Amarillo by Mornin’ – A Stadium Building Story

On February 1st, the City of Amarillo, TX broke ground on their brand new downtown $45.5 million publically-funded baseball stadium, the future 2019 home of the AA-level minor league Missions baseball team, a team currently based in San Antonio.

amarillo_baseball_stadiumAs I wrote about last week, I dislike these public-money stadium deals, for two reasons. First, the promised “economic development” too often is an illusory sales pitch that never comes true. Second, I get mad because sports teams owners should build their own doggone stadiums rather than depending on tricks with public dollars.

Despite my distaste, it’s useful to study these things to understand how they might come about. I describe that in the second half of this post.

As the Missions baseball team hits the road to “Amarillo by morning, straight up from San Antone,” in 2019, will we be getting a new publicly-funded stadium in San Antonio to keep pace with the panhandle? (Incidentally, if I don’t have you humming that George Strait cover song by the end of this post you deserve a full refund.)

I asked San Antonio mayor Ron Nirenberg whether he was aware of any negotiations with The Elmore Group to build them a nice new AAA minor league baseball stadium, in order to welcome the Colorado SkySox team slated to move to town in 2019. Nirenberg described the silence between the city and the Elmore Group as “crickets.” DG Elmore, owner of the Missions baseball team, replied to my query that “At this time, we do not have comments or information to share about a new ballpark.” About Amarillo’s stadium, Elmore replied “it will be ready opening day 2019.”

The combination of silence and “no comment” in San Antonio does not necessarily mean nothing is happening. City Councilman Robert Trevino, whose downtown District 1 was reportedly the destination target for a new baseball stadium as recently as last year, described meetings with the Elmore Sports Group at the National League of Cities summit in Charlotte in November 2017. The Elmore Group hosted at least 5 San Antonio City Council members including Trevino, for a tour of Charlotte’s downtown minor league baseball stadium, presumably to warm them up to the opportunity in San Antonio. Trevino, a professional architect, said urban design considerations around a baseball stadium weigh heavily with him. He says his support for a future stadium would depend on whether existing downtown development plans already in place and elements such as parking and transportation coordinate well with a new stadium.

missions_baseballThat coordination, necessary to achieve economic development, is often lacking, according to Heywood Sanders, professor of Public Administration at UT San Antonio. Sanders points to Houston’s Toyota Center – home of the NBA Rockets, as a relatively successful development on Houston’s east side of downtown.

“The city and business interests (of Houston) wanted to develop downtown. The decision was a very conscious and well thought out one,” says Sanders.

Sanders contrasts that with the San Antonio experience. “If you’re going to do it, how do you do it? Do you plan surrounding development in a coherent, well thought-out way, or do you just plop the structure down and cross your fingers?” Sanders asks rhetorically. “If ever there was an example of the latter, there are two examples in San Antonio. First, the Alamodome, and then subsequently the AT&T Center.” Those have failed to spur surrounding development, to say the least.

So I’m nervous about any promised economic development based on past history. But also, financially, what can we learn from Amarillo’s public stadium deal?

One interesting element, at least to me, is the way the $45.5 million deal patched together money from sources designed to avoid political backlash. I’ll describe those in detail as they’re clearly from a playbook that sports owners and political leaders use over and over again.

The biggest source of funds for the stadium will be a hotel occupancy tax (or “HOT” for those of you who like cool acronyms.) The HOT gets collected as a sales tax on hotel rooms booked in Amarillo. Voters narrowly approved $32 million to be used for constructing a stadium in 2016.

The HOT allows officials to say, with a straight face, that mostly non-residents – hotel visitors to Amarillo and hotel owners – pay the taxes for financing this stadium over the long run. You can probably see the political advantage of using the HOT.

Hotel_Occupancy_TaxThe second most important source of funding for the stadium is already-collected HOT money that will be dedicated to the stadium project. Also importantly, HOT funds are specifically intended to be spent on projects to spur Amarillo’s downtown and tourism business. That’s the purpose of the HOT. Knowing all that, you might reasonably say, and many will say, that the public financing of Amarillo’s stadium is using money already set aside for this type of project and doesn’t burden residents with any new taxes.

A third source of funding will be a tax only levied on downtown commercial real estate owners.

 

If you were a grumpy cynic like me, however, you might think the following two things: first, the creation of a HOT is the original sin. Once you vote for a tax dedicated to downtown public development projects, you inevitably end up with things like stadium deals and downtown convention centers, whether they make long-term sense or not.

“Well, heck, we have the money already!” is a logical thought process of civic leaders, and the first step towards a badly thought-out plan.

Second, a better version of a HOT – in my imaginary ideal world – would create less restricted uses for the funds. Instead of building stadiums for privately-owned sports teams, my ideal civic leaders would use HOT money to fund other things like parks or libraries or complete streets or any number of projects that don’t direct public money toward hosting a private company’s business.

The finance term for this idea is that “money is fungible.” In other words, if you’ve got $10 million in saved up funds, or $32 million in future tax revenue, is a stadium really the best public use of public funds? Obviously hotel owners don’t support city governments that set up a HOT without restrictions to benefit them. But in my imaginary ideal world, local governments don’t only do what hotel owners, and sports team owners, want.

 

Please see related posts:

 

Super Bowl Stadium Thoughts

Raiders to SA bad idea

 

 

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Bail Bonds Part II – Is The Business Doomed?

bail_bondsI wrote recently that what I learned about bail bonds companies made me appreciate them, at least from my capitalistic “that’s an interesting and possibly profitable way to make money” perspective.

That doesn’t mean I’m deaf to other arguments, against the industry. Those arguments have gotten louder recently, to the point that bail bonds businesses in places like Houston, and the entire state of New Jersey for that matter, face an existential threat right now. They may not survive.

If you don’t work in and around the bail bonds industry, you might not already know that a recent judge’s ruling is killing them in Houston.

At the end of April Chief District Court Judge Lee Rosenthal ruled that all defendants accused of misdemeanor offenses in Harris County (where Houston is) must be released from jail within 24 hours. The ruling went into effect this summer in Harris County, pending resolution of a lawsuit, expected in October.

The practical effect of the ruling is to make all misdemeanor defendants eligible for bail through county-supported pretrial services or a Sherriff’s bond, thus avoiding the need to pay for a more costly private bail bond.

That, plus the expansion of Harris County’s pre-trial services to respond to the ruling, has caused the elimination of 80 percent of the private bail bonds business, according to John McCluskey of Action Bail Bonds in Houston. He believes all of his fellow bail bonds competitors in Harris County have seen a similar catastrophic drop-off in their business. According to McCluskey, they’re pretty much dead.

Let me break down the arguments about bail bonds, pro and con. Proponents and opponents of commercial bail bonds cite the same three important factors, but come to completely opposite conclusions about the proper role of private bail bonds versus what we might call the ‘public option,’ made up of a nearly-free County-supported pre-trial services’ “personal bond,” or another free public-option, called a Sherriff’s bond.

Among both pro and con camps, the three agreed-upon factors to argue are:

  1. Fairness – Is it fair that people are released from jail awaiting trial, or not, based on whether they can afford bail, or not?
  2. Public Cost – Are taxpayer resources being used appropriately?
  3. Public Safety – Do bail conditions adequately prevent accused criminals, awaiting trial, from re-committing crimes? And which method best guarantees that people show up in court to face justice?

What opponents and proponents don’t agree on is the data, the other side’s use of data, or the meaning of that data. As a finance guy, the second issue, public cost, caught my eye in particular.

In conversations with three different bail bonds owners in Texas, plus a fourth expert who has done consulting work for the industry, I heard them proudly represent a private-sector solution to the public-sector problem of ensuring court appearance for trial, thereby saving taxpayer dollars.

Requiring a defendant to pay for his release, bail bondsmen say, saves taxpayers from taking the financial risk of their eventual return to court. The cost of monitoring defendants falls to bail bondsmen as well, not county employees. Finally, if a defendant fails to show up for trial, bondsmen say, the cost of collecting them doesn’t hit the county taxpayers.

In a narrow sense, taxpayer costs will go up in response to the recent shift to the public pretrial option for bail, the Houston Chronicle reported, as Harris County pretrial services hired a dozen new positions.

Mike Lozito, Bexar County’s head of pretrial services, estimates that he would have to triple his current staff of 71 to completely handle all bail cases, were Bexar County to go a similar route. Partly to avoid that additional public burden, Lozito told me, he welcomes the private/public partnership between pretrial services and the commercial bail bonds industry.

Yet, opponents of status quo commercial bail system make bigger, and ultimately more profound, cost arguments.

As Matt Alsdorf of the Laura and John Arnold Foundation told me, the narrow cost issue of bail bondsmen versus pretrial services does not accurately capture the true public expense of private bail.

As Vice President of Criminal Justice at the Foundation, a think-tank at the forefront of challenging the commercial bond industry, Alsdorf argues that we need to take into account the total cost of incarcerating people. Keeping penniless defendants in jail because they can’t post bail costs the public between $75 and up to maybe $300 dollars each night per person, depending on estimates and jurisdictions, according to Alsdorf.

US Senators Rand Paul (R- KY) and Kamala Harris (D-CA), argued in a recent New York Times editorial that 450,000 people sit in jails nationwide because they cannot make bail. They estimate this failure to afford private bail costs the nation an additional $14 billion more per year in an expanded jail population.

Further, as Alsdorf point out, the impact of losing out on employment, or disrupting families, makes extra time in jail an economic catastrophe for people least able to endure that hit. That economic hit may appear justified to some people, because it “punishes arrested people,” but it also would seem to encourage an ongoing cycle of poverty, which probably costs the public far more in the long run.

Facing the right-left alliance of Senators Rand and Harris, think-tanks like the Arnold Foundation, and civil rights groups like the one that brought the Harris County lawsuit, bail bonds companies ought to be very nervous. Could the Houston-area lawsuit spread to the rest of Texas?

As Bexar County’s public defender Michael Young explained to me, not right away, but maybe over time.

“It is true that there is a federal lawsuit pending in Harris County dealing with personal bonds and misdemeanors specifically. It is my understanding that the ruling in Harris County is specific to the facts presented in that case, so therefore any ruling wouldn’t automatically be applied to another county in Texas. However, the legal reasoning of the federal judge could be applied to any county, and could result in a similar ruling, in future cases”

I’ll interpret this to say, over time, follow-up lawsuits could eliminate private bail bonds in cities and counties all over Texas. As private businesses they might be dead men walking and not yet know it.

Please see related posts:

Bail Bonds I – An Interesting Way to Make Money

 

 

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Need Transparency Taken To Eleven

In my last post I mentioned the terrible scores Houston and San Antonio governments received for transparency in their economic development programs, according to a report by Good Jobs First.

One reason the stakes for transparency are high is because the amounts of subsidy are so big. How big? Well, we’ll soon find out. In 2017, for the first time, cities and counties nationwide will have to disclose how much in total subsidies they provide to private businesses, due to a new accounting standard known as GASB 77.

A study by the New York Times in 2012 found that governments in Texas provided the most economic subsidies to private business of any state in the nation, at $19.1 billion.

Texas Monthly writer Erica Grieder makes the point in her book Big, Hot, Cheap and Right: What America Can Learn From the Strange Genius of Texas, that “free-market capitalism” in Texas has, ironically, long relied on strong government intervention and subsidies for private business.

But with that high subsidy comes – I would argue – a heightened duty to keep the public informed of programs and results.

The current way of reporting on economic development subsidies, officials in each of the City of Houston, City of San Antonio, and Bexar County all told me, is that, once a year, the economic development department sends a spreadsheet over to someone at the newspaper, either the Houston Chronicle or San Antonio Express News. Beyond that once-a-year data dump, either an enterprising citizen or more likely a bored reporter on a fishing expedition working on deadline would need to submit a specific request to the economic development department of the city or county.

Since the information is deemed public, this request presumably would be fulfilled with little muss or fuss. All of the officials with whom I spoke reiterated that no formal “Freedom of Information Act” request (a “FOIA” for the cool kids) needs to be filed.

But you can probably see why, although that constitutes a minimum standard of public disclosure, it falls far short of what we should reasonably expect in 2017. What if the reporter or editor at the respective paper had a full plate of stories that week and didn’t really want to make use of the information? What if – as is likely every year – no particular economic development deal jumped out as worthy of newspaper coverage? What if – as shocking as this will sound to all of you reader-types – a citizen doesn’t actually read the newspaper? How would they learn about this? For each of these reasons and more, an annual newspaper data dump isn’t the right level of transparency at this point in time.

good_jobs_firstAll of the economic development officials I spoke with agreed with me in theory on this point, but obviously it will take some effort and resources in their respective departments to improve the situation.

And we can agree that improving searchable websites for ease of transparency can be difficult. Bexar County’s Executive Director of Economic Development David Marquez pointed out to me that certain (not to be named) newspaper websites can be notoriously un-searchable. That’s a fair point, my man. A fair point.

Anyway, I hope they will all take a look at Austin’s searchable database, to see what good disclosure and transparency looks like.

Beyond the amount of money involved, why else do we need a high degree of transparency with respect to economic development deals? Just this. There is nothing quite like conferring a public good – a generous tax break – to a private company that gets my spider sense tingling about potential conflicts of interest. You don’t have to be paranoid or a cynic like me (although I invite you to be) to believe that a natural symbiosis exists between public officials who need money and have the ability to award valuable subsidies and private enterprises who would happily return the favor.

going_to_elevenWe – not just writers, but also citizens – should be able bring up an online database showing, just to pick an example, political campaign contributions, and compare that database to public subsidies of private companies. Are there any connections? Does a company that contributes to a campaign show up as a beneficiary of public subsidy? That’s the very definition of conflict of interest, and we need the tools to prevent that. If there are any dots to connect, everyone should have the power and ability to connect them, from the comfort of their own laptop. If there are no dots to connect, then we all sleep better at night.

This is in no way a Republican or Democratic Party issue. But if you want to see it that way, just consider the importance of making sure officials from that other party (the one you most distrust) can’t get away with it. We need you on that wall, people, guarding against that other party’s nefarious conflicts of interest!

I believe the right volume of transparency for economic development tax breaks for private companies is a “SHOUT IT FROM THE ROOFTOPS, CONSTANTLY” level of transparency. On a scale of one to ten, I want transparency that goes to eleven. Because you see, it’s that one bit louder, isn’t it?

The next best thing to a transparency volume turned up to eleven is an online searchable database. Properly understood, that’s strongly in the interest of public officials and private corporate recipients as well. They also want and deserve the legitimacy that goes with transparent economic development plans, free from charges of influence peddling or conflicts of interest.
Please see related posts:

A version of this post ran in the San Antonio Express News and Houston Chronicle.

Need for Transparency in Economic Development Part 1

Economic Development Subsidies: Turtles All The Way Down

Book Review: Big Hot Cheap and Right, by Erica Greider

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The Border Wall Nonsense

trump_border_wallInvasive vines creep over the hedge separating my house from my next-door neighbor’s house. Sometimes those vines even touch trees in my yard. That’s why every night I stand on the top of a giant ladder, shouting into a megaphone, straight into their yard. “You’re going to cut those weeds right now! And then you’ll pay for a gardener to get rid of the roots! You’ll see! I’ll make you pay!”

In a related story, I called up US Representative Will Hurd, (R-TX) whose Congressional district shares the nation’s longest border with Mexico – from El Paso to San Antonio – to ask him about who is going to pay for our promised “Border Wall” with Mexico. Unlike the interaction with my neighbors, this call actually happened.

Hurd stands by his earlier statement that the Trump-promised border wall is a “3rd Century solution to a 21st Century problem.”

“I still believe that building a wall from sea to sea isn’t the most effective way to do border security,” Hurd told me.

I asked about funding the wall, something that ultimately falls to Congress.

The Trump administration managed to secure $20 million in a budgetary move called “re-programming,” to allow the Department of Homeland Security to study different potential wall designs. One prototype under study is a 30-foot tall structure, which Hurd says would take someone around 4 hours to breach.

The real wall, however, would cost a lot more than the $20 million in starter funds.

While Trump has consistently promised a $10 to $12 billion price tag, independent estimates range from $25 billion to $67 billion, with an article in the MIT Tech Review settling on $40 billion.

That kind of money can’t be gotten through budgetary shuffling known as ‘reprogramming,’ but rather requires Congressional support. At the end of April Trump threatened to hold up a 2017 appropriations bill – needed to keep the federal government from an imminent shut-down – if Congress did not set aside $1.4 billion to begin constructing the wall. The Republican Congress called his bluff, and the wall-funding request dropped for 2017. Maybe it will be back for negotiation in 2018?

congressman_will_hurd
Will Hurd

Trump says it will. “Eventually, but at a later date so we can get started early, Mexico will be paying, in some form, for the badly needed border wall.” He tweeted. And then, “Don’t let the fake media tell you that I have changed my position on the WALL. It will get built and help stop drugs, human trafficking etc.”

In the meantime, spending billions this way makes no sense to Representative Hurd. As a former undercover CIA officer deployed to Iraq and Afghanistan, he’d advocate a smarter combination of technology, human intelligence, and cooperation with our Mexican counterparts.

“There’s 19 criminal organizations that we’ve identified. Let’s improve our intelligence on those groups and stop them before they get to the border. Ultimately, border security is important, and we need to do a better job.” See, that’s a reasonable, informed, approach.

Who would pay for this wall? We already know Trump’s repeated claim that Mexico will pay.

Former Mexican President Vicente Fox has a colorful way of expressing his country’s attitude. “We’re not building your fucking wall!” he has repeatedly stated to every media outlet on the planet. Unlike statements made by my own president, I believe him. Every Mexican schoolchild remembers 1848, even if most US residents do not know what happened that year. Mexico will no more pay for Trump’s border wall then the US will pay reparations to the Queen of England for territorial and property losses incurred between 1776 and 1783.

Realistically speaking, either US taxpayers pay directly for the wall, or US consumers pay for this indirectly through higher taxes on imports from Mexico. To do that, of course, we’re talking about big changes in the North American Free Trade Agreement (NAFTA), something President Trump also advocates.

Hurd disagrees with that approach as well. “NAFTA is important, end of story. The US, Mexico, and Canada, we build things together. We should be thinking about how we achieve more of this. There are ways to improve it…Updating NAFTA could be a model for free trade agreements around the world. We should be talking about how to strengthen NAFTA, not pull out of it.”

As for me, I’ve driven hundreds of miles through Hurd’s district, from Big Bend to San Antonio on I-90, noting the small towns that have already suffered as a result of stricter border controls. On that long, lonesome highway you see a preview of the economic devastation a border wall – or pulling out of NAFTA – would cause in Texas.

I have tried hard to find serious analysis of the cost of the border wall, serious methods of paying for it, and serious economic impacts of the wall. It cannot be done. The subject resists serious thought. It’s a deeply unserious promise made by a deeply unserious person. But here’s the serious problem for Trump with all his “border wall” talk. When you expose yourself as a bully and a liar on your single most important campaign promise, people remember. Mexico is on to Trump and is calling his bluff. Congress is on to Trump and is calling his bluff.

In the meantime, picture me on my big step ladder every night, megaphone in hand, shaking my fist at my neighbors’ weeds. “You’re gonna pay!” After the first few months, the neighbors stopped paying attention. But I know my starting position is a strong negotiating stance. I’m good at making deals. And people like me.

 

Please see related posts:

 

Trump – Sovereign Debt Genius

Trump – Threats to Financial and Economic Security

Trump – We need principled Republican leadership

 

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TX Rainy Day Fund Proposal

texas_financeTexas Comptroller Glenn Hegar proposed last month significant shifts in management of Texas’ Rainy Day Fund, and it’s all shockingly sensible.

I say shockingly not as a diss against Hegar, but rather because my usual stance with respect to fiscal prudence among government leaders is an exasperated shrug. It’s usually “Oh, they went and did THAT again?” Pffft!! Gah!

For Hegar, however, all I can offer is a congratulatory fistbump and an ‘attaboy.’ He’s applying prudent principles of financial management. It’s almost enough to make a financial cynic believe in, like, good fiscal leadership.

Three simple financial rules – as true for individuals as they are for governments – come into play with the Economic Stabilization Fund (ESF) in Texas, the so-called Rainy Day Fund.

First, automated savings plans are the best savings plans. Second, long-term money should earn a higher rate of return than cash, through riskier investments. Finally, setting aside money during surplus times can make an extraordinary difference in the future, when the lean times inevitably come.

Following these principles – setting aside money automatically, investing for a higher return, and delaying spending until its needed – is notoriously difficult for both individuals and governments to do. I’d say especially governments, because competing financial needs – right now – always seem so compelling. And in a democratically elected system, being responsive to citizens is sometimes hard to square with fiscal prudence.

Legislators created the ESF in 1988 to be automatically funded mostly by excess oil and gas extraction-tax revenue. The fund didn’t amount to much throughout the 1990s, until the revival of the industry after 2006 – via fracking – began to fill up the ESF’s bucket. The neat thing about the ESF, from my perspective, is the automatic nature of the savings. With a savings plan you should try to make a rule and then try not to think about savings as they build up. That benign neglect is the key to success.

A rule written long-ago, automating savings for the state, suddenly brought in a kind of savings windfall. Ten years into the fracking revolution, Texas has the high-class problem of about $10 billion in the ESF. That’s quite a nice “set it and forget it” savings plan.

glenn_hegar_rainy_dayRegarding investments in higher-risk, higher-yielding opportunities, the ESF has until now always erred on the side of caution and low returns. Historically, the vast majority of ESF funds have earned little more than cash, not even keeping pace with inflation. With a balance above $10 billion, however, Hegar’s proposal sensibly calls for dedicating a portion of the ESF to higher-return investing. Every billion in the ESF that could earn an extra, say, 4 percent annually, would mean $40 million in additional government revenue. The state’s legislative budget board estimates a net gain for the state of more than $82 million by August 2019 if this bill passes

Earning an extra $40 million per year by following a prudent reallocation seems like a good plan to me.

Regarding spending the gains from investment, Hegar proposes a Texas Legacy Fund from which future legislatures could vote specifically for long-term, fiscally prudent, projects. If big public pensions suffer a short-fall in the future, something he and I both worry about, funds from the Legacy Fund could plug the hole. Relatively small amounts now, applied steadily to public pensions, could stave off big problems in the future.

So given how sensible this is, will it actually pass this legislative session?
Ah, representative democracy. So much potential, and yet, so frustrating!

rainy_day_fund_texas
Ready for a rainy day

Hegar’s proposed changes to the ESF came relatively late in the Texas legislative session, through HB 855. The enemy of the bill may not be any particular opponent, but rather the limited time remaining in the legislative session. Changes to the ESF cannot be made without a vote in the Texas House and Senate.

As of this writing, HB 855 had passed out of the House committee, but the state Senate still needed to hear and opine on the proposal.

Setting fiscal prudence aside and thinking more about my needs, I mentioned to Hegar last week that Alaska has a similar ESF fund, but that Alaska makes an annual distribution of close to $1,000 per year to every resident. I think of that money as hardship pay for living through those winter months up North.

I’m originally from Massachusetts and I feel like living in Texas in July and August is worth at least $1,000 per citizen. So I tried on the phone to goad Hegar into agreeing to simply distribute ESF funds to all citizens of Texas every year in the form of a hardship dividend, given our summer heat.

Hegar countered that the good people of Houston might have a stronger claim to summer hardship payments because of humidity rather than the ‘dry heat’ of San Antonio. Dry heat? I thought to myself. I have three words for Hegar: What. Ev. Er.

texas_heatMy proposal is that we get a distribution chart from the Comptroller for every city in

Texas determining which people in the state get the best ‘dividend.’ Can we settle who has the worst summer heat? I feel like my city deserves it the most and there’s potentially a lot of money at stake.

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