referendum had three elements: (1) a $1.2 billion LRT system; (2) a roughly 50 percent increase in bus service; and (3) initiating a plan for commuter rail.
Metro has completely abandoned the bus expansion: We have fewer buses and bus riders today than we did in 2003. It also has done absolutely nothing to further the development of any commuter rail lines and has instead gotten in the way of other groups like Harris County when they have tried to initiate some action. The voters in 2003 did not approve just a light rail plan; they approved a comprehensive, multimodal system. Metro, for its own reasons, has abandoned what the voters approved in favor of its own grandiose vision.
Additionally, it should be noted that the voters specifically restricted Metro to borrowing $640 million to build the light rail system. Metro now plans to subvert that limitation by entering into a sale/lease-back arrangement with a separate subsidiary and actually borrow more than four times what the voters approved. Metro is always quick to invoke the moral authority of the 2003 referendum but casually ignores its inconvenient restrictions.
Meanwhile, the Chronicle editorial board continues to live in a rather odd state of denial with regard to Metro. In this vacuous op-ed, the Chron attempts to put a cheery face on Mayor Parker's appointment of several new members to the Metro board (one is actually a regular Metro rider -- how about that?!) and her negotiations with federal officials regarding funding of further light rail lines.
Without any financial analysis whatsoever, the Chron asserts that Mayor Parker is moving forward with a full build-out of light rail in a fiscally responsible manner. But even a cursory review of the data proves just the opposite.
As Peter Gordon has long maintained, citizens should require their leaders to answer the following basic questions before allowing them to obligate citizens to funding boondoggles such as light rail: 1) At what cost?, 2) Compared to what? and 3) How do you know?
The Chronicle editorial board is taking a pass on asking Metro's leaders those questions. Thankfully, Bill King and Tory Gattis are not.
March 17, 2010
But the more important issue facing Houstonians is that Metro is preparing to force large swaths of the community – including the key Uptown area near the Galleria -- to incur the enormous cost of enduring construction of its inefficient and impractical rail lines.
Bill King has spent a considerable amount of his time over the past several years studying Metro and Houston’s transit problems. In this devastating post, King finds that Metro is close to barreling completely out of any semblance of fiscal control:
There could hardly be a more fitting image for the close of the current Metro administration than the recent photographs for a wrecked Metro buses in front of Metro's headquarters after having been broad-sided by Metro's Main Street light rail. The last six years are likely to be remembered as the most ruinous time for public transportation in Houston's history as Metro has pursued a single-minded obsession to build its version of an at-grade rail system regardless of the cost, both in financial terms and in the degradation of the bus system on which over 100,000 Houstonians rely daily. Fortunately, Mayor Parker has ordered top-to-bottom review of the agency. Here is what that review is likely to find.
Decline in Ridership. Since 2004, Houston population has grown by over 10% from just over 2 million to 2.25 million. At the same time gas prices rose 47% from $1.81 per gallon to $2.67 per gallon. These two factors should have virtually guaranteed an increase in transit. However, exactly the opposite has occurred as bus boardings dropped almost 24% from 88 million in 2004 to 67 million in 2009. Instead of increasing bus service by 50% as it promised the voters in the 2003 referendum, Metro has slashed bus routes and increased fares by over 50%. Today Metro actually operates 225 fewer buses than it did in 2003. An outside performance audit in 2008 found that on-time performance fell by 29% from 2004 to 2008.
Financial Disaster. Since 2003, Metro's sales tax revenues have increased by 43%, rising from $357 million to $512 million. At the same time, its fare revenue increased by 41% from $42 million to $60 million by charging an ever dwindling ridership more. Yet, Metro is in the worst financial shape in recent history. At year end 2003 Metro's current assets exceeded its current liabilities by $125 million. The budget just adopted by the Metro board projects that it will have current accounts deficit of $165 million by the end of this fiscal year, a stunning loss of nearly $300 million in just five years. Over the same period, Metro's debt has swelled by nearly 50% from $546 million to $816 million. [. . .]
In the meantime, the cost of the [Metro’s Light Rail Transit lines] has risen from the $1.2 billion originally estimated to something well in excess of $3 billion. Metro is seeking to borrow $2.6 billion to build the LRT, over four times what it promised the voters would be the limit in the 2003 referendum. Originally, Metro assured voters that it could build the LRT without tapping the mobility payments that are so critical to the Houston and the other member cities. Metro's projections now show that it can only afford the LRT if those payments are terminated in 2014. [. . .]
In 2003, after a spirited public debate, this community approved, by a narrow margin, a consensus plan to enhance public transportation with a multi-modal approach. Part of that bargain was a limited experiment with a light rail system. The voters specifically limited the resources that Metro could devote to the light rail for fear that the cost might undermine the solid, dependable bus service that existed at that time. Metro's leadership has shredded that contract with the voters in favor of its own grandiose vision of transit that has little to do actually solving Houston's mobility problems. In the meantime, traffic congestion continues to get worse and working families that rely on public transportation to get their jobs everyday find riding Metro a more difficult and more expensive proposition.
Read King’s entire post. Metro’s defenders typically rely on the 2003 referendum as the primary basis for their continued support of such wasteful spending. But the problem with such referendums is that they ask voters to approve large public ventures such as Metro in a vacuum while ignoring Peter Gordon's three elegantly simple questions regarding economic choices:
1) At what cost?
2) Compared to what? and
3) How do you know?
For example, assume for a moment that voters were informed of the fact that the average urban freeway lane costs about $10 million per mile and that the average light rail line costs over $50 million per mile while carrying less than one-fifth as many people as the freeway lane. And these are only average figures.
Moreover, let's assume that voters were informed that the expenditure of a billion or so of public money on expanding a lightly-used light rail system has real consequences, such as leaving inadequate funds to make improvements to Houston's infrastructure that would dramatically decrease the risk of death and property damage from flooding. Or whether the billion or so being flushed down the light rail drain would be better used to fix various area traffic "hotspots" where accidents or bottlenecks occur with high frequency.
No one knows for sure, but my bet is that voting results would be dramatically different if the foregoing costs and alternatives were included as a part of the referendum.
Unfortunately, the relatively small groups that benefit from these urban boondoggles have a vested interest in keeping that threshold issue from ever being re-examined. The economic benefit of light rail is highly concentrated in only a few interest groups, such as political 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; construction-related firms that feed at the trough of Metro's poor investment decisions; and private real estate developers who enrich themselves through the increase in their property values along the rail line. As Professor Gordon wryly-noted in another post: "It adds up to a winning coalition."
Unfortunately, once such coalitions are successful in establishing a governmental policy subsidizing such boondoggles, it is much more difficult to end the public subsidy of the boondoggle than to start it in the first place.
None of these above-stated reasons for mass transit appeal to the vast majority of the electorate, so this amalgamation of interest groups continues to disguise their true interests behind amorphous claims that the uneconomic rail lines reduce traffic congestion (they do not), curb air pollution (they do not), or improve the quality of life (at least debatable).
How do these interest groups get away with this? The costs of such systems 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 interest 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 an uneconomic rail system.
Metro's rail system is a bad virus that has infected Houston. The cost of treating this civic virus is growing larger each month. Without immediate re-examination of Metro's light rail plan, the increasing costs of this plan risk turning this currently manageable problem into a major civic fiscal crisis that could negatively affect the Houston area's growth and prosperity.
As Bill King exhibits, real leadership involves recognizing that risk and addressing it, not indulging it.
September 29, 2009
In addition to being quite frustrating from a purely football standpoint, attending Houston Texans games is incredibly expensive. And as ESPN.com's Lestor Munson points out, if the NFL has its way in the American Needle case currently pending before the U.S. Supreme Court, then professional franchises will have virtual carte blanche to coordinate high prices with other clubs in their leagues.
A group of sports economists led by Roger Noll have filed the brief below with the Supreme Court explaining how the NFL position in favor of an exemption from anti-trust laws will likely result in a loss of consumer welfare. In short, the economists argue that economic research provides a firm basis for distinguishing between collaborative activities of league members that enhance economic efficiency and benefit consumers, on one hand, from collusive activities that are not essential for the efficient operation of a league and that simply benefit league members by reducing competition among teams.
The owners of professional sports leagues have already received a dramatic financial benefit from the billions of dollars of public financing for stadiums that local governments have thrown their way over the past generation. Providing an unnecessary anti-trust exemption that will provide anti-competitive incentives for league members while providing no economic benefit to the members' customers will only make matters worse.
Food for thought as Houston leaders prepare to gift-wrap another dubious public subsidy for the owners of a professional sports franchise.
August 25, 2009
Except apparently in Houston.
Over the past few days, Houstonians have been bombarded with a flurry of bad decisions by their public officials, who seem undeterred by the growing consensus that the nation is going through the worst economic recession since the Great Depression of the 1930's.
First, as Kevin Whited notes, the City of Houston publicly announced this past Friday that it had removed the final local regulatory roadblocks to the construction of the long-delayed Ashby high-rise condominium project in a tony residential subdivision near the Texas Medical Center. In so doing, the City forgot to tell the news to the most interested people, namely the owners of the property where the project is to be built.
At any rate, the City's announcement ended an egregious example of local governmental interference with productive development of private property. Of course, in the present climate for financing high-rise condos, the chances of the owners being able to revive the project any time soon are about as good as the Stros' chances of leaping into World Series contention.
Thus, rather than having dozens of wealthy condo owners paying substantial amounts of property taxes and for other City services, the City continues to enjoy the "benefit" of a run-down apartment complex on the property where the Ashby high-rise was to be built.
So, not only did the City fail to take advantage of the opportunity to increase its tax base through re-development of the Ashby high-rise site, it benefited the owners of the site by deterring them from taking the financial risk that would have generated that financial boon to the City.
Now, that type of government mismanagement really takes some effort.
Meanwhile, as if trying to one-up the City's bungling of the Ashby high-rise deal, local governmental officials were reported on Monday to be on the "home stretch" of putting together a financing package for construction of a new downtown soccer stadium, a new jail facility and the redevelopment of the Astrodome.
I mean, really. Where to start?
As noted many times, the City has already paid millions at a top-of-the-market price for the site of the proposed soccer stadium while at least maintaining that it's up to the owners of the Dynamo soccer club to put together the private financing for the construction of the stadium itself.
Now, the City is going to finance the construction of the soccer stadium itself through selling TIRZ bonds? When did the prior approach change? Did I miss something?
Similarly, there's not much left to say about the City and the County governments' reprehensible handing of the Harris County and City jails, both of which have both been condemned by the Department of Justice because of their horrific condition and mismanagement (the latest on the City jail conditions is here).
It's clear that the true problem of the existing jails is a combination of underfunding and needless overcrowding from sloppy processing of prisoners who do not need to be incarcerated pending their trial. So, what do local governmental officials do? Wait until the conditions become so barbaric that all they can do is throw tens of millions of dollars (perhaps illegally?) at constructing yet another jail facility in an attempt to placate federal officials.
But both the proposed soccer stadium and jail facility pale in comparison to the potential boondoggle that is the Astrodome redevelopment project.
After years of assuring local citizens that they would not be called upon to pick up the financing of redeveloping the Dome, local governmental officials are now proposing that the citizens do just that.
And as if to make that change of policy even more galling, the governmental officials who leaked the information on the financing plans to the Chronicle did not even bother to spell out what the Dome is to be turned into as a result of the redevelopment.
So much for transparency, eh?
In the meantime, as City and County officials dither over the details of these proposed boondoggles, City officials continue to ignore this ticking financial time bomb (see also here) while wasting billions on yet another boondoggle, the spending on which swamps even the quarter of a billion proposed for the current round of boondoggles.
Frankly, it's difficult to imagine how even the traditionally resilient Houston economy is going to withstand the dead weight of such pervasive financial mismanagement.
June 8, 2009
Over the weekend, the Chronicle ran this story about Harris County officials considering an idea to convert the Astrodome into a planetarium and a medical and science education facility. It's actually a good idea and one that was suggested here months ago. Given the Dome's proximity to the Texas Medical Center, a county/med center partnership to turn the Dome into the premiere medical/science educational facility in the world makes a lot of sense.
On the other hand, the financing of such a project is not going to be easy, particularly in this economic climate. Nevertheless, given the potential benefit to Houston of becoming a leader in medical/science education, hopefully county officials will give this proposal a fair shake. It certainly makes far more sense than the alternative proposal.
Common sense aside, everyone needs to realize that this new proposal could effectively be scuttled by the financial commitments that have already been made in connection with Houston's previous poor public financing choices. That risk reminds us that such poor utilization of resources ultimately has consequences. It could a harsh irony if Houston's most well-known landmark is a victim of those bad choices.
March 2, 2009
My wife and I attended the annual Houston Livestock Show and Rodeo Barbeque Cook-off at Reliant Park over the weekend, so we again were reminded of the wasteful land use represented by the Astrodome.
With the rodeo and related activities cramped for space and Reliant Park desperately in need of more convenient parking, why do our local leaders persist in chasing rainbows over an obsolescent stadium that is expensive to mothball and has no alternative use absent a massive and risky governmental subsidy?
Meanwhile, with our local governments already locked into tens of millions of dollars of subsidies in regard to a proposed stadium for Houston's minor league soccer club, perhaps a few of our local leaders should review this AZCentral.com article about the bath that Glendale, Arizona is taking in regard to bailing out the Phoenix Coyotes National Hockey League team, which is the primary tenant of the Glendale's local arena. The Coyotes have lost over $200 million since moving to Glendale five years ago.
Thus, on one hand, Houston governmental leaders waste millions annually while they dither over what should be an easy decision regarding valuable government-owned property. On the other hand, local leaders have committed tens of millions of dollars in subsidies to a venture that is far more speculative than even a National Hockey League team.
In short, our leaders are fiddling while Rome burns. And, as Leo Strauss once observed, what makes matters worse is that those leaders not only fail to realize that they are fiddling, they don't even appear to understand that Rome is burning.
August 22, 2008
Kevin Whited passes along this Bellaire Examiner article that reports on Metropolitan Transit Authority CEO Frank Wilson bragging to a couple of local Chambers of Commerce about the economic impact that Metro's new light rail projects will have on Houston:
The Metropolitan Transit Authority’s construction of nearly $2 billion in light rail projects will be an economic boon to the entire Houston area, Metro Executive Director Frank Wilson said recently.
The light rail projects will create 10,000 jobs in the next four years, in addition to having a “secondary and tertiary economic impact,” Wilson told members of the Greater Southwest and Asian Chambers of Commerce on Wednesday.
When Metro spends that much, there is a ripple effect of about $300 million that he said will end up in the hands of small businesses.
“Our effort is to spend it sooner, rather than later,” Wilson said. “By this time next year, all five (rail) lines — $2 billion — is going to be in play,” Wilson said.
The economic benefit will happen as 10,000 people go to work on Metro’s rail projects, he said.
“When 10,000 people go to work, what else do they need? They are going to spend whatever money we give them to spend, and spend it again,” Wilson said. “If you’re an economist, and you look at that — the economic impact is going to be immense.”
Wilson is engaging in a common political sleight-of-hand in which transfers of wealth are promoted (distorted?) as wealth creation. For example, building a new highway creates economic wealth only to the extent that it enhances economic productivity, not because of the jobs that are involved in building it. Creating jobs to construct the highway is really no such thing -- the state is simply transferring the jobs from other sectors of the economy.
Moreover, the government-created jobs aren't even as good in terms of wealth creation as the jobs they replace. That's because it costs taxpayers more when government agencies are spending the money. This Heritage Foundation report recently made this point in response to a recent Department of Transportation assertion regarding the alleged "job creation" benefit of highway spending.
Thus, when you hear bureaucrats such as Wilson talk about "secondary and tertiary economic impact," hold on to your wallet. Unless productivity enhancement is substantial, these types of government investments are generally boondoggles. Inasmuch as taxpayers have to pay $1.50 (or more) for the government agency to spend a dollar, it's easy to understand why that is the case.
August 7, 2008
Despite their previous staunch opposition to the project, the Houston Livestock Show and Rodeo and the Texans signaled that they may be able to coexist with a convention hotel that would be built in the Astrodome.
Their more conciliatory attitude toward the 1,300-room project was evident in recently submitted reviews of the proposed convention hotel lease. . .
And since the promoters of the project already have a financing commitment lined up, this deal is about ready to take off, right? Uh, well, maybe not:
Even if the Texans and the rodeo drop opposition to the project, Astrodome Redevelopment Co. still needs to obtain financing for the ambitious, $450 million effort to transform the building once known as the Eighth Wonder of the World into a convention hotel.
Astrodome Redevelopment president Scott Hanson said the company's efforts to obtain financing have been hampered by an inability to strike a lease with the sports corporation, which oversees Reliant Park operations, including the Astrodome.
"The (commercial lending) market is much tougher now. Quite frankly, we have been waiting on getting an approved lease before we go back out into the marketplace," he said.
So, what happened to that financing commitment for the project about which the Chronicle previously reported? What the heck, even in a tough lending market, half-a-billion or so in financing shouldn't be all that difficult to line up for a project that almost certainly will be a financial success, now could it? Well maybe, except that the parent company that owns the model for the Astrodome hotel project -- The Gaylord Texan -- is not exactly doing all that well:
The Star-Telegram has a story today about the Gaylord Texan’s parent company, Gaylord Entertainment, reporting a second quarter revenue increase of 36 percent over last year—but a net income drop of 91 percent. The company reported a net income of $106.8 million in Q2 ‘07; for Q2 ‘08, they’re looking at a net income of $8.78 million. That’s right, eight. They blame it on decreased attendance at conventions. Does this bode well for the convention center hotel business?
So, let's get this straight. After not being able to arrange financing for this boondoggle during the robust equity and credit markets that existed up to 2007, the promoters think they are going to be able to line up financing in the current tight financing market for a business that is not even doing particularly well?
Give it up folks.
Update: Kevin Whited suggests that the promoters' PF staff should retain the Chron's Murphy.
June 30, 2008
However, why is it that common sense seems to evaporate into thin air whenever either TSU or the soccer stadium is mentioned? Buried in this Chronicle article about TSU's failure to prepare its students adequately to pass state licensing examinations is the following gem of analysis on TSU's proposed investment in the Dynamo stadium:
TSU President John Rudley and athletic director Charles McClelland also gave an early report on negotiations to share a new stadium with the Dynamo, Houston's professional soccer team.
McClelland said the proposed $105 million stadium would seat 21,000. In exchange for a $2.5 million investment, TSU would get a 20-year lease, a locker room, 50 percent of concession sales and 100 percent of the profit on TSU merchandise sold there, he said.
The deal is preliminary, and regents won't vote for a while. The stadium won't be completed until 2010 or 2011, he said.
McClelland, on the job just a few months, said the deal would be a good investment for the university, whose football team plays mostly at the University of Houston's Robertson Stadium, at a cost of $40,000 a game.
The Tigers occasionally rent Reliant Stadium, which costs $115,000 a game, he said.
Investing in a new stadium would be cheaper in the long term, he said.
TSU has a stadium, but it seats only 4,500 — too small for the competitive football program McClelland has promised to build — and lacks the amenities people expect.
Let's see now. In return for pre-paid rent of $2.5 million (which TSU really doesn't have to throw around right now), TSU gets a 20-year lease, 50% of concession sales (on only its games or on all events of any type?), a locker room, 100% of TSU merchandise sales and a pink slip at the end of the 20-year lease term. I hope that locker room is really nice.
Meanwhile, without paying a dime up front, TSU can continue to lease Robertson Stadium on the University of Houston campus for about $200,000 per year (5 home games x $40,000) or $4 million over a 20-year term. While playing at Robertson, TSU could invest the $2.5 million that it wouldn't have to pay the Dynamo and easily generate at least another $2.5 million off that investment over the 20-year lease term. At the end of 20 years of playing at Robertson, TSU would have a net surplus of at least $1 million to play with.
So, in view of the foregoing, my question is this: How could any reasonably responsible TSU leader even consider using the scant existing financial resources of that institution to invest in the Dynamo soccer stadium?
Perhaps the answer is revealed in the last paragraph of the Chron article:
Regents cautioned Rudley and McClelland to make sure TSU has good representation in the negotiations. "They're sharks," Javier Loya said of the Dynamo's leadership.
Update: Some folks actually think this is a good deal for TSU!
June 21, 2008
Warren Meyer has some fun commenting on the latest Phoenix-area urban boondoggle -- a three-quarter of a billion dollar state subsidy for an amusement park in the Arizona desert!
Of course, that subsidy is peanuts in comparison to the subsidy that Houston is gearing up to pay in connection with this local boondoggle (see also here and here). Why invest billions in an inflexible light rail system in a region that is not densely-populated, contains numerous and dispersed employment centers and possesses an excellent freeway system that would facilitate a far cheaper and more effective bus system?
In this recent post about the Miami transit system, Randal O'Toole sums up the common characteristics of light rail systems in areas without the density of population to generate the ridership necessary to make them economically viable:
1. Transit agencies might run excellent bus systems. But when they start building rail, they quickly get in over their heads by optimistic forecasts, unforeseen costs, and the sheer humongous expense of building dedicated transit lines.
2. Though all rail systems require periodic expensive maintenance, few transit agencies set aside any money for this because it is easier to spend the money now and let future managers worry about the future.
3. Though the rail systems are usually built to serve downtown white-collar workers, in the end it is the transit-dependent people who rely on buses who pay the cost.
4. There is only one thing rails can do that buses can’t do better, faster, and more flexibly, and that is spend a lot of your money.
The enormous cost relative to usage and inflexibility of most light rail systems reminds me of something that USC urban economist Peter Gordon observed a couple of years ago about the political forces that support these boondoggles. Some are disingenuous promoters seeking to profit from the rail lines, others pose as high-minded environmentalists and many are simply ignorant of the inefficiency and inflexibility of such systems. Professor Gordon wryly points out:
"It adds up to a winning coalition."
Professor Gordon provides more recent perspective here.
June 4, 2008
Slugging is a term used to describe a unique form of commuting found in the Washington, DC area sometimes referred to as "Instant Carpooling" or "Casual Carpooling". It's unique because people commuting into the city stop to pickup other passengers even though they are total strangers! However, slugging is a very organized system with its own set of rules, proper etiquette, and specific pickup and drop-off locations. It has thousands of vehicles at its disposal, moves thousands of commuters daily, and the best part, it’s FREE! Not only is it free, but it gets people to and from work faster than the typical bus, metro, or train. I think you'll find that it is the most efficient, cost-effective form of commuting in the nation.
Here is the etiquette and rules of the process. Being a "slug" doesn't sound all that bad! ;^)
June 1, 2008
Based on what's going on in Washington, D.C., my prediction on the eventual public subsidy of the proposed Dynamo soccer stadium in Houston may be a tad low. With D.C.'s proposed $150 million public subsidy for about 25,000 seats, that works out to $6,000 per seat for what amounts to minor league soccer. Is there any rational argument that such an outlay could possibly be worth it for D.C. citizens?
By the way, Dennis Coates, the professor of economics at the University of Maryland-Baltimore County whose recent op-ed on public subsidies for stadiums was featured here, narrates the short Reason.TV video below on the same subject, focusing on the Washington Nationals new stadium (H/T Skip Sauer) :
May 27, 2008
Randal O'Toole went on a bus tours of different parts of Houston while he was in town for the Preserving the American Dream Conference a couple of weeks ago and he chronicles his impressions with observations here (neighborhoods between downtown and the Galleria area) and here (one of the Houston area's several master-planned communities, Sienna Plantation). Upon finishing the tour of Sienna, O'Toole commented on the trip back to his downtown hotel:
After finishing up our tour of Sienna, we took the Fort Bend Parkway, one of the region’s many toll roads, back to Houston. This 6.2-mile, four-lane highway required just over a year to build and opened in 2004 at a cost of $60 million. That’s less than $2.5 million per lane mile, including on- and off-ramps, over- and underpasses, and toll facilities. By comparison, $60 million would barely get you one mile of light rail and less than a mile of heavy rail. The toll for the 6.2 miles was $2, even for our full-sized buses.
And compare that to this!
May 14, 2008
In this post from last week on the proposed downtown soccer stadium, I observed that the Chronicle should simply declare that it supports the public financing of the stadium and quit attempting to rationalize that such financing makes economic sense.
Well, based on this Glenn Davis/Chronicle column, it looks as if the Chronicle took me up on my suggestion.
Actually, Davis' column is about as good a rationalization for the public financing of the soccer stadium as you will come across. He eschews the economic-benefit ruse and instead contends that it's worth spending public money on the Dynamo because the club represents the city well internationally, particularly in Mexico and Central America. On the other hand, Davis stretches by suggesting that "the team deserves its own stadium [because it] would elevate the sport and city even more in the eyes of the world."
Just to be clear -- there is nothing inherently wrong with public financing of sports stadiums. Davis might even have a valid point that it's worth using public funds to invest in the Dynamo to bolster Houston's image internationally, although it would seem that at least some consideration should be given to alternative investments before coming to the conclusion that financing a soccer stadium is the best way to achieve that goal. But let's at least have truth in advertising during the remaining public discussion on this issue -- the marginal economic benefit of a soccer stadium to the community is simply not a good reason to finance it publicly.
May 9, 2008
Look, I realize that the reasoning in support of public financing for the proposed Houston Dynamo soccer stadium has not been particularly rational. But this Chronicle article takes the cake in terms of suspending reality. Chron reporters Bernando Fallas and Bill Murphy breathlessly suggest that financially-troubled Texas Southern University -- which is currently seeking $40 million in emergency legislative funding simply to keep the lights on -- is a serious player to make up at least a portion of the gap between the private and public financing on the deal:
Forget soccer-specific. The Dynamo would be thrilled to call their proposed stadium football-specific or even fútbol-specific.
Either way would be accurate — soccer is known as football almost everywhere else in the world — if the Dynamo can get Texas Southern University to join negotiations with the city of Houston toward the construction of a $105 million facility just east of downtown that would be home to the two-time defending MLS champions and TSU athletics, primarily the Tigers' football team.
By the looks of things, TSU is prepared to do just that.
Two weeks after he first expressed interest in the project and a couple of meetings and phone conversations later, newly appointed TSU athletic director Charles McClelland said the school is willing to invest in the construction of the 22,000-capacity stadium in exchange for the rights to use it. [. . .]
Of course, the article is utterly devoid of details, such as how TSU is going to find any money to throw at this deal, much less make a multi-million dollar investment in it. Heck, the TSU athletic director and the Dynamo's president haven't even met yet, so it doesn't even appear that Dynamo management takes TSU's involvement seriously. Why don't the Chronicle editors just come out and say that they really want the city to finance the downtown soccer stadium and spare us such vapid articles as this one? Gosh, it's gotten so bad that even normally common sense bloggers are giving in to this silliness.
Meanwhile, J.R. Taylor over at PoliSci@UST runs circles around the Chronicle's reporting on the soccer stadium financing with this well-reasoned post that actually addresses facts regarding public financing of stadiums. Yet another example of how the blogosphere is trumping the mainstream media in terms of providing coherent analysis of important issues.
April 30, 2008
As if on cue for the soccer stadium financing issues currently being discussed on the local scene, Dennis Coates provides this excellent op-ed in The American on the dubious nature of municipal stadium subsidies:
Clearly, stadiums built with public funds have evolved over time. No longer are they built to honor the sacrifices of American soldiers. No longer are they built to be flexible venues capable of hosting a great variety of events. And no longer does the public sector determine the appropriate price to charge private enterprise for use of this publicly supplied resource. Today, sports stadiums are largely the private domain of for-profit businesses that the public sector subsidizes, often with special taxes. [. . .]
Over time, both the purpose and the real cost of public support for stadiums and arenas have changed. It may be that the subsidies state and local governments provide for stadium and arena construction and operation are justified by the community benefits those facilities provide. But the evidence says otherwise. [. . .]
My own research, conducted with economist Brad Humphreys . . . finds that the professional sports environment—which includes the presence of franchises in multiple sports, the arrival or departure of teams, and stadium construction—may actually reduce local incomes. For example, we found that the overall sports environment reduced per capita personal income, a finding that was new in the economic literature at the time we published it (1999). We also found that, in many local economies, wages and employment in the retail and services sectors have dropped because of professional sports. [. . .]
Of course, even if the benefits of stadiums and arenas cover the subsidies, the subsidies still may not be sound policy. First, there may be enormous variation in the distribution of the consumption and public-good benefits. It is clear that not all citizens in a community benefit equally from the presence of professional sports franchises in their city. Indeed, because the tax revenues used for the subsidies are often generated from lotteries and sales taxes whose burden falls disproportionately on the poor, while the consumption benefits go mostly to relatively wealthy sports fans, the net benefits are distributed regressively. Second, we should consider the net benefits to the community of alternative uses of the funds spent subsidizing sports facilities. Good policy means using the money where the net benefit is greatest, not simply where the net benefit is positive. That’s something state and local governments should keep in mind before pledging millions of dollars to fund the next new stadium project. And it’s something Congress should remember when evaluating the future of U.S. tax policy.
April 22, 2008
For example, this earlier post summarized Mayor White's dubious decision-making in regard to having the city buy expensive and not particularly well-located downtown land for the new Houston Dynamo soccer stadium. Not only did the city already own nearby property that is a better location for the stadium, Mayor White pushed through the land acquisition despite not having a binding commitment from the soccer club owners on the amount of their contribution to the cost of the stadium's construction.
Given the foregoing, who except Mayor White was surprised last week when Major League Soccer (which is really just a minor soccer league) sent a letter to the Dynamo owners that was (again, surprise!) passed along to Mayor White that threatens to relocate the Dynamo if a satisfactory stadium deal isn't reached? For good measure, MLS and Dynamo officials informed the city that the estimated price of the stadium has increased from $90 million to $105 million and that some MLS cities have contributed as much as 90% of the cost of similar stadiums.
So, what was Mayor White's reaction? Tell these minor leaguers to take a hike to Corpus Christi or Beaumont? Apologize to the citizens for having the city lay out $15-20 million for property that it doesn't need? Promise that he won't get taken to the cleaners again in negotiations with minor league sports club owners? No, Mayor White did his best tough guy imitation:
"I've gotten a little bit of a reputation, probably deserved, that I don't respond well to threats," he said. "I smiled."
If Mayor White is smiling, then imagine what the MLS and Dynamo officials are doing after the way in which those minor leaguers have had their way with Mayor Bill in these negotiations?
The only good news about all this is that the $50-75 million that the city will probably end up dropping over this soccer stadium boondoggle represents only about a couple of months of losses of this much larger boondoggle, which -- you guessed it -- Mayor White strongly supports. And those aren't the only questionable management decisions that the Mayor has made during his tenure (for example, see here, here, here and here).
How much longer can Houston afford Bill White?
April 11, 2008
Check out this recent Second Circuit decision (H/T to Robert Loblaw) as an example of how the appellate courts are applying the U.S. Supreme Court's controversial 2006 decision in Kelo v. New London. Kelo allows the state to seize private property to facilitate private re-development as a legitimate form of "public use" under the U.S. Constitution.
Kelo has been widely criticized for creating perverse incentives for politically well-connected real estate developers to exercise their political clout where negotiation with private property owners didn't generate the developers' desired result. The Second Circuit case involves the huge redevelopment plan in downtown Brooklyn that will primarily benefit Bruce Ratner, a wealthy New York real estate developer. In addition to the ubiquitous office buildings and high-rise condos involved in such deals, the redevelopment will include a new arena for the New Jersey (soon to be Brooklyn) Nets NBA basketball club. Although most of the property to be contributed to the development is public land, the redevelopment plan also requires the state to seize several tracts of private property through exercise of its eminent domain power.
The private property owners sued and argued that the state's claim of public benefit is a facade, as the Second Circuit puts it, "to benefit Bruce Ratner, the man whose company first proposed it and who serves as the Project’s primary developer. Ratner is also the principal owner of the New Jersey Nets. In short, the plaintiffs argue that all of the 'public uses' the defendants have advanced for the Project are pretexts for a private taking that violates the Fifth Amendment."
The Second Circuit upheld U.S. District Court dismissal of the property owners' claims, explaining that the massive private benefits to Ratner do not trump the state's judgment that the project will also benefit the public. Moreover, even though the costs to the property owners may far outweigh the public benefits, the Second Circuit concludes that type of cost/benefit analysis is irrelevant under Kelo:
At the end of the day, we are left with the distinct impression that the lawsuit is animated by concerns about the wisdom of the Atlantic Yards Project and its effect on the community. While we can well understand why the affected property owners would take this opportunity to air their complaints, such matters of policy are the province of the elected branches, not this Court.
Given such dubious "public" ventures as this, the implications of the foregoing interpretation of Kelo are downright frightening.
February 29, 2008
On one hand, private businessmen invest millions in buying a run-down property and following the city's existing laws and regulations in preparing to build the Ashby high-rise, a large-scale residential redevelopment similar to dozens of others that dot Houston's landscape. When neighbors of the development object to the scale of the development relative to the surrounding neighborhood, Mayor White orders one of the city's approvals relating to traffic ingress and egress to be revised to delay or undermine the development altogether.
On the other hand, Mayor White proposes that the city spend at least $15-20 million to buy six blocks of downtown Chinatown property at a premium price for a soccer stadium that will block more east-west thoroughfares in a part of downtown where Minute Maid Park, the George R. Brown Convention Center and the Toyota Center already block a large number of such thoroughfares. Moreover, Mayor White is pushing this deal through City Council even though the city already owns six blocks nearby that is a better location for the soccer stadium (it wouldn't block any additional east-west thoroughfares and wouldn't require a major modification to another boondoggle). Meanwhile, the city has no financial commitment from the local soccer team even to build the stadium.
This is making the Harris County Commissioners' dithering over the Astrodome hotel project look downright prudent in comparison.
February 27, 2008
It is a reflection of how low my expectations have sunk for rational decisions from Harris County officials. I actually felt a sense of relief that officials do not appear to be taking this seriously:
Lights, camera, action: Dome needs a makeover
The Astrodome was a stage for baseball and football prima donnas to strut their stuff, but it could become a forum for Hollywood stars.
At least that's what would happen if the Houston Association of Entertainment Professionals gets its way.
The association, a new, non-profit group representing film industry workers, has heard that not all county officials support the Astrodome convention hotel plan and has come up with an alternate proposal -- turning the Dome into a film production studio.
"It would bring an entire new economy to Houston," said association president Elise Hendrix. "We should make a home for the film-making industry."
Astroturf and stadium seating would give way to studio space where sets could be built, a film-processing operation that could produce dailies, a 100,000-square-foot, underground sound stage and offices.
Hendrix pitched her idea to the Houston Film Commission, an arm of the Greater Houston Convention and Visitors Bureau, last week.
But she and other association members may appear light on the gravitas needed to have their plan taken seriously. Hendrix, 25, is a professional makeup artist who left the University of Louisiana at Lafayette before graduating. She was a fashion design and merchandising major.
The association doesn't have a web site, only a page on MySpace.
But Hendrix said the association is courting investors who would put up the estimated $50 million to $200 million needed to gut the Dome and turn it into Astrodome Production Facilities. She declined to name investment groups that she is courting.
Willie Loston, director of the Harris County Sports and Convention Corp., which oversees Reliant Park, said the association hasn't contacted him about the proposal.
"Great," he said after learning of it. "They got some money?" [. . .]
Given the speculative nature of the Astrodome Hotel
boondoggle project, and assuming that the County powers have decided that razing the Dome is political suicide, why aren't County and Texas Medical Center officials figuring out a way to renovate the Dome into the premiere medical training and education facility in the world? Just a thought.
February 18, 2008
Kevin Whited and Cory Crow continue to express amazement at the delusional nature of county officials and the Houston Chronicle over the proposed Astrodome hotel project that is now in its fourth year of being bandied about. The latest Chronicle effort to breath life into this boondoggle is this weekend article that carries the following headline:
"Dome plan could bring in millions"
"Report also says hotel would have 72 percent occupancy rate"
More realistically, the headline could have read as follows:
"Dome plan could cost County millions"
"Report says that hotel would have only 72 percent occupancy rate"
All depends on one's point of view, eh?
Given my extensive blogging on this boondoggle, I won't go into all the reasons why converting the Astrodome to a destination hotel is unlikely to happen without a large public subsidy. Suffice it to say that if private financing for Astrodome hotel could not be arranged over the past several years when the market for such financing was quite good, then it's not going to happen in the foreseeable future now that credit and equity markets have pulled back from such speculative investments. So, if this deal is going to proceed, then get ready to provide a bountiful public subsidy for it.
However, one name mentioned in the Chron story reminded me of an instructive legal matter I handled back in the mid-1980's. The matter involved an Astrodome-area hotel that had been promoted to investors and built immediately before the bottom fell out of the local commercial real estate market when the price of oil and gas tumbled to record lows at the end of 1985. I ended up representing the promoters, who had guaranteed a large portion of the construction financing on the hotel.
During the year or so that my clients owned the hotel, it never came close in any month to generating enough revenue to cover the operating expenses of the hotel, much less generating anything for my clients to use to pay debt service on the construction financing. Not surprisingly, the bank eventually foreclosed on the hotel. The promoters and investors lost their entire investment in the hotel.
Guess who the consultant was who prepared the glowing feasibility study that helped persuade my clients to promote and finance that boondoggle?
Yup. John Keeling.
February 12, 2008
Longtime Houstonian Bill King is a common sense fellow who serves on the Transportation Council, a group of elected officials and agency staffers that sets priorities for transportation spending in the 13-county Gulf Coast region. In this Chronicle op-ed from over the weekend, he reviews the Metro light rail system's horrific ridership numbers (previous posts here) and concludes that -- given the massive sunk costs invested in the light rail system -- the ridership numbers are so bad that it makes economic sense to attempt to increase ridership by simply allowing riders to use the system free-of-charge:
Today, the Metropolitan Transit Authority reports slightly under 300,000 daily "boardings." Because of transfers, it is a little bit of guesswork to determine how many commuters are actually using transit. But it is probably something in the 120,000-130,000 range. For every commuter we can convince to take a train or bus to work, we get one car off our roads. That means less congestion and fewer emissions and collisions. Clearly a good thing.
Metro has developed a far-ranging, multibillion-dollar plan dubbed Metro Solutions that it hopes will increase transit ridership. Phase 2 of that plan consists of five light rail lines and will cost about $2.2 billion. The ultimate cost will undoubtedly be higher. Metro projects that its Phase 2 lines will have about 140,000 daily boardings. However, these lines will replace existing bus service along the same routes, so not all of the boardings will represent an increase in transit ridership. The net increase on the Main Street line from switching to light rail has been about 19 percent.
If this ratio holds on the Phase 2 lines, we should pick up an increase in daily boardings of about 20,000 to 30,000 or something like 10,000 to 12,000 new transit riders. This is a very small increase compared to well over 1 million daily commuters in Houston.
The traffic models indicate that this relatively small increase will be about offset by the lost street lanes the rail lines will use and the scores of new street level crossings. As a result, there will be no meaningful reduction in traffic congestion from the Phase 2 lines. [. . .]
. . . Metro recovers a very small percentage of its costs through fares. In fiscal year 2006, Metro only collected about $54 million in fares compared to $435 million in operating expenses, or only about 12 percent. That is because Metro gets the overwhelming majority of its funds from a 1 percent sales tax. And Metro is currently enjoying a boom in its sales tax revenues. In the past two years, sale tax receipts have increased by approximately $84 million and are on track this year to increase almost another $40 million. Metro currently is sitting on nearly $400 million in cash, receivables and short term investments.
Also, Metro spends about $5 million a year collecting its fares and advertising, expenses that could be dramatically reduced if fares were eliminated. So eliminating fares would probably only cost us around $50 million annually. [. . .]
Elimination of fares is not an end game solution. There is still a pressing need for expanded transit service throughout the region. But going to a fare free system may be a way to jump-start a new transit paradigm. With a larger transit constituency, public support for new programs may grow.
The nice thing about the idea is that it is not irrevocable. If it does not result in the hoped for benefits, we can always reverse course and try something else. Houston's transit program has been log-jammed for years with no end in sight. Personally, I am ready to try something different, even if it is a little "out of the box."
Bill King is a good sport and I give him credit for attempting to make the best of a terrible investment. He is not attempting to justify the construction of Phase 2 of the light rail system by eliminating fares (that would be impossible); he simply references Phase 2 to make the point that eliminating fares would have a bigger impact on ridership at a much lower cost. Most of the benefit of his proposal would probably come from eliminating fares on the Park & Ride system and using the system's unused bus capacity.
However, thinking "outside the box" in the face of these numbers (10-12,000 more daily light rail transit riders in return for a $2.5 billion investment?) calls for something far more than just "let'em ride free." Indeed, you could quadruple that increase in daily ridership and it would still be an extremely poor return on investment of public funds.
A more appropriate response in the face of such a poor cost/benefit ratio is to cut the losses altogether, halt the light rail project where it stands and either return the public capital at Metro to the taxpayers or use the funds on something that will truly benefit a substantial portion of the area citizens (flood control or more flexible area-wide bus transit, maybe?). Just how much money will Houston's political leaders allow Houston-area residents to blow before exhibiting true leadership on the colossal light rail boondoggle?
Update: The Chronicle's transit columnist, Rad Sadlee, comments here on King's op-ed.
February 5, 2008
I understand that Ed Emmett is not the Chronicle's favored candidate for Harris County Judge. But isn't it a bit odd for the Chron to be fanning criticism of Emmett for showing rare leadership over the pie-in-the-sky Astrodome hotel redevelopment deal (previous posts here)?
Look, this is really very simple. No equity investor or financial institution in their right mind is going to invest upwards of half a billion dollars to redevelop the Dome into a convention hotel. If there were such investors, they would have stepped up in the over three years that this proposal has been floating about town and the financial markets. The fact that the Astrodome hotel would not even have the primary right to use the Reliant Park space that it sits upon for over a month out of the year (roughly 22 days for the Houston Live Stock Show & Rodeo and another dozen or so days for the Texans) only makes the hotel proposal more speculative in nature. That several County Commissioners continue to think that it's a good idea to pursue the Astrodome hotel project does not make it one. Rather, it simply shows why they are County Commissioners and not businesspeople responsible for creating jobs and turning a profit.
And reliance on a poll of Houstonians to keep the Astrodome hotel dream alive is just plain silly. Sure, most Houstonians would like to preserve the Dome. It's a landmark and an architectural treasure. But I doubt that poll revealed to its participants that mothballing the Dome over the past three years has already cost the County $12-15 million that could have been spent on improving roads, flood control or park improvements. Similarly, that poll almost certainly did not disclose to its participants the financial risk that the County would be taking if an Astrodome convention hotel craters, as many such hotels tend to do. If a poll is taken with such information supplied to its participants, then my bet is that the number of Houstonians wanting to preserve this financial black hole would diminish rapidly.
Emmett is showing leadership in moving the decision-making process on the Dome along. The Chronicle is playing politics in criticizing him for it. Set a reasonable deadline for proposals, consider them and then either move forward with one that makes financial sense or raze the Dome and build a parking ramp for Reliant Park that would generate revenue to pay off the bonded indebtedness that remains on the Dome. That may not be the sexist thing alternative, but it's the responsible thing to do.
January 24, 2008
Anne Linehan, Kevin Whited and Cory Crow note this week's "are you kidding me?" moment from City Hall -- two Nancy Sarnoff/Chronicle articles reporting on the trial balloon that Mayor White floated about building a second large convention hotel in downtown Houston next to the George R. Brown Convention Center and the existing 1,200 room, city-owned Hilton Americas Hotel.
Another large downtown convention center hotel is surprising to anyone who has been following the Harris County government's fits and starts in regard to the proposed Astrodome hotel redevelopment project. However, Mayor White recently engineered the hiring of a new leader (Greg Ortale) for the local convention bureau and it looks as if the prospect of elevating Houston to the small tier of U.S. cities with adequate facilities to handle the largest conventions was part of the pitch in that hire.
Does building another big downtown hotel make sense? In and of itself, the answer is clearly no. Private equity interests have no interest in risking their money on such a project, just as they have no interest in doing the same in regard to the Astrodome hotel redevelopment. Thus, the deal only begins to make sense because of the prospect of public financing, which is how the City financed the first downtown convention center hotel.
Despite the lack of any meaningful analysis in the Sarnoff/Chronicle articles, the first hotel has been anything but an unqualified success. The Mayor suggests that the City spent $300 million on it (that seems way low to me) and that its presently worth "at least $350 million" (yeah, but who's buying?). There are a bunch of less risky investments that the City could have made with that $300 million that would have generated more than the speculative $50 million equity that Mayor White thinks the City has in the Hilton Americas.
But the larger question is whether the City ought to be in the business of building convention center hotels in the first place? As Cory points out, the rationale for the investment is that, with the larger number of convention center hotel rooms, Houston could compete with the small number of cities (Las Vegas, Orlando and San Antonio) for the really big conventions that need the concentrated mass of hotel rooms that only those cities offer. Although transit is an issue in getting from the downtown convention area to Houston's cultural areas and attractions, I can see how Houston would be a viable alternative to those other cities. For example, Houston's restaurants, theater district and museum district are better and more diverse than any of the other three alternatives. And Vegas is not every large convention's cup of tea.
But given the alternatives, is another large investment in a second convention center hotel really a prudent allocation of the City of Houston's financial resources? Here is where I have my doubts. As I've noted many times in regard to Houston's light rail boondoggle, allocating $300-$500 million on another downtown convention center hotel has real consequences, such as leaving inadequate resources to make improvements to Houston's infrastructure (flood control and fixing of traffic hotspots, to name just two) that would dramatically decrease the risk of death and property damage. Stated simply, does it make sense for the City to be investing that kind of money in a downtown convention hotel when convention attendees won't be able to get to it from Hobby Airport? The main drag to the Gulf Freeway and downtown from Hobby Airport -- Broadway Street -- is already virtually impassable during even moderate rainstorms.
Maybe taking a flyer on a second downtown convention center hotel would make more sense but for the billions blown on the light rail system. But the size of that boondoggle leaves a very small margin for error in regard to allocation of the City's remaining resources. At this point, a large investment in a second convention center hotel appears to fall well outside that small margin.
By the way, speaking of the Astrodome hotel project, it appears now that even Harris County officials believe that the deal is dead. However, the proposed alternative is to turn it into a horse barn?:
Meanwhile, there could be three or four groups prepared to present plans to transform the Dome.
The Houston Livestock Show and Rodeo may be one contender, said Leroy Shafer, the rodeo's chief operating officer. The rodeo and partners are looking into whether the Dome could serve as a replacement facility for aging Reliant Arena.
Astroturf and tiered stadium seats would give way to more than 1,000 horse stalls and an arena with a capacity of at least 6,000. The vast open area where former Astros stars Jimmy Wynn and Jeff Bagwell hit towering drives would be turned into a three-story exhibition and stalling space, Shafer said.
January 15, 2008
Let me get this straight. Mayor White started out with a proposal several months ago to allow the local MLS soccer team to build a stadium at their own expense on downtown land that the City of Houston owned but was not using except for extra parking (previous posts here).
So, how did we get to the point where the City is now willing to pony up at least $20 million and exercise its eminent domain power to acquire land for the private owners of the team to build their stadium? Heck, we haven't even started to talk about who's going to pick up the tab for the cost of the necessary infrastructure improvements or how much "Central Planning Chief" Peter Brown's "mixed used development" ideas are going to cost (for the folly of such ventures, see here). By the way, Mr. Brown, what are the names of the other cities that are lining up to provide financing for a soccer stadium that makes you so sure that the Dynamo will leave if Houston doesn't provide it?
And to top it off, the proposed location of the proposed new stadium figures to increase the cost of an even larger boondoggle.
Granted, we're talking about throwing away "only" $20-30 million on this deal at this point. That's peanuts in comparison to what the City wastes annually on the light rail system. But the way this deal has developed leads one to question whether there is any adult supervision whatsoever down at City Hall? If it's acceptable to throw $20-30 million at a minor league soccer team, then what's next? $20-30 million for the Aeros?
This LA Times op-ed by transit experts Jim Moore and Tom Rubin examining the LA area's MTA transit system over the past 20 years. They provide a daunting warning for those who rationalize the massive deficits of Houston's light rail system by contending that the system will become cost-efficient in the long run:
. . . the MTA has spent more than $11 billion since 1986 to build its rail network, and the effect has been to reduce total transit ridership on the system by more than 3 billion boardings. That's a bizarre result.
Shouldn't investments in transit infrastructure encourage, not discourage, transit use? So, why is Houston continuing to barrel down a path that LA has already shown is a poor way to invest in mass transit?
December 12, 2007
This earlier post noted that a not very flattering analysis of the economic debacle that is the San Jose, California light rail system might very well describe Houston's light rail system in a few years if we don't come to our senses. Following up on those thoughts, this Randal O'Toole post reviews a San Jose Mercury News newspaper article that reports on the state of the San Jose transit system on the 20-year anniversary of light rail there. It's not a pretty picture:
Santa Clara County taxpayers pay as much or more for transit, yet their transit system carries fewer riders, than almost any system with light rail in the country. “The heavy tax commitment to transit,” the article notes, “means fewer dollars for road upgrades.” Especially since a half-cent sales tax that voters approved of for roads was hijacked by the transit agency in 2000. [. . .]
“The light-rail system should be considered a 100-year investment,” says San Jose’s director of transportation planning. That shows how shallow planners are: within another 20 years, that investment will be completely worn out and San Jose will have to decide whether to scrap it or spend another few billion replacing it.
. . . [the] Silicon Valley, with its jobs spread out more thinly than almost anywhere else in the country, was unsuited for large-bus transit service. So to go from buses to light rail, which requires even more job concentration to work, was a mistake. Having made that mistake, VTA now wants to build BART, which requires even more job concentration. . .
Light rail was the wrong solution for San Jose in 1987, it is the wrong solution today, and it still will be the wrong solution in 2027. We can only hope that San Jose’s leaders and opinion makers, including the Mercury-News, come to their senses by then and decide to junk the whole thing.
Meanwhile, in Houston, as our local "leaders" continue planning to spend upwards of $4 billion on expansion of a light rail system that relatively few citizens of the area will use, alternative transit projects that make much more sense are relegated to discussion in the blogosphere.
The Houston area is a big place with a vibrant and resilient economy. But Metro's light rail system is the one urban boondoggle going right now that has the potential to become a serious economic drag on the local economy in the not-to-distant future. It's far past time that our local leadership noticed and started taking actions to hedge this risk.
November 21, 2007
As noted in this earlier post on the improbable Astrodome hotel redevelopment project (previous posts here), the Chronicle continues to beat the drum in support of the deal without any meaningful financial or economic analysis. The intro to the editorial reveals the depth of the Chron editorial board's analysis -- "The public favors preserving the world's first indoor stadium; all parties should cooperate to do that."
Here are just a few of the questions that the Chronicle editorial board should be asking:
If the Astrodome were not in Reliant Park, would anyone in their right mind even be thinking of investing over a half billion dollars to build a 1,300 room resort hotel in the middle of Reliant Park?
If the answer to the prior question is "no," then why should anyone in their right mind even be thinking of investing over a half billion dollars to build a 1,300 room resort hotel in the middle of Reliant Park simply because the decrepit hulk of the Dome is there?
In one of the tightest credit and equity markets in years, and with many economic forecasters predicting a U.S. recession over the next 12-18 months, who realistically is going to fund the half billion dollars that the promoters claim is necessary to convert the Dome into a resort hotel?
If the promoters have not been able to put together a viable plan for redevelopment of the Dome in over three years of trying, then why are we still talking about this?
November 19, 2007
Isn't it interesting the different reactions that Anne Linehan, Charles Kuffner and Tory Gattis had to the 2007 Houston Area Survey regarding transit options? The Chronicle and other light rail enthusiasts immediately seized upon the survey as evidence that Houston-area residents want to dump more money into the light rail money pit.
But the problem with such surveys is that they generally ask people questions in a vacuum and do not address Peter Gordon's three elegantly simple questions regarding economic choices:
1) At what cost?
2) Compared to what? and
3) How do you know?
For example, assume for a moment that the persons surveyed were informed of the fact that the average urban freeway lane costs about $10 million per mile and that the average light rail line costs about $50 million per mile while carrying only one-fifth as many people as the freeway lane. And these are only average figures -- as Randal O'Toole recently pointed out, Seattle's recently rejected light rail expansion was projected to cost $250 million per mile, a whopping 125 times more expensive at moving people than a freeway.
Moreover, let's also assume that the persons surveyed are informed that the expenditure of a billion or so of public money on expanding a poorly-used light rail system has real consequences, such as leaving inadequate funds to make improvements to Houston's infrastructure that would dramatically decrease the risk of death and property damage from flooding. Or whether the billion or so being flushed down the light rail drain would be better used to fix various area traffic "hotspots" where accidents or bottlenecks occur with high frequency.
No one knows for sure, but my bet is that the survey results would be dramatically different if the foregoing costs and alternatives were included as a part of the survey. It's a shame that neither the City's current leaders nor the mainstream media are asking the simple questions set forth above that would generate a meaningful cost-benefit analysis and ensuing well-informed debate regarding continued investment in expensive public works projects such as Metro's light rail system.
Instead, we get this:
Metro executive vice president John Sedlak led off [a presentation to the Transportation Policy Council, a group of elected officials and agency staffers that sets priorities for transportation spending in the 13-county Gulf Coast planning region] with a slide show describing the [proposed Metro University light rail line] project and told the panel its approval was needed so Metro could get federal funding and start engineering work.
If there was a short delay, Holm asked, "What would be the consequence?"
Sedlak replied that the project is on "an aggressive schedule" and that a delay "would send a message to Washington that there are issues with our overall program."
Holm asked why Washington would think there were issues and not just loose ends to tie up.
"They watch every activity that takes place very carefully," Sedlak said. "The federal government is aware we are having this meeting today."
Holm asked what the application deadline was. Sedlak said it was "in the month of December."
"If the delay was just a few days, would it jeopardize the funding of the entire program?" Holm asked.
"I truly believe it could," Sedlak replied.
Kemah Mayor Bill King had questions, too.
How many more passengers would the rail carry than the buses on Richmond do now?
Sedlak said he did not know, but Metro could get him the answer.
King asked how the line would impact traffic on Richmond.
Sedlak said there would be some negative effects, but the finished line should "take vehicles off the street." Numerical estimates are in the line's environmental impact document, he said.
Holm spoke again, her voice a little shaky.
"There are cities," she said, "that have never been turned down for a funding request. It's not because they agree on everything they want. It's because they do their due diligence and they do their battles at home.
"We need to still build consensus in this community. We need to be able to walk hand-in-hand in supporting a project," she said.
Update: As usual, Tory Gattis has additional insightful thoughts.
November 16, 2007
Tom Rubin is an accountant who has audited many transit agencies and is an expert in transit system accounting. Randal O'Toole channels a Rubin presentation in describing the nation's worst-managed transit system:
Participants in the Preserving the American Dream conference were encouraged to ride [the] light-rail line to one of the conference events. What they saw was not a pretty picture. Trains were infrequent (one of the supposed advantages of rail is that they run so frequently that riders don’t need to consult schedules), the in-street tracks are dangerous (one conference goer slipped on a rail and fell into a curb), and the fellow patrons are not always people you want to be around (several conference goers were treated to the scene of someone becoming violently ill on board, leading one of our members to say, “So that’s what they mean by ‘vibrant streets’”).
Beyond these impressions, Rubin observes that [the light-rail system] has “the worst operating statistics of any American transit operator.” The reason for this, he says, is that [the area] — being built mostly after World War II — is one of the most spread-out urban areas in the country. Not only are people spread out, but jobs are spread out, with no job concentrations anywhere.
This makes large buses particularly unsuitable for transit because there is no place where large numbers of people want to go. So what was [the transit system's] solution when its bus numbers were low relative to other transit agencies? Build light rail — in other words, use an expensive technology that requires even more job concentrations.
Now it has one of the, if not the, poorest-patronized light-rail systems in America. So what is its solution? Build heavy rail, a technology that requires even more job concentrations.
What transit system are O'Toole and Rubin describing? Well, it sure sounds like it could be Houston's, but it's not. They are talking about San Jose, California's system.
But how long do you think it will be until Houston's light rail system is in similar shape?
November 12, 2007
The Chronicle continues its apparent campaign to breath life into the second largest local urban boondoggle (second only to the Metro light rail system) -- the proposed Astrodome hotel project (previous posts here). Rice professor and local political pundit Bob Stein comments about the apparent dilemma:
"For public officials, it's like being in a maze," Stein said. "You don't know which turn you make is going to help you. You have the rodeo and the Texans — the stakeholders — and then you have the public."
In reality, there is no dilemma at all. As USC economics professor Peter Gordon observes with regard to such issues, three simple questions need to be addressed: 1) At what cost? 2) Compared to what? and 3) How do you know? Despite the public's fondness for the Dome, it is an obsolescent hulk that serves no useful purpose and costs a considerable amount each year just to mothball. The cost of the renovation is enormous and will almost certainly require some type of public contribution, particularly given the currently spooked credit and equity markets. Even if the deal could be financed without a large public contribution (I doubt it can), the county still has to face the prospect that the project will fail (many new hotels do) and that large operating subsidies will be necessary in the future. To make matters worse, there is inadequate demand for the city's existing supply of hotel rooms, much less a supply that is increased by 1,300 rooms that the Astrodome hotel project would contribute. Finally, the current tenants of Reliant Park object to the hotel project.
So, in the face of all of the foregoing, why does the Chronicle continue to beat the drum for the project? Inquiring minds would like to know.
October 31, 2007
Maybe the combination of the Texans and the Rodeo coming out against the proposal will finally put the nonsense to rest. As the Chron article notes, even County Judge Ed Emmett is skeptical about the merits of the proposal:
County Judge Ed Emmett signaled in September that he isn't convinced the project is viable. While attending the Texans' home opener in September, he said the Astrodome struck him as an aging, rusted-out battleship that remains in a spruced-up port.
It occurs to me that the Astrodome hotel promoters decision to obtain a financing commitment for the project before getting the consent of the Reliant Park tenants to the project put a very large cart before the horse. Sort of like Oilers' owner Bud Adams unveiling a model of a proposed new downtown football/basketball stadium back in the mid-1990's without telling Rockets owner Les Alexander and Mayor Bob Lanier about it first. And we all know what happened after that imbroglio.
All of these machinations over what to do with the Dome would be relatively harmless except for the fact that the Dome continues to "eat" -- that is, it costs Harris County a hefty sum (probably at least $3 million or so annually) just to mothball the Dome. Hopefully, the opposition of the main tenants at Reliant Park to the hotel redevelopment plan will finally lead to the Dome property being used for the best land use, which is probably parking. That's not as sexy as a big hotel, but it provides something that is actually needed and will generate some revenue.
By the way, a good sign that a project is almost kaput is that its supporters become delusional. According to the Chron article, that's already happening to certain promoters of the Astrodome hotel project:
Willie Loston, director of the Harris County Sports & Convention Corp., said the county attorney's office is researching whether the county could approve the project over the objections of the Texans and the rodeo if the sports corporation determined the development would not hurt their operations.
October 22, 2007
The big transit news in these parts last week was the announcement that the Metropolitan Transit Authority's board Metro's board approved the final route for the east-west University line and decided to deploy the much more expensive light rail rather than bus rapid transit in four other transit corridors. Kevin Whited, Lou Minatti and Tory Gattis were among the local bloggers commenting on this development.
What is perhaps most galling about all of this is the sheer lack of any perspective from the local mainstream media regarding the dubious nature of Metro's urban economics. The Chronicle article on Metro's announcement is typical of the vacuity of media coverage of Metro -- the fact that light rail systems are notoriously uneconomic and underused relative to cost is not even mentioned. Meanwhile, Metro continues to insist upon investing billions of tax proceeds in an inflexible light rail system that will cost millions in additional annual tax proceeds to subsidize. To make matters worse, the money that Metro is throwing away on what will be a underutilized and expensive light rail system would go a long ways toward dramatically ameliorating the Houston area's flood control problems and traffic hotspots, two public works projects that would provide far more benefit for far more Houston area residents than the light rail project. In short, wasting huge amounts of public funds on a boondoggle simply does not occur in a vacuum. Such waste will negatively impact more pressing public works projects in Houston for decades.
Transit expert Randall O'Toole recently published this Cato Insitute policy analysis, Debunking Portland (related blog posts here and here), on the failures of Portland’s light rail system, which was built in a far more densely-populated area than Houston and is often touted by light rail advocates as an example of one of the rare successful systems. As O'Toole points out, the Portland system has not been a success. 9.8% of Portland-area commuters took transit to work before the region built its light rail system, while today, just just 7.6% of the area commuters use the system. The fact that Portland’s light rail system led to billions of dollars in economic development is largely a ruse -- such development received billions of dollars in subsidies and, before the city started offering those subsidies, not a single transit-oriented development was built along the Portland light rail line. Finally, light rail cost overruns forced Portland to raise bus fares and reduce bus service.
As O'Toole observes, that’s considered a success?
September 12, 2007
Kevin Whited reports that downtown Houston's night life continues to dissipate from lack of demand. This despite the fact that various local governmental entities have invested at least $1 billion in the downtown area by building a baseball stadium, a basketball arena, a convention center hotel, a light rail system and assorted other goodies.
Sort of makes you wonder what would happen if even a portion of that $1 billion were invested in something that Houston really needs, such as improvements to flood control and traffic hotspots? My sense is that such an investment would dramatically lessen the risk that citizens would lose their lives or suffer property loss in the event of heavy rains (which occur with some regularity around here) or a traffic accident. Thus, we aren't as safe as we could be, but our local governmental officials have seen to it that we are as comfortable as reasonably possible while being entertained. Gotta love those priorities.
September 10, 2007
There has been an interesting disparity in media reports about the Astrodome over the past couple of weeks. First, this one from Channel 13 investigative reporter, Wayne Dolcefino:
The county judge warns the aging Houston Astrodome may soon become too dangerous for people to even go inside.
What do you do about an important piece of Houston history? Do you tear it down? The Eighth Wonder of the World has now become a legacy of how not to pay for a sports stadium. Long after the Oilers left and seven seasons after the Astros stopped playing here it sits.
When we went to the dome this week, it was warm inside and didn't smell too pretty. It's home to a few offices but the floor of the Dome floor is now just concrete.
"The dome is old and it's falling apart," said Harris County Judge Ed Emmett. "It's time as they say to fish or cut bait."
"Now we've got a situation where we have what was the Eighth Wonder of the World sitting there effectively unoccupied," said Harris Co Tax Assessor-Collector Paul Bettencourt.
And you are still paying. They are numbers many public officials probably had a hard time figuring out themselves. You still owe $38 million on the Astrodome. It's property tax money and every year it's costing millions just to keep it operating. In the last five years it cost $18 million. The tax assessor calls it a money hole.
"We've got to decide what to do with the domed stadium," said Emmett. "It's time to put up or shut up frankly."
Hurricanes have nearly doubled insurance on the dome. The bill has been $894,000 just this year. And you think your utility bills are high? Look at this. The bill was $1.1 million. Operating expenses this year alone were $2.75 million.
The biggest money maker at the Dome is The Hideout. That's the bar the Rodeo operates on the floor of the Dome. We get no money for that. The rest of the year the Dome was used just 13 days, making just $100,000.
"Frankly we can't let people use it much longer, it will become a dangerous place," Emmett said.
"The question we have to decide is if we can't find something for the Dome to become, then they have to think seriously about tearing it down," said Bettencourt.
Entrepreneurs looking to turn the iconic Astrodome into an upscale convention hotel have scrapped a "best of historic Texas" theme for a more modern, streamlined look.
A faux Texas courthouse and other features that played on the state's past are out. Plans now call for including a section of the Dome's seats, part of the diamond and an overall contemporary design that plays up the building's cutting-edge nature when it opened in 1965.
"We're going to have rides. There could be air rides that take you off the ground and make you say, 'Wow,' " said Scott Hanson, president of Astrodome Redevelopment Co., the firm hoping to transform the Dome. "We're going to have a few of those. They would be easy-going rides that would show off the venue."
Astrodome Redevelopment still has hurdles to clear before it begins work. Willie Loston, director of the Harris County Sports and Convention Corp., which oversees Reliant Park, will update the Commissioners Court on the company's progress in executive session Tuesday.
The court's approval is needed before work could begin. And Astrodome Redevelopment needs to work out revenue sharing and parking deals with the Houston Texans and the Houston Livestock Show and Rodeo, the major tenants of Reliant Park.
But Hanson and Astrodome Redevelopment's chief executive, John Clanton, said the company is making progress and hopes to begin work on the interior as early as next April.
Hanson previously said the company had obtained financing for the $450 million project. But he and Clanton publicly announced the lender, Deutsche Bank, for the first time Thursday.
The article goes on to claim that the "entreprenuers" of the project have a new Atlanta-based partner who will supposedly add equity to the deal and make it more viable.
Frankly, this silly notion that entreprenuers can arrange private financing for the conversion of the Astrodome into a hotel has been going on for three years. Now, the Chronicle would have us believe Deutsche Bank has approved a $450 million financing commitment on a highly-speculative covention hotel project in during the tightest credit market in years? I'm willing to bet that any such commitment has more outs than the Stros lineup this season.
All of this imagery about the proposed Astrodome hotel would be all fun and games except that it is costing the County real money to maintain the Dome, probably around $10 million just since the dome hotel project was first floated. Given that we are three years into this and the entreprenuers are not even at the stage of cutting deals with the Texans and the Rodeo over use of the Reliant Park property during times of mixed use, just how long is the County going to dawdle over the Dome before moving on to more realistic uses of the property?
August 9, 2007
Buried in the Chronicle's article on the Metropolitan Transit Authority's latest propaganda release regarding the proposed University light rail line is the following snippet:
The study estimates say the Cummins-Wheeler-Elgin combination is the least expensive of the routes considered, at $715 million, compared with $836 million for the Southwest Freeway-Alabama combination.
Prediction: Both routes will cost substantially more than the estimates and the revenue generated from the ridership will not come close to meeting the operating expenses of the line.
August 4, 2007
With the crunch worsening over the past several weeks in the credit markets, the bankruptcy reorganization forces are gearing up and eyeing potential debtors. Well, in this Heartland blog post, Thomas A. Rubin predicts one of the probable debtors that will need serious reorganization -- the Las Vegas Monorail Company (prior posts here):
In short, the Las Vegas Monorail appears headed straight down the path to bankruptcy by approximately the year 2010 with nothing on the horizon that could prevent it – other than, perhaps, an ill-conceived government bailout or the absolute dumbest group of investors/suckers in recent financial history.
This result should come as a surprise to no one. Over the last several decades, I know of only one U.S. rail transit system, or quasi-transit system, that has come remotely close to covering its operating costs out of fares and other operating revenues (the Seattle Monorail), and none that have made any contribution what-so-ever to capital costs. However, the Las Vegas Monorail promoters assured everyone that operating revenues would not only cover operating costs, but would also cover all the debt service costs of the bonds sold to pay for the construction of the Monorail. [. . .]
One hopes that someone, somewhere, in a public sector decision-making capacity will tell the various casinos along the right of way that, if they want to see it continue to operate, well, it is all theirs.
Read the entire post, which lays out the public risks involved in even a privately-financed boondoggle of this nature. Meanwhile, this clever Political Calculations post comes up with an entertaining solution to achieving the same benefits of a light rail system at a far cheaper cost.
July 2, 2007
As noted earlier here and here, the Houston metropolitan area shares many of the same characteristics of the Los Angeles metro area, albeit with far lower density of population. Although rail transit is typically inefficient in areas of relatively low density of population, that has not stopped Houston's Metropolitan Transit Authority from spending enormous sums on inefficent light rail for Houston and proposing even more. One of the common rationalizations used by Metro for such boondoggles is that the transit lines will promote development of more densely-populated housing around the rail lines that will ultimately generate enough mass transit users to justify the enormous cost. Someday.
So, given the L.A. region's greater density of population, has rail transit generated such housing along the rail lines there? Well, not according to this front page Los Angeles Times article entitled "Near the rails but still on the road -- Research casts doubt on the region's strategy of pushing transit-oriented residential projects to get people out of cars":
In Los Angeles alone, billions of public and private dollars have been lavished on transit-oriented projects such as Hollywood & Vine, with more than 20,000 residential units approved within a quarter mile of transit stations between 2001 and 2005.
But there is little research to back up the rosy predictions. Among the few academic studies of the subject, one that looked at buildings in the Los Angeles area showed that transit-based development successfully weaned relatively few residents from their cars. It also found that, over time, no more people in the buildings studied were taking transit 10 years after a project opened than when it was first built.
To which USC urban economics professor Peter Gordon replies:
I could not have said it any better. Well actually, some of us did -- over 30 years ago.
Yes, it is not pretty to say I-told-you-so. But the arrogant know-nothings inside LA's beltway (including LA Times writers and including some who still hold public office) have been confused on this issue for years. Their plans have cost billions and, along the way, made traffic much worse. It was exactly the sort of fatal conceit that Hayek wrote about many years ago.
Yesterday, the same newspaper (front-page, below the fold) included "Will traffic-weary L.A. heed the toll call? ... The land of the freeway is poised to become a little less free ..."
What will they think of next?
Will Houston's leaders listen? Incidents such as this do not make me optimistic that they will.
June 21, 2007
Buried in this Chronicle article about increasing tolls on the Harris County toll roads and congestion on the Westpark Tollroad is the following nugget about yet another of the Metropolitan Transit Authority's decisions that is contrary to its purpose of improving mobility in the Houston metro area:
Six months after the four-lane Westpark Tollway opened in 2004, traffic backups began occurring in certain areas, said Peter Key, toll road authority deputy director. Congestion has worsened since then.
The toll road authority would have preferred building a six- or even eight-lane tollway, Key said. The Metropolitan Transportation Authority, which owned the land in the area, was willing to sell only enough for a four-lane tollway, he said. Metro wanted to keep the remaining land in case it builds a commuter rail line along the tollway, Key said.
Metro vice president John Sedlak said Metro has considered using the corridor for rail for several decades and may build a light rail line along parts of the corridor, from the Hillcroft Transit Center to an undetermined distance east of the West Loop.
As noted in this previous post, Metro's bias in favor of inefficient rail lines is a costly bet for Houstonians. Those who are driving the Westpark Tollroad on a daily basis are finding out that such costs far exceed even the formidable expense of building inefficient rail lines.
May 14, 2007
Anne Linehan over at BlogHouston.net continues to do a fine job of following the various rationalizations of several local governmental types over how to justify public financing for the proposed the Astrodome hotel project (Charles Kuffner comments, too). The latest proposal being floated is to give the deal $150 million in hotel and sales tax breaks over a ten year term to facilitate about half a billion in private financing for the deal. The rationalization is that the rebates are worth it because the tax revenue wouldn't be there in the first place but for the hotel generating it. Plus, the hotel really is a good thing for Houston, so why worry about a measly $150 million over the long term?
Putting aside that dubious reasoning for the moment, the reason that this project is a boondoggle isn't because of $150 million tax rebates over ten years. On a boongoggle of this potential magnitude, that's peanuts. The real financial risk comes when the hotel falters in paying its private financing. In almost every case, the local government that backed the facility will be placed in the difficult position of either putting up additional funds and security for the project or face the politically untenable position of watching the project fail. Guess what politicians usually vote to do when the alternative is to be embarrassed with a failed deal on their watch?
The problem with boondoggles of this type is that they "eat" -- they must be fed money when the operating losses start mounting. There is a reason that the promoters of this deal can't arrange private financing. That is a reason for the county government to back off the deal, not to embrace it.
May 1, 2007
Cato Institute fellow Randal O'Toole was in town last week as the invitee of a Houston Property Rights Association luncheon and, by Tory Gattis' account, provided an entertaining lecture on the overreaching nature of centralized urban planning and wasteful rail transit systems in various cities around the country. The Chronicle's Rad Sallee caught up with O'Toole while he was in town, and notes the following observation by O'Toole on the impact of Houston's biggest urban boondoggle:
Question: You say that for the most part, Houston gets it right, while Portland (Ore.), where you used to live, is a textbook example of government gone wrong. A lot of people would say it's just the reverse.
Answer: Except for the light rail part, Houston really is a model for how urban planning ought to be done — which is privately.
By the way, O'Toole has a new blog focusing on urban economics called the Antiplanner. Check it out.
April 21, 2007
Both surprisingly and refreshingly, the L.A. Times runs this insightful piece on several experts' proposals to address various Los Angeles area traffic problems. The experts are a level-headed bunch, including Joel Kotkin, James E. Moore, Donald Shoup and Ted Bakalar. Inasmuch as the Houston region shares many of traffic characteristics with the L.A. area, several of the suggestions are equally applicable to local traffic. My favorite is by Kotkin:
What Los Angeles needs is a transit system that better reflects what it is — a sprawling mid-density city. So build the world's easiest-to-use bus system. This network should expand such transit innovations as the MTA's Metro Rapid buses, which run in dedicated lanes, and Rapid Express buses, which make few stops. These systems are far less expensive to build than light rail or a "subway to the sea."
April 6, 2007
Kevin Whited over at blogHouston.net picks up on the latest boondoggle of the Metropolitan Transit Authority -- providing kickstart financing for a couple of blocks of commercial property along the Metro light rail line in Midtown.
The entire deal is really preposterous for a transit authority to be getting into. Metro bought the blocks from the developer for $7.2 million with "the expectation" that the developer is going to buy the blocks back and build a bunch of condominiums (in an already overbuilt market) that will supposedly house 1,000 happy light rail riders. According to the developer, everything is really O.K. because -- get this logic -- it could have been worse!:
[Developer Robert H.] Schultz said Metro may join in developing a parking garage on the site that could be used by rail riders but that the agency chose not to invest in other parts of the project.
"They didn't want to extend that kind of money. They wanted to be much more conservative until they could see this thing was going to happen," he said.
[Metro real estate vp Todd] Mason agreed, saying, "Metro does not want to be a developer and take on a lot of risk, but we want to be an enabler of projects like this one."
As noted earlier here, Metro isn't good enough in doing what it was chartered for to be taking flyers on financing speculative real estate deals. Where is that type of activity described in Metro's charter?
April 3, 2007
First, the local hotel market has been overbuilt for years, partly because the city government financed some deals of questionable merit. Heck, most any weekend, it's easy to obtain a discount rate on a very nice luxury hotel room in downtown Houston.
Then, the private financing market tells us that the redevelopment of the Astrodome into a resort hotel is not financially feasible.
So, given those clear messages, what does the chairman of Harris County Sports & Convention Corp conclude? Explore a financially feasible use for the Dome property, such as demolishing the Dome to save the county the millions it has spent over the past five years mothballing the facility and provide much needed parking for the Reliant Park complex?
No, he would rather do precisely the one thing that will ensure that the county will lose the maximum amount in regard to the Dome property:
The county may consider picking up some costs of transforming the Reliant Astrodome into a luxury hotel or doing the $450 million redevelopment itself if a private effort to carry out the project falls through, a top official said Friday. [. . .]
"From day one, we have always known that it is an option to do this as a publicly developed program," said Mike Surface, chairman of the Harris County Sports & Convention Corp., which manages Reliant Park. "If I'm looking out for Reliant Park's interests, I would say, 'County, you should think about doing this.' "
And just how would the county pay for such a folly?
No property taxes would go toward the project in any case, he said.
If the county paid for part or all of the project, it would use hotel and sales taxes generated by the hotel complex and other Reliant Park revenue, such as concessions.
Except that Houston already has among the highest hotel and sales tax rates in the country. Moreover, the county doesn't even own the rights to receive the proceeds from a substantial amount of the concession sales at Reliant Park, such as those the Texans and the Houston Livestock Show & Rodeo generate in their events at Reliant.
Surface, bless his soul, sounds delusional:
Surface said he and some other board members are so confident in the project that the board may look for another developer to step in if Astrodome Redevelopment's effort fails.
Thank goodness there appears to be at least one stable attitude among Harris County Commissioners toward the proposed Astrodome hotel:
County Commissioner Steve Radack has said, however, that he does not think the project makes sense and will oppose any county participation.
From my vantage point, it appears that Surface floated a trial balloon that Radack mercifully shot down. Hopefully, Radack's clear statement will put an end to this foolishness. The county needs to move on and consider productive uses of the Dome property rather than chasing rainbows.
March 29, 2007
The developer endorsed by Harris County to transform the Astrodome into a 1,000-room destination hotel complex has missed two deadlines to show suitable proof of a financial partner for the $450 million project.
An August 2006 letter of intent signed by the county and Astrodome Redevelopment Corp. outlined various milestones to be met in the process.
When proof of funding did not meet the specified December 2006 deadline, the county granted an extension to March 1.
Scott Hanson, president with Astrodome Redevelopment, found a New York bank interested in backing the mammoth development. County officials were not satisfied with the commitment as presented. [. . .]
Says Hanson: "It's happening. It's just a timing issue. Sometimes the wheels don't turn as fast as we'd like them to." [. . .]
The developer wants to enter into a definitive agreement with the county this year on the project, and hopes to begin construction by early 2008.
"I think that's probably aggressive," says Mike Surface, chairman of the Sports & Convention Corp.
"These projects wind up taking a lot more time than you anticipate," he adds. "There are still a lot of approvals that have to take place." [. . .]
"We've come a long way ... but there is a long way between now and getting a deal inked," Surface says. "For people to start booking their rooms today is a bit premature."
Translation: This deal, which always has had earmarks of being a pipe dream, is on life support. The problem with procrastinating about demolishing the Dome and using the land for a better use (i.e., badly needed parking at Reliant Park) is that the Dome continues "to eat" -- that is, Harris County continues to pay between $1.5 and $2.0 million a year just to maintain it on a mothballed basis. That's an expensive price to pay while Harris County Commissioners chase rainbows. The only thing surprising to me about all this is that we've been talking about it for almost three years now!
Update: A very bad idea.
February 1, 2007
This recent NY Times article caught my attention because it extols the virtues of Portland, Oregon's pretty new Aerial Tram mass transit project despite the fact that it's quite expensive relative to the number of folks who will regularly use it. These fatuous media reports that ignore the dubious underlying economics of such projects are a consistent element of urban boondoggles.
Re: City that Loves Mass Transit Looks to the Sky for More (January 28)
Now The New York Times has been taken in by the Portland transit hype. The “city that loves mass transit” shows it by not using riding very much. Today, the share of workers using transit to get to work is less than before the first light rail line was built. Today, little more than two percent of travel in the Portland area is on transit and 98 percent of motorized travel is by car. That is really not much different than automobile champion Kansas City, where the figure is above 99.5 percent. The kind of cheerleading in this article may warm the hearts of urban elites, but only serves to muddle and mislead.
Meanwhile, Houston's own urban policy wonk -- Tory Gattis -- provides a balanced analysis of the Portland mass transit system in this post about a recent lecture that he attended by a fellow who was instrumental in the planning of the Portland system. The NY Times report on the Portland system reads like an advertisement in comparison to Tory's post.
December 21, 2006
The economic and legal impact of the Supreme Court's controversial decision last year in Kelo v. New London has been a common topic on this blog, so this Institute for Justice press release on a property dispute that arose from a developer manipulating a local government's eminent domain power for his own benefit:
A federal court has now approved an extortion scheme using eminent domain under last year’s Kelo decision. Unless the U.S. Supreme Court overturns the rulings, developers may threaten property owners, “Your money or your land.”
Think this is an overstatement?
Consider what is happening right now in Port Chester, N.Y., to entrepreneur Bart Didden and his business partner, whose case will be considered for review by the U.S. Supreme Court on January 5, 2007.
With the blessing of officials from the Village of Port Chester, the Village’s chosen developer approached Didden and his partner with an offer they couldn’t refuse. Because Didden planned to build a CVS on his property—land the developer coveted for a Walgreens—the developer demanded $800,000 from Didden to make him “go away” or ordered Didden to give him an unearned 50 percent stake in the CVS development. If Didden refused, the developer would have the Village of Port Chester condemn the land for his private use. Didden rejected the bold-faced extortion. The very next day the Village of Port Chester condemned Didden’s property through eminent domain so it could hand it over to the developer who made the threat.
The 2nd U.S. Circuit Court of Appeals upheld this extortion under last year’s Kelo eminent domain decision. The court ruled that because this is taking place in a “redevelopment zone” they couldn’t stop what the Village is doing.
Read the entire piece. Is it any surprise that most property owners over on Richmond Avenue in Houston want no part of the new proposed Metro light rail line? Bad law makes for perverse incentives, particularly when the incentivized party can use the 800 pound gorilla of the state for private purposes.
December 15, 2006
The dubious economic nature of Houston's light rail system is a common topic on this blog, so I took interest in this insightful Warren Meyer post that ponders why a light rail system is being built in Warren's hometown of Phoenix, which is one of the few metro U.S. areas that may be even less conducive to such a system than Houston.
Given the inefficiency and inflexibility of such systems, Warren wonders who supports such boondoggles and suspects that a few powerful businesspeople are using the rail line in an effort to jumpstart the misguided goal of establishing a dominant downtown area in the decentralized Phoenix metro area. Add in a few high-minded environmentalists and many others who are simply ignorant of the enormous cost relative to the benefit of such systems and, as Peter Gordon wryly-noted awhile back:
"It adds up to a winning coalition."
Unfortunately, as another Phoenix-area resident -- Nobel Laureate Ed Prescott -- reminded us recently, once such coalitions are successful in establishing a governmental policy subsidizing such boondoggles, it is much more difficult to end the public subsidy of the boondoggle than to start it in the first place.
By the way, Houston Metro's subsidy of its light rail system has other perverse effects, such as the lack of security for one of the transit options that actually makes sense for the Houston area.
December 5, 2006
Buses Replace Light Rail in St. Louis
A large ice storm hit the St. Louis area last night and power is out to nearly one-half of the area. The area’s light rail line, Metrolink, has suspended service for much of its alignment and is providing substitute bus service.
Meanwhile, there appears to be no instance of light rail providing replacement for buses anywhere in the metropolitan area --- for that matter probably never in history, anywhere. Another demonstration of the flexibility of urban rail.
The enormous cost relative to usage and inflexibility of most rail systems reminds me of something that Peter Gordon observed awhile back about the political forces that support these boondoggles. Some are disingenous promoters seeking to profit from the rail lines, some pose as high-minded environmentalists and many are simply ignorant of the inefficiency and inflexibility of such systems. As Professor Gordon wryly points out:
"It adds up to a winning coalition."
By the way, Anne Linehan over at blogHouston.net continues to follow another cost of the Houston light rail system that Metro doesn't much like talking about.
September 5, 2006
Tory Gattis over at Houston Strategies continues to do a great job of analyzing Houston Metro's proposed Richmond (or is that Westpark?) rail line (see here and here). However, I continue to be amazed by the Houston mainstream media's myopia in failing to take a look at the rail experience of Los Angeles, an area that shares many characteristics with the Houston metro area, but is much more densely-populated, which is normally a requirement for making an urban rail line successful.
That myopia is leading to a dangerous dynamic in the rail transit debate that USC urban economics professor Peter Gordon notes in commenting on this LA Times story regarding extension of the LA region's rail system. Professor Gordon observes that, despite irrefutable evidence that the LA rail system has been a boondoggle of massive proportions, the LA Times article does not even bother to address the threshold issue of whether more money should be dumped into the black hole rail transit system in the first place. Rather, the article assumes that the money will be spent and then simply addresses the issue of where it will go. Professor Gordon notes the incongruity of it all:
Three light-rail lines have been added to L.A. county's transit system in the last 20 years. Together, these cost $2.5 billion in capital costs, they serve about 125,000 passengers per day and account for a fiscal loss of approximately $252 million per year -- if one acknowledges that capital costs are real, something that transit operators and boosters often neglect.
If one wants to believe that there are external benefits, a variety of optimistic assumptions on auto trips replaced, cuts the loss to "only" $245 million/year. These are simple spreadsheet calculations that anyone can do. Further, no one alleges that the three lines have had any impact on L.A. area traffic conditions. In fact, complaints about "gridlock" are a staple -- and the pricing cure is still deemed too esoteric and/or sinister. In fact, there are no correlations known to man or woman to show that projects like this relieve traffic.
None of these simple facts made it into [the LA Times article] . . . Billions of dollars are at stake and a know-nothing debate is respectfully cited -- when it is simply about which part of town and which politician gets first run at the trough.
The recent LA Time article follows another one from a couple of months ago that declares that "California's highways, once the gold standard of the interstate system, are today some of the busiest, most dilapidated and under-financed roads in the country." That article then goes on to describe the failing highway system without even mentioning the fact that diversion of billions from that formerly great highway system to an unsuccessful rail transit system largely explains the mess.
As noted here and here over a year ago, Houston is at the stage of spending "merely" hundreds of millions on its dubious light rail system, but we can already see the same dynamic developing here that has been so costly for the Los Angeles region -- huge investment of public funds in an inflexible rail transit system, poor return on that investment, unwillingness to admit mistakes with regard to that investment and continuation of expensive mass transit policies that only get worse over time. Here's hoping that a few statesmen emerge among City of Houston elected officials who take a look at the evidence from the LA experiment and move the Metropolitan Transit Authority toward a more realistic and productive public transit system that is tailored for the Houston metro area. However, given the typical quality of the City of Houston's investment decisions, count me as pessimistic that any such re-evaluation will occur.
August 8, 2006
Following on posts here and here from last year regarding the City of Houston's ill-advised investment in several downtown hotel properties, this Matt Stiles/Chronicle article reports that the City had decided to "restructure" (translated: Can you please pay us something?) $15 million in second lien loans on the Magnolia and the Crown Plaza hotels in downtown Houston rather than attempting to foreclose on the properties and deal with the messy business of attempting to eke out a profit from the two highly-leveraged properties in an overbuilt downtown hotel market.
As noted in this previous post, the Magnolia and Crowne Plaza are poster projects for why local governments should rarely get involved in financing projects that private financing sources will not support. In reality, the City is nothing more than a preferred equity investor in these highly-leveraged properties and, thus, its entire $15 million investment is at serious risk of being lost. That type of loss is not going to break the City of Houston finances, but the quality of the City's investment decision should give one pause when considering the amount of money the City is throwing around in regard to these equally dubious investments.
August 4, 2006
Anne Linehan and Kevin Whited, and Tory Gattis continue to do a good job of covering Houston Metro Rail's ever-present expansion plans, which seem to be impervious to whether the expansion is actually needed. Previous posts on the boondoggle of rail systems in cities such as Houston are here.
Although not as slick as a trendy Metro economic report analyzing the projected benefits of an expansion of the light rail system in Houston, this Bill Schadewald/Houston Business Journal ($) op-ed describes his rather compelling analysis of Metro Rail's ridership on one portion of the existing rail line:
As Yogi Berra once observed, sometimes you can see a lot just by looking. Neighborhoods can change character in a just a year.
Today I'm revisiting the outer Texas Medical Center area with a stroll down Fannin past Reliant Stadium along the light rail line.
It's half-past five on a Tuesday afternoon. The walk from South Braeswood to the end of the line is about a mile, give or take. . . .
A Metro train passes, whistle wailing. The trains regularly come and go in opposite directions every few minutes.
I'm focused on heart rate and rock, not paying much attention to the rhythm of the rails. Then I happen to look over. Staring back is a single solitary face on an entire train.
The cell phone says a quarter to six. Just one rider? During rush hour? It doesn't make sense.
I change the radio station and find a traffic report. Traffic is in bumper-to-bumper gridlock and slowed to a crawl on every major freeway for miles on end. Nothing unusual there. It's a typical weekday afternoon.
I decide the first train must have been a fluke. The next one will be chock full of rail commuters happy to be without cars.
The next train is empty. No passengers. Nada. Zip.
I start checking ridership on each train and keep a running total. The math isn't hard. After 20 inspections the cumulative body count is only 32. Even if I missed five who were bent over tying their shoes, it's still below two per train.
The rail cars may be packed from downtown to the Medical Center, but South Braeswood is the end of the line for all but an average of less than two.
It's a mystery why Metro went the extra mile. This ghost spur owes existence to a Super Bowl, a seasonal Reliant Stadium, and a now-defunct seasonal Astroworld.
In post-Super Bowl Houston, trains are crammed with cowboy hats for a few weeks of rodeo festivities early in the year. Red pom-pons and Texans T-shirts fill the seats on Sundays in the fall. . . .
So a mile of the seven-mile system built at a cost of $300 million is now primarily a $43 million limousine service on tracks for livestock lovers and football fanatics.
The depressing sight of so many empty cars bringing down Metro's ridership statistics is turning my walk into a bummer.
Schadewald goes on to recommend that Metro attempt to increase ridership by using its excess capacity of rail cars in a bumper car attraction next to the Dome. Not a bad suggestion, actually.
July 18, 2006
After floating a Gaylord Texan-type concept for the past year or so, Astrodome Redevelopment Corp. and Harris County are ready to enter into a letter of intent regarding ARC's $450 million plan to reinvent the Astrodome as a luxury convention hotel with a parking garage and new exit from Loop 610 South to keep the facility from interfering with Houston Texans games and the Houston Livestock Show and Rodeo. ARC is a consortium comprised of Oceaneering International Inc., a publicly traded firm working in engineering, science and technology; URS, an architectural and design firm; NBGS International, a theme park developer; and Falcon's Treehouse, a Florida-based design firm.
Although touted "as a major milestone," the letter of intent is not such a big deal. ARC needs it to be able to negotiate deals with the array of entities (Texans, Rodeo, Harris County, financiers, investors, etc.) that it will have to cut deals with in order to make a deal of this magnitude come together. The letter of intent requires ARC to have its financing arranged in six months and to have its final deal cut with the county in a year.
Although I'm surprised that this proposal has gotten this far, I give the chances of the Astrodome hotel actually coming together without public financing as roughly the same as the Texans making the Super Bowl this upcoming season.
July 11, 2006
Houston's metropolitan area shares many characteristics with Southern California, so it's always interesting to review assessments of Los Angeles' urban boondoggles for guidance on how to avoid the same mistakes here.
In this L.A. Times op-ed, urban economics expert Joel Kotkin (previous posts here) explores the latest initiative to allow L.A.'s white elephant -- the downtown convention center -- to feed at the public trough. Despite the fact that the center has been a chronic money-pit despite a $500 million city expansion investment 17 years ago, the city is now proposing $300 million in loans, tax breaks and fee waivers for a $750-million, 54-story complex — including a 876-room Marriott Marquis, a posh 124-room Ritz-Carlton and 216 luxury condos — across from the Convention Center (sound familiar?). Despite the huge public outlay of public funds for the downtown convention center, Kotkin reports the following:
L.A. is still not on the list of the nation's top 10 convention cities and has little prospect of competing successfully against Las Vegas, New York and Orlando, which have far more attractions. According to one trade publication, L.A. hosted fewer major conventions last year than Indianapolis and Rosemont, Ill. But there's a bigger problem here.
The simple truth is that convention centers are rarely a good public investment. A definitive national study by the Brookings Institution, released last year, found that they frequently operate at a loss, including the recently expanded centers in Washington and St. Louis. In most cases, their much-ballyhooed effect on the local economy — new private investment, more jobs and increased levels of tourism — "has simply not occurred," reported Heywood Sanders, the study's author.
One problem is the convention business itself, Sanders noted. Overall attendance at the 200 largest trade shows — the critical market for large convention centers — has not grown measurably since 1993. Yet 44 cities — including Boston, Houston, Atlanta, Phoenix, Philadelphia, Washington and San Diego — were building or expanding convention centers, some by subsidizing the construction of a convention hotel, a development Sanders compared to an "arms race" among cities.
Stagnant trade-show business coupled with a convention center glut translates into more white elephants subsidized by taxpayers. Some cities such as Washington are already offering deep discounts to conventioneers to keep their buildings occupied. The L.A. Convention Center faces ever more cutthroat competition in such an environment. Unfortunately, the evidence suggests that a flashy hotel nearby may not increase the center's allure, especially because other cities, including Denver and Phoenix, are planning similar investments.
So, if the investment of public funds doesn't generate jobs and other economic benefits for a city's core, then who is benefitting from the public largesse?:
So if the hotel subsidy doesn't make economic sense, who benefits from the largesse? The biggest winner from the new public investment stands to be billionaire Phil Anschutz, whose $2.5-billion, 27-acre L.A. Live project — billed as "Times Square West" — is slated to be built adjacent to Staples Center. The refracted prestige of a new Ritz Carlton and luxury condos in the neighborhood would add luster to Anschutz's project, the proposed home of the West Coast headquarters of ESPN and a Grammy Award museum.
Meanwhile, urban economics expert Robert Bruegmann (previous post here) authors this LA Times op-ed in which he explains that L.A.'s urban sprawl is a reflection of its economic success and that its mobility problems largely stem from expectations generated from that success. Bruegmann suggests that it's time to think outside the box:
Unhappily, the fixation on sprawl has also detracted attention from the scenarios that might, over the long run, help build effective new public transportation systems. It is quite likely that this will need to involve the replacement of both the train and the gasoline-fueled automobile in the years ahead. Both are, after all, 19th century means of transportation, and very inefficient ones at that.
There is no technical reason that we couldn't have, not too far in the future, personal rapid transportation capsules running both on rails and rubber wheels, using alternative fuel sources and operating either on their own over short distances or linked together for longer distances on guideways that would allow speeds of hundreds of miles per hour. Such a system could vastly increase the capacity of existing right of way and go far toward reducing pollution.
Because cities are so dynamic, it is difficult to know whether our future urban areas will be lower or higher in density than today's. In either case, new modes of transportation that combine the adaptability and personal comfort of the auto with the efficiency of the train or bus are more likely, in the long run, to satisfy the needs of most Americans than forcing everyone back into high-density cities so they can ride trains.
We can do it, and we can enhance mobility for everyone. But only if we can put aside for a while the old and not-terribly-helpful battles over sprawl.
Hat tip for the links to Peter Gordon, who notes ruefully in his latest post:
Not to beat a dead horse, but today's LA Times includes a front-page feature, "Roads at Breaking Point" which begins this way: "California's highways, once the gold standard of the interstate system, are today some of the busiest, most dilapidated and under-financed roads in the country ..."
Nowhere does the article mention that the 30-year old crackpot idea (cheered by the Times at every turn) of diverting funds from roads to transit explains the mess.
Is Houston's Metropolitan Transit Authority listening?
February 19, 2006
Tory Gattis of the smart Houston Strategies blog has been doing his typically excellent job of covering developments on the proposed expansion of the Houston Metro light rail line. Neither an over-the-top advocate nor a grizzled pessimist about urban rail systems, Tory takes a refreshingly measured view that such systems should attempt to maximize usefulness while being a part of an integrated urban mobility plan that doesn't place all urban mobility eggs in one transit-type's basket.
The wisdom of Tory's approach is reflected by what is currently playing out in Las Vegas, where Sin City's new $650 million, 4.4 mile monorail project just experienced the worst monthly ridership in the system's 18-month history (earlier post here). Although comparing Houston's light rail system to the Las Vegas monorail is bit akin to comparing apples and oranges, it is noteworthy that the poor performance of the Vegas monorail has contributed mightily to the junk bond rating of the Las Vegas Monorail Co. bonds that were used to finance the system. Now, the Vegas transit authority finds itself unable to sell bonds at a realistic price in order to finance construction of logical expansions of the system, such as an extension to McCarron Airport.
Read the entire article because it is a wonderful reminder to us of how financial logic and constraints are abandoned in the face of such governmental boondoggles. For example, what do you think the Vegas transit authority did in the face of a system that is generating less than half of the amount necessary to pay operating expenses and debt service, lost $20 million last year, and is generating far fewer riders than projected?
The transit authority increased its base one-way fare from $3 to $5.
But wait, pointed out a spokesperson for the transit authority, that cool move generated an almost 24% increase in monthly revenues from a year ago even though 18% fewer riders used the system. Thus, even though the system needs over a 50% increase in monthly revenues to approach break even status, the transit authority's spokesperson reasoned that an anecdotal month's worth of higher revenue indicates that a drastic ridership increase won't be needed to break even. According to the transit authority, all that is needed is a quadruple increase in the monorail's marketing budget in order to attract more riders, presumably high-rollers who enjoy moving from casino to casino. Often.
So, how long do you think it will take for the Vegas monorail to be converted into Vegas' newest rollercoaster attraction? ;^)
February 1, 2006
This article notes that the same amount of monthly rent that would get you a nice apartment in Houston would get you something nice in Manhattan, too -- a parking space!:
Keeping a car at Time Warner Center across from Central Park runs about $550 to $600 a month. One- bedroom rentals are available for $500 to $600 in Greensboro, North Carolina; Austin, Texas; Cincinnati; and Oklahoma City, . . . Space is at a premium in Manhattan, home to about 1.56 million people, as outdoor lots and garages are converted into housing and new construction eats up what little land is available.
That opens a door for some building owners to tout their parking services. At 170 East End Avenue, architect Peter Marino designed parking spots as "couture homes for your car," with each space planned and presented to the buyer in the building's sales office, . . .
At One Beacon Court across East 59th Street from Bloomingdale's, where available apartments sell for $5.9 million to $17 million, residents have access to valet parking at a nearby garage, with their cars delivered to the building's entrance.
Rates are $600 a month, $700 for an oversized vehicle.
And I thought that $7 charge at the Civic Center Parking Garage for a couple of hours of parking last week was stiff! ;^) Hat tip to Craig Newmark for the link.
December 26, 2005
Tory Gattis asks the right questions regarding Houston's latest proposed urban boondoggle, but it's at least somewhat comforting to know that other cities are pondering even bigger boondoggles.
In Chicago, Mayor Richard Daley is floating a plan to build a new $1 billion dollar domed stadium to attract a second NFL team, the Super Bowl, the 2016 Olympic Games, the NCAA Final Four, and perhaps an unending string of monster truck shows to the Windy City. Brad Humphreys over at the Sports Economist comments on the absurdity of this proposal:
For those with short attention spans, Soldier Field, home of the NFL's Chicago Bears, underwent a $365 million dollar publicly financed renovation in 2002. But someone forgot to enlarge Soldier Field and build a roof during the renovation. Its 61,500 seat capacity is second smallest in the NFL, and too small to host the opening and closing ceremonies at the Olympics.
Daley's plan appears to have a few minor flaws. First, the expansion is news to the NFL, which currently has zero franchises in mega media market Los Angeles and the itinerant Saints franchise to deal with. Second, the plan appears to also be news to the Bears, who might have a vested interest in maintaining a monopoly in the Chicago market. Note to hizzonor: next time check the NFL expansion regs before making plans to acquire a new football franchise.
Of course, part of the justification for this new stadium is - wait for it - a fountain of economic benefits flowing from the proposed facility. According to one of the mayor's aids, among the expected economic benefits flowing from the new stadium would be "thousands of new jobs and new infrastructure." Unfortunately, there is not one shred of evidence that sports facilities generate tangible net economic benefits like more jobs.
In fairness, Houston does have even bigger potential boondoggles than its latest relatively small one, and even has an existing one in the black hole that is Metro. However, at least Houston's pouring of money into that bottomless pit is downright economic compared to the money that Seattle residents are tossing into theirs:
The light-rail system, as now projected, will have far fewer stations, be far shorter, take years longer to build, and cost billions more than originally promised. What experts already knew--that light rail is unsuited to cities where tunneling and water crossings are necessary--is now apparent. Big engineering problems have arisen. Yet [local politicians] have kept big money flowing to the project.
Washington state law provides that transit agencies and regional transit authorities may operate rail service where it is competitive in cost with bus, bus rapid transit and other technologies. . . [however] Both Sound Transit's light rail and its intercity Sounder service have cost far more than alternatives, the prices of which were not presented.
Rail Madness came via ballot measure--the form of direct democracy tailor-made for willful, well-financed single-issue and single-interest coalitions to get what they want. Local law firms, financial institutions, unions, consultants, architects, builders and others who receive project-related public funds have formed a strong alliance with local politicians who keep those rails a hummin'. Taxpayer funds even pay for print and broadcast ads hyping the projects.
While Rail Madness prevails, more urgent transportation priorities are not being met . . .
Can Rail Madness reach those levels in Houston? You better believe it.
December 18, 2005
Following on this post from earlier this year, this Bill Murphy/Chronicle story updates developments in regard to the seemingly delusional plan to convert the Astrodome into a Gaylord Texan-type one-stop destination hotel for conventioneers and their families.
Astrodome Redevelopment Co., the developer of the project, envisions a 1,200-room hotel, a winding indoor waterway with small tour boats, mill wheels, walkways and lush landscaping. The developer is currently finalizing its redevelopment plan and a letter-of-intent to be delivered to the Harris County Sports & Convention Corp. next month. If Harris County signs off on the letter of intent, then the developer would attempt to secure financing for the half-billion dollar project, not an easy task in Houston's already soft hotel market that includes a relatively new 1,200 room downtown convention center hotel that has had anything but robust occupancy. At the same time, the developer will probably look to obtain a substantial financing subsidy from Harris County in the form of a long-term lease on the facility.
Frankly, the public money request is almost inevitable because the typical private market for such projects -- companies such as Disney, Universal Studios, Six Flags, Clear Channel and Anschutz Entertainment, and local entertainment czar Tilman Fertitta -- has already passed on participation in the Astrodome hotel deal. Consequently, there is little reason to think that Astrodome Redevelopment Corp. -- whose owners have virtually no experience developing or running a Gaylord Texan-type convention hotel -- will have any better luck in arranging private financing for the project.
Meanwhile, a host of other logistical problems would have to be worked though before such a project could become a reality, not the least of which would be to coordinate parking between the hotel project, the Reliant Center Convention Center, the Houston Texans football team, and the Houston Livestock Show and Rodeo. Can you imagine the warm and fuzzy feelings that guests would have for the Astrodome hotel after having to negotiate traffic around the Reliant Center complex during the Rodeo, a Texans game, a big concert at Reliant Stadium or a big convention at Reliant Convention Center during their stay at the hotel? A facility such as the Gaylord Texan never has to deal with such headaches and has the advantage of being just up the road from an airport (D/FW) into which guests can fly in from around the country. Although the Dome is reasonably close to Hobby Airport, it's not as easy for most out-of-state guests to fly into Hobby as it is far off Intercontinental, which is an hour away from the Dome under the best of traffic conditions.
Accordingly, hold on to your pocketbooks as the details of this deal play out over the next year. Not much takes place in the Dome anymore as the County has decided that it is uneconomic to put down the playing field anymore for high school football games. Nevertheless, it costs the County about $1.5 - $2.0 million annually just to keep the Dome open for the Rodeo and the occasional dinner party or bar mitzvah on the Dome floor, and it would cost about $600,000 a year just to mothball the facility. Even demolition of the Dome would probably cost at least $10 million. That's a lot of money, but its nothing like the cost of dealing with a huge failed hotel project. Just ask the City of Houston.
October 21, 2005
The Chronicles Nancy Sarnoff writes in this article about the Metropolitan Transit Authority's latest venture to do something other than what it is chartered to do, which is to provide a flexible and effective mass transit system for citizens of the Houston metropolitan area:
[Metro] has selected Houston-based Transwestern Commercial Services to build [a $105 million building above the transit center on Fannin near the Medical Center], which could include condominiums, a hotel, office and retail space in the Texas Medical Center.
Metro hopes the project will increase ridership, create a neighborhood-friendly sense of place and generate revenue from its real estate assets.
"We want to do things where people can live, work and play that enhance their quality of life," said Todd Mason, vice president of real estate services for Metro.
The development plan calls for a 175-room hotel, 30 condominiums, 35,000 square feet of shops 168,000 square feet of medical office space and a 15,000-square-foot wellness center.
Transwestern and Metro will spend the next year looking for a hotel operator and tenants to fill the space.
Chip Clarke, president of Transwestern's southern region, said the project details are "fluid" and that its ultimate uses will be driven by the market.
Construction, which could take three years to complete, is expected to begin in the second half of 2006.
The article goes on to describe how Metro plans similar projects for other parts of the light rail line.
H'mm. We already know that Metro does not perform particularly well at that which it is chartered to do. In view of that, it's not a good idea for Metro to be getting into the notoriously speculative real estate development business, where it can lose even more money. Indeed, our local government already has a dubious record of boondoggles in that area. Finally, given Metro's governmental subsidy for this project, how on earth are private developers -- who risk their investment based on market conditions -- supposed to compete with such projects when they must rely on higher-cost private financing?
Consequently, count me as skeptical that this approach to spurring development along Metro's rail line makes sense. When this type of thing gets started, we're not very far from having to deal with this even bigger problem.
October 3, 2005
Houston's light rail system is a depressing black hole that gobbles huge amounts of money, so we are reduced to feeling somewhat better about that waste by stories such as this one that portend an even bigger urban boondoggle:
A decade ago, local leaders [in the Raleigh-Durham Research Triangle area of North Carolina] started planning a regional rail system, hoping to avoid a future of clogged highways and frustrated commuters. . .
The Triangle Transit Authority wants to build the $759 million system. But TTA is struggling to answer rigorous questions from federal officials about predictions of how many people will ride.
No dirt has yet been turned, although TTA has spent nearly $43 million acquiring land and access to an existing railroad corridor.
The project's cost has ballooned from a 1994 estimate of about $100 million to a new estimate of $759 million.
Even at that price, the 28-mile route would be seven miles shorter than its backers have long wanted, a reduction that saves money. Four stations were cut, three in North Raleigh and one at Duke University Medical Center.
For now, federal authorities have held up approval of most of the money needed for the project, more than $400 million. . . TTA's ridership forecasts were "unexpected and unexplainable," according to a memo written Aug. 1 by Jennifer L. Dorn, administrator of the Federal Transit Administration.
For the first time, [area leaders are] talking about possibly needing more money from Triangle taxpayers to keep the project on track. Previously, he and other TTA leaders have said that new local taxes would only be needed later to expand to North Raleigh and Chapel Hill. . .
TTA's predictions for riders make clear that taxpayers should not expect the rail to make a huge dent in traffic. The system was last forecast to carry about 14,000 riders a day when trains start.
That number amounts to removing less than a lane of traffic on the busiest part of today's Interstate 40.
September 5, 2005
Awhile back, I participated with local bloggers Tory Gattis, Anne Linehan and Kevin Whited, Laurence Simon, Owen Courr?ges and several others on a lively thread regarding the causes and effect of the public policy choices that Houston is making in regard to Houston's Metropolitan Transit Authority and its light rail system. One of the points that I tried to make in that discussion was the political factors often prompt people who need mass transit the most to vote in favor of transit plans -- such as Houston's light rail system -- that really do not really address their needs, and that such choices often have long-lasting and unintended consequences.
Along those same lines, Randal O'Toole, senior economist at the Thoreau Institute, points out here that the public policy decisions regarding mass transit in New Orleans played a large part in the loss of human life that will result from Hurricane Katrina and the storm's aftermath:
Those who fervently wish for car-free cities should take a closer look at New Orleans. The tragedy of New Orleans isn't primarily due to racism or government incompetence, though both played a role. The real cause is automobility -- or more precisely to the lack of it.
"The white people got out," declared the New York Times today. But, as a chart in the Times article makes clear, the people who got out were those with automobiles. Those who stayed, regardless of color, were those who lacked autos.
What made New Orleans more vulnerable to catastrophe than most U.S. cities is its low rate of auto ownership. According to the 2000 Census, nearly a third of New Orleans households do not own an automobile. This compares to less than 10 percent nationwide. There are significant differences by race: 35 percent of black households but only 15 percent of white households do not own an auto. But in the end, it was auto ownership, not race, that made the difference between safety and disaster.
"The evacuation plan was really based on people driving out," an LSU professor told the Times. On Saturday and Sunday, August 27 and 28, when it appeared likely that Hurricane Katrina would strike New Orleans, those people who could simply got in their cars and drove away. The people who didn't have cars were left behind.
Critics of autos love the term "auto dependent." But Katrina proved that the automobile is a liberator. It is those who don't own autos who are dependent -- dependent on the competence of government officials, dependent on charity, dependent on complex and sometimes uncaring institutions.
As shown in the table below, the number of people killed by hurricanes in the U.S. steadily declined during the twentieth century. Economists commonly attribute such declines to increasing wealth. Wealth differences are also credited with the large number of disaster-related deaths in developing nations vs. developed nations. But what makes wealthier societies less vulnerable to natural disaster? There are several factors, but the most important is mobility.
Number of Deaths Caused by Hurricanes in the U.S.:
Source: Atlantic Oceanographic and Meteorological Laboratory. Number for 1900-1919 is estimated as the exact death toll from 1900 Galveston hurricane is unknown.
People with access to autos can leave an area before it is flooded or hit with hurricanes, tornados, or other storms. When earthquakes or storms strike too suddenly to allow prior evacuation, people with autos can move away from areas that lack food, safe water, or other essentials.
Numerous commentators have legitimately criticized the Federal Emergency Management Agency and other government agencies for failing to foresee the need for evacuation, failing to secure enough buses or other means of evacuation, and failing to get those buses to people who needed evacuation. But people who owned autos didn't need to rely on the competence of government planners to be safe from Katrina and flooding. They were able to save themselves by driving away. Most apparently found refuge with friends or in hotels many miles from the devastation. Meanwhile, those who didn't have autos were forced into high-density, crime-ridden refugee camps such as the Superdome and New Orleans Convention Center.
Rather than help low-income people achieve greater mobility, New Orleans transportation planners decided years ago that their highest priority was to provide heavily subsidized streetcar rides for tourists. In the late 1980s and 1990s, New Orleans spent at least $15 million converting an abandoned rail line into the 1.5-mile Riverfront Streetcar line. In 2004, New Orleans opened the 3.6-mile Canal Street streetcar line at a cost of nearly $150 million.
New Orleans was planning to spend another $120 million on a Desire Street streetcar line.
These tourist lines do nothing to help any local residents except for those who happen to own property along the line. The city was not deterred by table 7.2 on page 8 its own analysis of the Desire line showing that each new rider on this line would cost taxpayers more than $20.
About 26,000 low-income families in New Orleans don't own a car. If all the money spent on New Orleans streetcars from 1985 to the present had been spent instead on helping autoless low-income families achieve mobility, the city would have had more than $6,000 for each such family, enough to buy good used cars for all of them. Add the money the city wanted to spend on the Desire Street streetcar and you have enough to buy a brand-new car for every single autoless low-income family -- not a Lexus or BMW, certainly, but a functional source of transportation that would have allowed them to escape the current disaster.
While I don't think that buying low-income families brand-new cars is the best use of our limited transportation resources, it would produce far greater benefits than building rail transit. Studies have found that unskilled workers who have a car are much more likely to have a job and will earn far more than workers who must depend on transit. That is why numerous social service agencies have begun programs aimed at helping low-income families acquire their first car or maintain an existing one.
Yet when I point out the comparative benefits of providing mobility to low-income people vs. building rail transit lines to suburban areas that already enjoy a high degree of mobility, rail advocates often respond, "We can't let poor people have cars. It would cause too much congestion." Yes, as the Soviet Union discovered, poverty is one way to prevent congestion.
New Orleans is in many ways a model for smart growth: high densities, low rates of auto ownership, investments in rail transit. This proved to be its downfall. While the city was vulnerable from being built below sea level, many cities above sea level have proven equally vulnerable to storms and flooding. In the end, New Orleans' people suffered primarily because so many lived without autos, thus making them overly dependent on the competence of government planners.
As noted in this previous post, people are entitled to vote in favor of a mass transit system that does not really address their needs. However, they should not be misled in doing so as has often been the case with regard to past Metro referendums. If a part of Metro's long-term strategy is to make certain segments of Houston's population less "automobile-dependent," then one of the lessons of New Orleans and Hurricane Katrina is that we should make clear in any future Metro referendums that such a strategy can have deadly consequences in the event that an evacuation of Houston is required.
Hat tip to Peter Gordon for the link to Mr. O'Toole's piece.
August 20, 2005
Note to Mayor White -- before you have the City foreclose its second lien on either of those hotel properties, please check to see whether either of them is generating enough revenue to pay operating expenses, much less debt service on the first lien indebtedness. Hotel properties "eat" money, and if the current owners are at least contributing enough to subsidize negative cash flows to operations, considering an alternative to foreclosure could save the City a ton of money. Sometimes you get more than you wish for when driving a hard bargain.
August 18, 2005
Following on these earlier posts (here and here), this Chronicle story reports that an outfit named Astrodome Redevelopment Corp. has obtained a preliminary $450 million financing commitment to redevelop the Astrodome into a Gaylord Texan-type hotel and entertainment complex. Astrodome Redevelopment Corp. is an investment company comprised of Oceaneering International Inc., a publicly traded firm working in engineering, science and technology; URS, a large architectural and design firm; NBGS International, a theme park developer; and Falcon's Treehouse, a Florida-based design firm.
Emphasis here should be on the word "preliminary." A project of this magnitude would entail working out huge problems, such as how an additional 1,200 rooms can be justified to lenders and equity investors in light of Houston's current glut of hotel rooms, parking woes during football games and the Houston Livestock Show and Rodeo, and the dubious nature of the pitiful Astroworld Six Flags Amusement Park across the freeway from the Dome as a draw for the hotel. As a result, my sense is that this deal will never come together, but crazier financial decision have been made -- just look at the Metro Light Rail line! ;^)
Anne Linehan over at blogHouston.net summarizes local reaction to this latest Dome boondoggle.
August 11, 2005
Tory Gattis and I recently generated some interesting discussion regarding mass transit generally and light rail in particular in a series of posts (here, here and here). Part of the psychology in favor of the light rail projects discussed in that blog thread is that the federal government -- regardless of economic merit -- is going to throw some political pork barrel funds at light rail projects, so light rail proponents reason that we might as well claim our fair share.
Although that line of reasoning is understandable, it doesn't really make me feel any better about the pork being distributed in the first place. This Washington Post article provides a good analysis of the politics of the new transportation bill:
Three years ago, President Bush went to war against congressional pork. His official 2003 budget even featured a color photo of a wind-powered ice sled -- an example of the pet projects and alleged boondoggles he said he would no longer tolerate.
Yesterday, Bush effectively signed a cease-fire -- critics called it more like a surrender -- in his war on pork. He signed into law a $286 billion transportation measure that contains a record 6,371 pet projects inserted by members of Congress from both parties.
$286 billion in 6,371 pet projects? Let's see, we have 535 representatives and senators in Congress. So, that's about 12 pet projects per representative or senator. But if the number and cost of those projects troubles you, just remember that it's all relative:
[White House spokesperson Trent] Duffy replied [to a question about the bill's cost] that Bush pressured Congress to shave billions of dollars off the bill, and he said spending is "pretty modest" when spread out over five years. The transportation bill, at $57 billion a year, is a fraction of Medicare's $265 billion.
Besides, Duffy said, "the president has to work with the Congress."
In other words, we are supposed to feel better because the annual cost of the pork, when spread over five years, is only about 20% of the blackhole of annual Medicare expenditures.
Somehow, that doesn't make me feel all that much better. Here is another critical analysis of the bill.
July 31, 2005
Tory Gattis (Houston Strategies) recently authored this insightful post that explores the vexing question of why many people passionately support light rail in the face of the overwhelming economic arguments against it? Tory concludes that it has something to do with an unexpressed human psychological need to be liked -- sort of like, "Here, check out and play with my light rail toy, and you will probably think better of me."
Tory is clearly on to something in that there appears to be an element of a civic inferiority complex underlying some folks' support for light rail. However, Tory's point still does not explain why people who need mass transit the most -- i.e., folks who cannot afford the cost of buying and maintaining a car -- support light rail, which certainly does not improve their mobility and, by drawing resources away from mobility projects that would, probably harms it.
My sense is that that question lies somewhere between the human demand for entitlement and lack of viable choices. As previously noted on this blog, the true economic benefit of light rail is highly concentrated in only a few interest groups -- political 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 that are striving for political influence, construction-related firms that feed at the trough of light rail projects, and private real estate developers who enrich themselves through the increase in their property values along the rail line. Inasmuch as none of these reasons for mass transit appeal to the part of the electorate who actually need mass transit, this amalgamation of interest groups continues to disguise their true interests behind amorphus claims that the uneconomic rail lines reduce traffic congestion (they do not), curb air pollution (they do not), or improve the quality of life (at least debatable). The literature on all this is public and volumnious -- check out demographia.com, cascadepolicy.org, and americandreamcoalition.org.
So, how do these interest groups get away with this? The costs of such systems 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 interest groups recognize that it is usually not worth the relatively small cost per taxpayer for most citizens who do not use mass transit to spend any substantial amount of time or money lobbying or simply taking the time to vote against an uneconomic rail system.
Meanwhile, the light rail interest groups garner support for light rail from the part of the electorate that actually needs mass transit by simultaneously limiting the mass transit choices and threatening that part of the electorate with loss of the governmental funds for mass transit if they fail to support light rail. Thus, a referendum on mass transit issues is never promoted with choices between alternatives such as a light rail system, one one hand, and a cheaper and more effective bus-based system system, on the other. It's simply an "all or nothing" choice, and folks who need mass transit will understandably vote in favor of getting their share of public transportation funds even if it does not improve their mobility one iota. Indeed, given the cost of light rail systems, one wonders how those citizens who actually need mass transit would vote if the alternative were a light rail system, on one hand, and a new Toyota Prius for each such citizen, on the other? Frankly, the cost of the latter alternative would likely be cheaper than most any light rail plan.
So, at the end of the day, where does that leave us? Is it wrong that people who need mass transit vote in favor of something that does not really address their needs? No, it does not, but it troubles me when they are misled in doing so. As Anne Linehan and Kevin Whited (blogHouston.net) have repeatedly pointed out, a part of Metro's pitch for its light rail plan was that light rail would enhance Metro's bus system and service. Inasmuch as that representation has turned out to be patently false, it seems reasonable that our public officials should at least be required to point out publicly that Metro's most utilized and efficient mass transit system -- i.e., the bus system -- will likely continue to erode as Metro continues to invest heavily in light rail.
In the meantime, it would also be nice if public officials would admit publicly that the usual economic justifications for light rail are also dubious. If mass transit users and other citizens want to allow Houston's public officials to continue to throw money at a light rail system in the face of the economic truth about such a system, then I can live with that result despite my compassion for those citizens who are not being provided the mass transit that they need. But at least let's require truth in advertising in connection with having citizens vote on such matters. A similar sentiment is shared in this interesting Owen Courr?ges post (Lone Star Times) in which he takes the Chronicle to task for suggesting that Metro's political opposition -- rather than Metro itself -- is misleading the public about Metro's expanded light rail plan.
Finally, Tory points out that we should take some comfort in the fact that Houston's light rail plan is at least not as big an economic boondoggle as similar plans proposed for Seattle and Denver. Similarly, a couple of commentators to Tony's post chime in that the marginal cost of the light rail system to Houston area citizens is relatively small for a civic asset that will impress citizens and visitors alike for many years to come. That latter point may have some validity, but let's make sure that we are talking about the correct marginal cost.
A big difference between the light rail system and the publicly-funded stadiums that Houston has built over the past several years are that the stadiums have tenants who pay the vast majority of the cost of maintaining the facilities. In comparison, Metro's light rail system does not come close to generating enough revenue to pay its ongoing costs, as was brought home by Metro's recent announcement of desultory operating results coupled with the expenditure of $104 million more on the three-year-old rail line to fix problems caused by construction errors and add more rail cars. In that regard, even the $1.5 million that Harris County spends annually to mothball the Astrodome pales in comparison to underwriting the ongoing cost of the light rail system. The bottom line is that light rail systems eat voraciously, and any analysis of the true marginal cost of such a system to citizens has to take into consideration the high cost of feeding that appetite.
July 23, 2005
MetroRail logged its third collision in four days Friday, making 29 this year and 96 since fall 2003, when testing of the rail line began.
Before that, the last collision was July 5. The last string of three accidents in four days was March 13-16. Metro recorded three light rail collisions in two days Jan. 26-27 and five in eight days March 22-29, 2004.
Who boy, Kevin Whited and Anne Linehan at blogHouston.net are going to have fun with this one. BlogHouston.net's Houston Transit category and Kevin's PubliusTX.net Danger Train category are the two best sources for information on the seemingly unending foibles of Houston Metro.
By the way, is it just me or does Mr. Sallee's analysis of MetroRail's many crashes seems eerily similar to the way in which one would evaluate a Major League Baseball player's career statistics?
July 14, 2005
The economic pox of light rail is even filtering down to New Mexico, which enjoys one of the least densely populated areas in the nation. Despite the absurdity of this economic boondoggle, this common sense analysis keeps a straight face while evaluating the light rail proposal.
July 4, 2005
In the "could-it-possibly-be-any-worse" department, this Rad Sadlee/Chronicle article reports on the just-released external audit of Houston's Metropolitan Transit Authority. It's not a pretty picture:
Comparing Metro's numbers for fiscal years 2001 and 2004, the audit shows a 29 percent rise in operating costs, to $304 million, and a 36 percent increase per passenger boarding. On the income side, Metro's annual report shows fare revenue has hovered around $46 million a year since 1995.
The report says ridership slipped 5 percent in the three years, from 100 million yearly boardings to 95 million, despite a one-year bump in 2004 when 5 million boardings on the new MetroRail line offset the loss of 3 million on buses. Most of the loss was on local and express routes, with Park & Ride numbers holding steady.
This less-than-inspiring performance is after Metro plunked down $325 million to construct the underutilized 7.5 mile Red Rail Line from downtown to Reliant Park and Metro's announcement from a little over a month ago that the agency plans to spend another $104 million on the Red Line -- less than three years after completion of the project -- to double the number of trains and fix problems caused by construction errors. Then, as if to jolt into perspective the economic absurdity of all of this, Metro and public officials recently announced a modified public transit plan in which Metro puts up $676 million (in addition to the $325 million already spent on the Red Line) in return for an additional $1 billion in federal matching funds. Given how poorly Metro has invested public money to date makes the details of how Metro intends to spend that additional money almost an afterthought, but Anne Linehan over at blogHouston.net and Tory Gattis at Houston Strategies have done a good job of analyzing that issue. By the way, blogHouston.net's compendium of Metro posts that Ms. Linehan and Kevin Whited have prepared is the flat-out best resource on the web to track what Metro is doing.
In a post on the city's similarly dubious investment in downtown hotels, I observed that after awhile -- by throwing $15 million here and there on bad investments -- you eventually start talking about some real money. However, even though the amount of poorly-invested funds in the scam of Metro's rail system is absolutely huge, the issue of whether such funds should continue to be invested in such a plan does not even seem to register on the local political radar screen.
Unfortunately, the relatively small groups that benefit from these urban boondoggles have a vested interest in keeping that threshold issue from being re-examined. The economic benefit of light rail is highly concentrated in only a few interest groups -- particularly political 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, construction-related firms that feed at the trough of Metro's poor investment decisions, and private real estate developers who enrich themselves through the increase in their property values along the rail line. None of these reasons for mass transit appeal to the vast majority of the electorate, so this amalgamation of interest groups continues to disguise their true interests behind amorphus claims that the uneconomic rail lines reduce traffic congestion (they do not), curb air pollution (they do not), or improve the quality of life (at least debatable). The literature on all this is public and volumnious -- check out demographia.com, cascadepolicy.org, and americandreamcoalition.org.
How do these interest groups get away with this? The costs of such systems 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 interest 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 an uneconomic rail system. Nevertheless, given Metro's poor financial performance -- combined with new proposals for allowing this poorly-managed agency to invest over $1.5 billion before it has even put it's house in order -- it's high time that Houston's civic leaders show some statesmanship by addressing the real demands of folks who need to use mass transit and recognizing that we are talking about some real money here.
Metro's rail system is a bad virus that has infected Houston, and the cost of treating this civic virus is growing larger each month. Without periodic and independent re-examination of Metro's light rail plan, the increasing costs of this plan risk turning this currently manageable problem into a major civic fiscal crisis that could negatively affect the Houston area's growth and prosperity. Real leadership involves recognizing that risk and addressing it, not indulging it.
June 6, 2005
This post from last year addressed the economic failure of the urban rail system in Washington, D.C. Now, the Washington Post is running a series of articles (first one here) that is examining the dubious economics and management of D.C.'s subway system. Here are other posts on various urban rail boondoggles.
Tory Gattis over at Houston Strategies picks up on the same WaPo article and observes the following regarding the failed economics of most urban rail systems:
Quite the depressing and scary litany. It's really hard to have good management at a public agency, and transit is a seriously complicated and expensive business with billions of dollars at stake, especially rail transit. Amtrak's a mess. DC's a mess. NY, Chicago, SF/San Jose, and LA all have serious problems with their transit agencies. What makes us think Houston Metro can buck this trend?
May 20, 2005
The economic lunacy of light rail has been an occasional topic on this blog (here, here, here, and here). However, blogHouston.net has a much more impressive archive of insightful posts over the past year on the foibles of the Houston Metropolitan Transit Authority, which has completely redesigned Houston's public transit system over the past decade from a flexible one based primarily on bus transit to an inflexible one based primarily on light rail.
Metro wants to spend an additional $104 million on its Main Street light rail line to almost double the number of trains and fix costly problems it blames on construction errors.
Metropolitan Transit Authority president and CEO Frank Wilson laid out his wish list to the agency's board Thursday, shortly after releasing statistics that show surging rail ridership but decreased numbers of bus riders and overall customers.
The cost Metro estimates for the improvements would raise the bill for what Metro calls its Red Line ? the 7.5-mile route from downtown to Reliant Park ? by about a third.
At the same time, the agency is seeking federal money to help build four light rail extensions with a combined price tag of $1.7 billion.
The Chronicle goes on to report that, although light rail ridership has increased, the total number of people using Metro mass transit (i.e., light rail and buses) has declined by 3% over the past year.
Not exactly the return on investment that one would wish for after plunking down $325 million to build the 7.5 mile light rail system.
At any rate, Ms. Linehan uses her skill in translating Metro-speak to explain why Metro officials believe that spending another cool $104 mil on the existing light rail line is a good idea:
"We cut corners building the 7.5 miles of downtown light rail; we have dismantled bus and trolley service in order to feed the light rail; we don't have a consistent method for collecting fares so we can't talk about 'paid ridership;' we are bleeding passengers systemwide even though Houston's population has increased; and now we'd like an extra $100 million to help fix our mess."
Thus, the scam of this publicly-financed rail system continues to eat money voraciously with no end in sight. The economic benefit of light rail is actually highly concentrated in only a few interest groups, such as elected officials who enjoy touting their political "accomplishment," environmental groups who seek to gain political influence, construction-related firms who can soak the public till, and real estate developers who enjoy the increase in the value of their property along the rail line. Inasmuch as none of these reasons for mass transit are particularly appealing to the vast majority of the electorate, the interest groups disguise their goals behind disingenuous claims that rail lines will reduce traffic congestion, curb air pollution, or -- the one I like best -- make a city "world class." In reality, rail transit has never been an efficient means to reduce either congestion or air pollution, and a rail line has certainly never made a city "world class."
On the other hand, the costs of such systems are widely dispersed among the local population. Thus, 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, it is usually not worth the relatively small cost per taxpayer for most citizens to spend any substantial amount of time or money lobbying against even an uneconomic rail system. With political leadership more interested in shiny toys than pro forma operating statements, the publicly-financed rail systems continue to infect metro areas like a bad virus, and the cost of treating this civic virus grows larger each month.
Finally, the foregoing analysis does not even count the cost associated with this carnage.
Where is the Lord of Regulation when you really need him? ;^)
February 26, 2005
There is an old saying among investors and insolvency lawyers that a hotel is such a bad investment that no owner makes any money on it until at least three prior owners have gone bust.
Well, it appears that the City of Houston is about ready to experience the truth of that observation. Following on the news from last week that the downtown Hyatt Regency Hotel has been posted for a foreclosure sale, the Chronicle reports that two other hotels -- The Magnolia downtown and the Crowne Plaza Hotel in the Medical Center -- have defaulted on a total of $15 million in redevelopment loans that the City provided in connection with the recent rehabilitation of the hotels.
It occurs to me that if I were a downtown or Medical Center hotel owner, and the City of Houston had subsidized two competitors of mine with a tax on my business, I'd be rather angry right now.
To make matters worse, the City's loans are not even secured by a first lien on the properties, so the City is not entirely in control of its options resulting from the defaults. The Chronicle article contains all sorts of optimistic statements from City officials and the hotel owners that "they are working through" the problems, but the harsh reality of the situation is that, unless the City wants to get into the downtown hotel business in even a bigger way than it already is with the city government-financed 1,200-room Hilton Americas Hotel, the City's options are limited.
Frankly, the most creative option probably is to convert the City's debt to an equity stake in hotels, install a savvy hotel operator to run the hotels, and take the risk that hotels can at least generate enough money to service the first lien debt on the properties (which, in the case of The Magnolia, may be a shaky proposition). On the other hand, if the City continues to maintain its debt position or hands it off to the federal agency that guarantees a portion of such loans, then the hotels will gradually deteriorate as cash flow is diverted to service the unrealistic debt levels. In that case, the primary purpose of the City's loans in the first place -- to redevelop run down properties -- will be effectively nullified.
The bottom line is that these are two more examples of why the City of Houston should not be in the business of financing redevelopment projects. Indeed, financing redevelopment was one of the rationalizations for this even bigger boondoggle.
December 28, 2004
Houston's light rail boondoggle has been the subject of several previous posts here. Given that misery loves company, this Washington Post article provides Houstonians with some comfort that Las Vegas may have managed to generate an even bigger rail boondoggle than Houston's:
When it debuted in mid-July, this city's sleek $650 million monorail was supposed to be the envy of the nation, a high-tech public transit system paid for without taxpayer money that would be so popular it could even turn a profit.
But during a busy convention season, bits and pieces of the trains started falling off, potentially endangering anything below, and the system was shut down indefinitely for major repairs. By Thanksgiving, newspaper cartoonists and tourists alike were dubbing it "monofail" and deriding the futuristic cars sitting idle on the costly tracks.
After being closed for 3 1/2 months, at a cost of more than $9 million in fare revenue, the system reopened over Christmas weekend, just in time for Las Vegas's busiest tourist week of the year. It was a Christmas gift from Clark County officials to monorail operators who hope to erase the memory of one of the city's most humiliating and expensive debacles.
However, the Las Vegas monorail has an interesting characteristic that is not shared by most rail systems -- it was not built with government funds and is not designed for commuters:
Unlike any of the nation's other transit systems, the Las Vegas Monorail is not designed to aid local commuters or even to alleviate roadway congestion. The traffic reduced by this train is in the casino corridor, making visitors its chief beneficiary.
The Las Vegas Monorail deal is unique . . . Transit Systems Management is a private entity that reports to the Las Vegas Monorail LLC, a board appointed by the governor. . . it is largely a privately operated venture funded by construction bonds sold to investors using the state's bond rating but with debt insurance so Nevada taxpayers are not liable in a default.
Nevertheless, the ubiquitous governmental subsidy of the system appears to be on the horizon:
[F]ederal and county funds will be used for future legs of the monorail -- including a $450 million, 2.9-mile stretch to the downtown casino center northeast of the Strip, planned to open in 2008 but now pushed back by the closure. The monorail also is slated to be extended to McCarran International Airport to the south by 2012, using taxpayer money.
Thus, as with publicly-financed stadiums, the scam of these publicly-financed rail systems lives on because the benefits of light rail are highly concentrated in a few interest groups such as elected officials, environmental groups, labor organizations, engineering and architectural firms, developers and regional businesses. On the other hand, the costs of such systems are widely dispersed among the general population. Consequently, the many who stand to lose will lose only a little while the few who stand to gain will gain a lot.
This is why a politically savvy minority can con a large group of taxpayers facing relatively small costs into voting for an uneconomic rail system based on perceived benefits such as helping the poor, reducing congestion and pollution, and fostering development. Even though these benefits are exaggerated, it is usually not worth the relatively small cost per taxpayer for most taxpayers to spend any substantial amount of time lobbying against the cost-ineffectiveness of the rail system. With political leadership usually more interested in reading tea leaves than balance sheets and pro forma operating statements, these uneconomic rail systems just continue to perpetuate like a bad virus.
Of course, if other public projects are proposed where the overall costs outweigh benefits, then the small cost to the taxpayer per project could add up to quite a hefty boondoggler?s bill after awhile. Las Vegans should think about that as they consider publicly financing both the extensions of the monorail and a stadium to attract a Major League Baseball team.
December 24, 2004
Following on this earlier post on the dilemma posed by the obsolescent Astrodome, this Richard Connelly Houston Press article does a good job of reviewing the Astrodome hotel project and the other options that are being considered.
Given the constraints posed by regular events at Reliant Stadium and the use of Reliant Park by the Houston Livestock Show and Rodeo and other conventions, retrofitting the Dome into a commercial development is not feasible. The Dome is an important part of Houston's history, but its time is passed and the nostalgia is the only productive aspect of it that remains. It's time to recognize that the only viable option is to demolish the Dome and use the valuable land for better and more productive purposes at Reliant Park.
Update: Charles Kuffner has an interesting thought on the Dome dilemma.
October 13, 2004
Earlier posts here and here explored the economic absurdity of urban rail systems in modern American cities, which is a hot topic in Houston these days given the recent launch of Metro's Light Rail System earlier this year.
Now, the long-range empirical data refuting the economic basis of such systems is emerging. In this article, Wendell Cox analyzes the $10 billion cost relating to creation and maintenance of the Washington, D.C. "Metro" rail system over the past 30 years. His findings are insightful:
No US urban area has built more new high-quality urban rail than Washington, DC, which spent $10 billion, most of it from national taxpayers, on a more than 100 mile system. Of course, it would be unfair to have expected Washington?s ?Metro? subway to have made a difference in area-wide traffic, since, as noted above, transit is about downtown. Predictably, at the metropolitan area level, Metro?s impact has been virtually absent. In 1970, before the first section of the system opened, the Census Bureau reported that 15.3 percent of area workers used transit to get to work. By 2000, transit?s work trip market share number had dropped 29 percent, to 10.9 percent. Perhaps even more astounding is the fact that Census data indicated a five percent reduction in actual work trip usage from 1990 to 2000, a period during which the system was expanded more than 25 percent.
Over the past 20 years, traffic in the Washington area has become the fourth worst in the nation, following only Los Angeles (which has opened a metro, light rail and commuter rail), San Francisco (where BART has made no difference) and Chicago (with the nation?s second most extensive rail system). The problem in Washington is that so many planned freeways were cancelled. In Houston, where capacity has been built to keep up with demand, traffic is better than in 1986, and the area has improved to 10th worst traffic in the nation from having been the worst in 1985.
Read the entire article. As we ponder why these public boondoggles continue to proliferate despite the increasingly clear evidence of their enormous cost relative to their relatively small public benefit, I pass along an astute commentator's observation regarding the politics of such systems from one of my earlier posts:
Concentrated benefits and dispersed costs are one economic reason for the existence of inefficient public projects. The many who stand to lose will lose only a little, whereas the few who stand to gain will gain a lot. Of course, if other public projects exist where overall costs outweigh benefits, then $6 a year per project could add up to quite a hefty boondoggler?s bill.
September 23, 2004
With the construction of the Juice Box and Reliant Stadium, one of the local political footballs that is lobbed around Houston from time to time is the following issue: What should we do with the Astrodome?
The local sports and convention corporation spends about $1.5 million annually to host a small number of events at the Astrodome and, even if the facility were to be mothballed, the corporation would spend $500,000 annually in maintaining it. Even razing it would be expensive, probably costing $10 million to $20 million. Moreover, Harris County still owes more than $50 million on bonds issued to pay for renovations at the Astrodome during the 1980s (remember Bud Adams?), and that debt will mature in 2012.
Consequently, The Astrodome is a knotty problem. It's expensive to maintain and, quite frankly, the County is not spending the money to maintain it properly. As a result, it is a dump at this point, and it looks haggard next to gleaming Reliant Stadium and the new Reliant Convention Center that are next door neighbors to the Dome in Reliant Park. Unless something can be done to make some other use of the grand ol' dame of Houston sports facilities, most Houstonians would rather see it blown up so that the space it uses could be transformed into more parking at Reliant Park.
However, this Chronicle article reports that the company looking to redevelop the Astrodome is planning on converting it into a 1,000 room convention hotel. The Astrodome hotel would be the second largest hotel in town, second to the 1,200 room Hilton Americas Convention Hotel next to the George R. Brown Convention Center in downtown Houston.
Although the Gaylord Texan Hotel in Grapevine near DFW Airport in the Dallas-Ft. Worth area is an existing prototype of what a retrofitted Dome could be, my sense is that this proposal for the Astrodome is not likely to occur without a substantial subsidy from Harris County. Consequently, let's see if the Chronicle or any other Houston news media discloses the true taxpayer cost of retrofitting and maintaining the Dome in comparison to alternative uses of the property. Given the Chronicle's abysmal performance in providing accurate information regarding the cost of the Streetcar Named Disaster, my expectations are not high.
July 27, 2004
Following this earlier post on the economic absurdity of light rail systems, Randal O'Toole, one of the economists over at The Commons, cites the Houston light rail system as one example why cities such as Denver and Austin should reject such systems:
Houston opened a 7.5-mile light-rail line in its downtown on January 1. It has so far caused more than 50 collisions with autos or pedestrians (including a few during testing before January 1). While the transit agency blames bad auto drivers, the accident rate is twenty times the national average for light-rail lines.
Mr. O'Toole notes other economic disasters involving rail systems in other cities, and then aptly summarizes as follows:
The push for rail transit comes from construction companies that seek to soak the taxpayers building it, downtown property owners who hope to enhance the value of their properties, anti-auto environmentalists who view congestion with schadenfreude, and collectivists who think we would be better off in collective transit than private autos. None of these reasons are very appealing so they cloak their goals behind specious claims that rails will reduce traffic congestion and air pollution, something that rail transit has never done.
July 6, 2004
Molly D. Castelazo is a research associate and Thomas A. Garrett is a senior economist at the Federal Reserve Bank of St. Louis. They authored this article that analyzes the bad economics of the St. Louis light rail system and includes a devastating chart reflecting how it would have been much more economically prudent to buy a new Toyota Prius for all the light rail riders than to build and maintain the light rail system. The entire article is well worth reading, particularly for Houstonians who have funded a similar boondoggle, and the authors make the following concluding observation:
If light rail is not cost-efficient, nor an effective way to reduce pollution and traffic congestion, nor the least costly means of providing transportation to the poor, why do voters continue to approve new taxes for the construction and expansion of light-rail systems?
One economic reason is that the benefits of light rail are highly concentrated, while the costs are widely dispersed. The direct benefits of a light-rail project can be quite large for a relatively small group of people, such as elected officials, environmental groups, labor organizations, engineering and architectural firms, developers and regional businesses, which often campaign vigorously for the passage of light-rail funding. These groups would benefit from light rail, not from the subsidization of cars and money to all potential riders of light rail.
The costs of light rail, while large in aggregate, are often small when spread over the tax-paying population. (The cost of light rail in St. Louis totals about $6 per taxpayer annually). A large group of taxpayers facing relatively minimal costs can be persuaded to vote for light rail based on benefits shaped by the interested minority, such as helping the poor, reducing congestion and pollution, and fostering development. Even if these benefits are exaggerated and the taxpayer realizes the cost-ineffectiveness of light rail, it is probably not worth the $6 for that person to spend significant time lobbying against light rail.
Proponents of light rail argue that it will create jobs, foster economic development and boost property values. While there is some academic evidence of these benefits, it is important to realize that they are not free to society?light rail is kept afloat by taxpayer-funded subsidies that amount to hundreds of millions of dollars each year.
Concentrated benefits and dispersed costs are one economic reason for the existence of inefficient public projects. The many who stand to lose will lose only a little, whereas the few who stand to gain will gain a lot. Of course, if other public projects exist where overall costs outweigh benefits, then $6 a year per project could add up to quite a hefty boondoggler?s bill.
Dr. Barton Smith, University of Houston professor of economics and director of the UH Institute for Regional Forecasting, is the leading expert on the regional economics of the Houston metropolitan area and has prepared a similar analysis regarding the Houston Metro light rail system.
Alas, I do not expect the Houston Chronicle to address this issue anytime soon. Hat tip to Professor Gordon for the link to this study.