Category Archives: Economics – Urban Boondoggles

Amazingly bad decision-making

Posted on by
2

ashby-highrise-renderingOne fringe benefit of economic downturns is that local public officials generally defer their financial decisions, which tend to be uniformly bad even during good economic times.

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.

A productive idea for the Dome

Posted on by
Reply

astrodome 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.

Fiddling while Rome burns

Posted on by
5

Astrodome_thumb.jpgMy 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.

Metro’s sleight-of-hand

Posted on by
1

Metrorail car-Houston 082108 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.

A bad idea that just won’t die

Posted on by
1

astrodome 080708 Isn’t it amazing how long bad ideas will remain festering so long as local governmental officials have something to do with it?

After four years of dithering, this Bill Murphy/Chronicle article breathlessly reports that there may be hope for the Astrodome hotel project after all:

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.

Continuing to suspend reality on financing the soccer stadium

Posted on by
2

Soccor stadium proposed dynamo_4 This earlier post addressed the economic absurdity of having financially-strapped Texas Southern University make an investment in the long-proposed Houston Dynamo downtown soccer stadium.

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!

Comparing boondoggles

Posted on by
3

metro light rail routes 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.

Slugging Metro?

Posted on by
2

Slugging Traffic I’d bet that a program such as this (H/T Craig Newmark) would rival (if not exceed) the ridership on Houston Metro’s light rail line.

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! ;^)

The price of soccer keeps going up

Posted on by
Reply

Soccor stadium proposed dynamo 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) :

Checking out Houston on the tour bus

Posted on by
1

HoustonBungalow4 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!