Dispatches from District 48
Posts tagged ‘Phoenix’
I am happy that my neighbors here in Phoenix are not allowed a hecklers veto to prevent grocery store chains, or any other business, from serving me at convenient locations. I live walking distance from an intersection with three grocery stores (Whole Foods, Fry's, Albertsons) and I love it.
Living in Phoenix I know a number of people who work for Apollo (University of Phoenix). They have obviously been appalled by the Obama war on for-profit colleges and the egregiously-flawed report that came out last year. Several have told me they have complained for a while that certain hedge funds were pushing this initiative in order to make money off of short positions on their stock. I thought this was a bit paranoid, but now the accusation is coming from third parties, even those on the Left:
A proposed regulation from the Education Department threatens to devastate for-profit career or trade schools, but one thing is even more controversial than the regulation -- how it was crafted.
Education Department officials were encouraged and advised about the content of the regulation by a man who stood to make millions if it were issued.
"Wall Street investors were manipulating the regulatory process and Department of Education officials were letting them," charged Melanie Sloan of a liberal-leaning ethics watchdog called Citizens For Responsibility and Ethics in Washington....
Among others, Sloan is referring to Steven Eisman, a hedge fund manager and a figure in the book "The Big Short," who testified in the Senate against for-profit career or trade schools, attacking them as "fundamentally unsound."
At the same time, he was betting that the stocks of those companies would fall, a practice known as short selling. "Making sure that they were going to be defamed and that their value was going to be depressed," said Harry Alford, head of the National Black Chamber of Commerce, who worries about the schools because they serve many minority students.
Simultaneously, through emails and conference calls, Eisman was advising Education Department officials -- and one White House adviser -- in detail on how best to write the new regulation, which he estimated would reduce the schools' earnings by as much as 75 percent.
The proposed regulation from the administration is aimed at what are known as career or vocational schools. The rule would cut federal aid to programs where student debt levels are deemed to be too high and where students are struggling to repay their loans.
In other news, everyone seems A-OK with kids in not-for-profit universities running up $200,000 debts to get such lucrative, workplace-ready degrees as women's studies, comp. lit. and poetry.
on this blog of how Glendale, Arizona has been throwing wads of taxpayer money at the Phoenix Coyotes hockey team and at any rich person who might be willing to buy the team. The city of 225,000 citizens spent nearly $200 million on a stadium, promised to hand a buyer of the team $100 million to help with the purchase, plus hand the new buyer a stadium contract worth about $100 million over five years. While this all plays out, Glendale paid the NHL $25 million last year to help cover the team's losses and has agreed to pay another $25 million this year.
Wow. This is just amazing, written all in one place. But its not just hockey that the small corporate-state suburb on Phoenix wants to subsidize. Here is the latest recipient of largess:
Bechtel Corp., one of Glendale's largest employers, has agreed to stay until 2018 after city officials offered the company about $1 million in incentives.
By next year, the global engineering and construction company, with the city's financial help, will move from north Glendale to a new, vacant building not far from the city's sports district called the Glendale Corporate Center....
Under the agreement, Glendale would give $576,000 over the next two years to Bechtel for its costs to outfit the building shell for offices.
The incentive package also includes a waiver of $50,000 in city permit fees and a job-retention incentive of $1,250 per employee, up to $400,000. Each eligible employee must earn a salary of at least $50,000 per year.
Glendale offered a sports perk as well.
Bechtel can use the city's suites, both at Camelback Ranch Glendale and Jobing.com Arena, for free twice.
LOL, Jobing.com arena is the hockey rink the city built, so it is giving tickets from its subsidized hockey club to its subsidized engineering firm. The article includes the usual consultant figures who reliably take money from cities to report on all the indirect benefits and revenues and economic activity that result from their subsidies.
However, these are not the first subsidies paid to Bechtel by Glendale
The corporation first came to Glendale in 2002. Bechtel moved to Talavi Corporate Center from Phoenix after Glendale promised $1 million in incentives. The staff at the time was expected to grow to 500 from 300.
Bechtel's staffing is only at 320 today, not 500, but this failure to actually grow jobs after getting subsidies for job growth is pretty typical of these deals. My interpretation of this is that this is yet another move to get more tenants around its sports complex, to raise the stakes and apparent costs if the hockey team moves. Glendale will cry that they can't lost the hockey team, think of all the tenants in the surrounding real estate, when it was the city itself that spent money to put all its eggs in this one basket.
The only funny part of the article is the Talavi real estate folks. They were thrilled to gain a new tenant in 2002 due to the city's relocation subsidies, but now suddenly think such subsidies are unfair.
Bechtel's landlords at Talavi aren't happy about the move.
"We were actually a little surprised to hear Glendale was offering incentives," said Damon Elder, spokesman for Daymark Realty Advisers, which was negotiating a lease extension with Bechtel for Talavi's owners.
"We would think the city would be fair-minded with all of their corporate citizens. . . . I don't know why the city would be pitting one location against another."
For those of us who simply think of ourselves as residents of the Phoenix metropolitan area, or even broader just as Americans, we are surprised about the earlier subsidy as well, wondering why taxpayers of a small suburb are paying big bucks to move businesses back and forth a few miles across the town line.
But of course, this is not the worst example. A few years ago, Phoenix tried to spend $100 million in subsidies to move a Nordstrom and a Bloomingdales one mile and one freeway exit (out of Scottsdale).
By the way, Glendale's economic development director has made it official, we live in a corporate state:
"[government relocation incentives are] just a modern, Fortune 100 corporate expectation," Friedman said. "If you have a top-notch, world-class company in your community, your absolute goal should be to make sure they are successful and are content in your community and want to remain."
I have to take this with a grain of salt, because it is coming from GE, the current American poster-child for rent-seeking, particularly in attempting to be a magnet for green energy subsidies. But since the statement can be seen as under-cutting the subsidy argument, I have to take it more seriously:
Solar power may be cheaper than electricity generated by fossil fuels and nuclear reactors within three to five years because of innovations, said Mark M. Little, the global research director for General Electric Co.
“If we can get solar at 15 cents a kilowatt-hour or lower, which I’m hopeful that we will do, you’re going to have a lot of people that are going to want to have solar at home,” Little said yesterday in an interview in Bloomberg’s Washington office.
....GE, based in Fairfield, Connecticut, announced in April that it had boosted the efficiency of thin-film solar panels to a record 12.8 percent....The cost of solar cells, the main component in standard panels, has fallen 21 percent so far this year, and the cost of solar power is now about the same as the rate utilities charge for conventional power in the sunniest parts of California, Italy and Turkey.
I am all for that. I have always had faith that solar would make sense someday, and that we would be ranking out cheap solar conversion surfaces like carpet out of Dalton, Georgia, but every time I have priced it to date on my house, even with huge government subsidies, it has not made sense. In Europe, it requires 50-60 cent feed in tariffs (basically a subsidy in the form of above-market electricity prices paid by the utility for solar-sourced electricity) to get solar capacity installed, so 15-cents would be great and is approaching the cost of electricity in some high cost areas.
Here in Phoenix, FirstSolar does a ton of thin film. I have always had mixed feelings about FirstSolar. On the one hand, they live off subsidies and would basically not be in business if it were not for huge European subsidies of various forms. On the other, though, they have been one of the few solar companies that actively have talked for years of a development path to a cost position that does not require subsidies.
The city of Glendale, Arizona (a 250,000 population suburb of Phoenix) continues to pour money into its NHL Hockey Team. The city has already spent $200 million on a stadium and is trying to find a legal way to hand $100 million to a private individual to buy the team and keep it in Glendale. But that is not even the end of it:
The Phoenix Coyotes are expected to stay in Glendale at least one more season, with or without a permanent owner, if the City Council pledges another $25 million to the National Hockey League.
The cash would go to offset team and arena losses.....
The pledge is the second financial promise in as many years.
Glendale this week paid $25 million it pledged the league a year ago in hopes of keeping the Coyotes in town until a permanent owner was found.
The city paid this year's $25 million from a utilities-repair account.
It's unclear whether that same fund would be used again and when the city would have to pay.
The NHL says the team and arena lost $37 million last season.
Just to give you a sense of scale, $25 million a year is larger than the city's fire department budget. It is over $100 for every man, woman, and child in the city, each of the last two years. Residents of the town are subsidizing a money-losing team mainly enjoyed, to the extent it has fans, by people outside of the city of Glendale. It is a $25 million city annual expenditure that mainly helps three or four bars and restaurants next to the facility. Just paying off those obviously politically connected retail owners a few hundred thousand each would be cheaper.
Spend a few nights listening to the news on TV, and you will quickly discover the one of the bedrock logical fallacies of political discourse:
If it's good, the government should subsidize it. If it's bad, the government should ban it. If outcomes are in any way perceived by any group to be sub-optimal, then the government should regulate it. Anyone who opposes these bans, subsidies, and regulations must therefore be a supporter of bad outcomes, hate poor people, want people to get sick and die, etc.
Just last night, I was watching the local news (something I almost never do) and saw a story of one of those kids' bouncy houses that blew out of someone's backyard into a road. There was a girl inside who was scared but unhurt (after all, she was surrounded on six sides by giant airbags). Of course the conclusion of the story was a call for more government regulation of tie downs for private backyard bouncy houses. And those of us who think it's absurd for the government to micro-regulate such things, particularly after a single freak accident when no one was hurt -- we just want to see children die, of course.
Which brings me to this little gem in a local blog, which reflects a feeling held by many area sports fans. Remember that I have supported the Goldwater Institute in their opposition to the city of Glendale giving a rich guy $200 million to buy our NHL ice hockey team and keep it here. My (and I presume Goldwater's) motivation has been opposition to a huge government subsidy that equates to nearly $1000 for every man, woman, and child in Glendale. This subsidy appears illegal under the Arizona Constitution. But that is not how political discourse works. We are not defending the Constitution, we just hate hockey (emphasis added)
If you believe Canadian newspapers, tonight's game against the Detroit Red Wings will be the Phoenix Coyotes last game in the desert.
Canadians like hockey. Judging by attendance at Coyotes games, Phoenicians don't (at least not enough to drive to west side), which is why Canadians are so optimistic that their beloved Winnipeg Jets will be returning to our overly polite neighbors to the north.
The Coyotes ended the season with the second worst attendance in the NHL. That, coupled with the Goldwater Institute's crusade to drive the team out of the Valley, is not helping the city of Glendale's attempt to keep the team.
A few facts to remember:
I will be on the Radio at 9:00PM Arizona/Pacific time to discuss the Glendale / Coyotes subsidy. I will be appearing on the Terry Gilburg show on 550 KFYI in Phoenix, also streaming here.
Sheriff Joe Arpaio constantly gets a pass for some of the most outrageous hijinx from Phoenix's conservative population that sees him as the last bastion between them and brown-skinned people. Tell someone he is above the law, and he is going to act above the law
As Maricopa County Sheriff Joe Arpaio crows this morning about how his agency busted a total of six illegal immigrants for using fake IDs so they could work at a Mesa dry cleaner, county budget officials unveiled the results of a six-month investigation into how his office is misspending your money.
If you pay taxes in Maricopa County, it's not pretty.
In total, the county finds that Arpaio and his cronies misspent $99.5 million over the last eight years, the majority of which came from the sheriff's detention fund.
"For eight years, you have been signing paperwork that says your budget is balanced, but it's not," County Supervisor Mary Rose Wilcox reportedly told sheriff's officials at this morning's meeting of the Maricopa County Board of Supervisors.
Budget officers reviewed payroll records for 5,700 sheriff's employee salaries from February 2004 to February 2011 and found that much of what employees were actuallydoing was not what they were getting paid to do.
Those of you who are regular readers are probably tired of hearing me rant about the proposed Glendale, Arizona subsidy of the Phoenix Coyote's team (here, here, here), a subsidy that runs afoul both of our state Constitution and of common sense. This week, George Will enters the fray, and actually quotes me at the bottom of his column. Most of the column should be familiar to those following the story here, but of course being George Will it is so much pithier than I could tell the story. I liked this bit:
NHL Commissioner Gary Bettman agrees with McCain that the world is out of joint when people can second-guess the political class: “It fascinates me that whoever is running the Goldwater Institute can substitute their judgment for that of the Glendale City Council.” He will learn not to provoke Olsen, who says, “It happens to fascinate me greatly that the commissioner thinks a handful of politicians can substitute their judgment for the rule of law.”
I wanted to leave Glendale's proposed $100 million subsidy of the purchase of the Phoenix Coyotes hockey team by Matthew Hulzinger behind for a while, but I had to comment on something in the paper yesterday.
The Arizona Republic, which is an interested party given that a good part of their revenues depend on having major sports teams in town, had an amazing editorial on Tuesday. Basically, it said that Goldwater, who has sued to bock the bond issue under Arizona's gift clause, needed to stop being so pure in its beliefs and defense of the Constitution and that it should jump down in the political muck with everyone else.
I encourage you to read the article and imagine that it involved defense of any other Constitutional provision, say free-speech rights or civil rights. The tone of the editorial would be unthinkable if aimed at any other defense of a Constitutional protection. Someone always has utilitarian arguments for voiding things like free speech protections -- that is why defenders of such rights have to protect them zealously and consistently. The ACLU doesn't get into arguments whether particular speech is right or wrong or positive or negative -- it just defends the principle. Can't Goldwater do the same?
My thoughts on the Coyotes deal are here and her. Rather than dealing with the editorial line by line, which spends graph after graph trying to convince readers that Darcy Olsen, head of the Goldwater Institute, is "snotty," here are some questions that the AZ Republic could be asking if it were not in the tank for this deal
I am becoming increasingly enamored of the Arizona Constitution's "gift clause," even if it has not been enforced evenly in the past. This sensible Constitutional provision requires that neither the state nor any municipality in it may “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”
This has been interpreted by the courts as meaning that if a state or municipal government gives money to a private company, it must get something of value back - ie it pays money to GM and gets a work truck back. But politicians will be politicians and have stretched this rule in the past out of all meaning, by saying that they are getting "soft" benefits back. In other words, they could subsidize the rent of a bookstore because reading is important to the community. Silly? Not in California:
The city spent $1.6 million in federal grant money to bring Borders into the Pico Rivera Towne Center and to help pay its rent for nearly eight years.
Now the bookstore at 8852 Washington Blvd. is among the 200 Borders stores closing by April in the wake of the company filing for Chapter 11 bankruptcy reorganization.
But the city still faces paying rent on the soon-to-be vacated 18,100-square-foot site, along with other costs associated with 2002 agreements it made with Borders and with Vestar Development Co., which owns the Towne Center....
Officials said the decision to bring a bookstore into the community was a quality-of-life issue.
So the gift clause originally was authored to stop handouts to railroads and such, but certainly should prevent stuff like this. When it did not, our Goldwater Institute sued, and it was successful in reigning in these gift clause exclusions. This is the ruling from a suit over a $97 giveaway to a new mall (the giveaway was nominally disguised as a parking lot).
Indeed, in today’s unanimous decision, penned by Chief Justice Andrew D. Hurwitz, the five Supreme Court judges say that indirect public benefits — like, apparently, beating out Scottsdale for the sale tax from Bloomingdales — aren’t enough to justify a giveaway to a private party.
Previous courts who’ve held that, they say, have misread precedent.
“In short, although neither [of two Supreme Court precedents] held that indirect benefits enjoyed by a public agency as a result of buying something from a private entity constitute consideration, we understand how that notion might have been mistakenly inferred from language in our opinions,” they say. Now that they’ve clarified, the justices seem to be saying, the appellate court must examine whether the direct benefit the city of Phoenix gets — aka. those parking spaces — is enough to justify the giveaway.
For the record, the Supreme Court suggests that the parking garage is not, likely, benefit enough to justify such a tax giveaway.
“We find it difficult to believe that the 3,180 parking places have a value anywhere near the payment potentially required under the Agreement,” its opinion finds. “The Agreement therefore quite likely violates the Gift Clause.”
This was a particularly awful subsidy which tried to move a Nordstrom's one whole mile, over the Scottsdale border into Phoenix (update here).
This is the heart of why Goldwater needs to continue to stand strong against the proposed $100 million Glendale subsidy of the Phoenix Coyote's hockey team purchase. The city of Glendale and the buyer Matthew Hulzinger (who claims the bond issues is totally guaranteed and safe, raising the question of why he could not have gotten private financing instead) have rallied everyone from our local paper to John McCain to to task of excoriating Goldwater for standing up for the state Constitution. They claim the deal makes a lot of financial sense.
Beyond the cities BS "total impact" numbers, I ask, "so what?" This is an important Constitutional principle. As America slides into a European-style corporate state, I can't think of anything more appropriate than drawing the line on corporate welfare here in Arizona (its certainly a more useful endeavor than some of the goofy legislation currently pouring out of our state house). Heck, I would like to see a gift clause in the US Constitution
My column is up this week at Forbes, and discusses the role of taxpayer money in professional sports.
A critical battle is underway challenging the very heart of the professional sports economics model — and it is not the NFL labor negotiations. The unlikely fight is between a struggling league (the NHL), a suburb with delusions of grandeur (Glendale, Arizona), and a small, regional think tank (the Goldwater Institute). At stake is an important source of value for nearly every professional sports team: taxpayer subsidies....
Consider the Arizona Cardinals new football stadium in Glendale, for example. In part due to the promise of a Superbowl bid, the local taxpayers paid $346 million of the total $455 million cost of the facility — a building that will be used just three hours a day on ten days a year for its primary purpose. By contrast, in 2010 Forbes valued the Arizona Cardinals at $919 million, meaning well over a third of the franchise’s value accrues from the public subsidy of its retractable roof palace. It can be argued that much of the increase in player salaries and team owner wealth in the NFL over the last twenty years has come at the expense of taxpayers.
If anything, this example from the NFL understates the importance of public funding of stadiums. Why? Because of all the major sports leagues, the NFL gets the lowest percentage of its total revenues from its stadiums. Leagues like the NBA, and in particular the NHL, are far more dependent on stadium revenue for their well-being.
Let’s return to precocious Glendale. In 2003, the city agreed to publicly fund $180 million of the $220 million cost of building a new arena for the Phoenix Coyotes hockey team. Whereas Glendale’s subsidy of the Cardinals represented about a third of that franchise’s value, their $180 million subsidy of the Coyotes represents over 130% of the current $134 million value of the team. Stuck in Arizona and losing as much as $40 million a year, the team is literally worthless without ongoing public subsidies.
The column goes on to discuss yet another bond issue proposed by Glendale to subsidize these teams.
I have never really liked to wallow much in the accusation and counter-accusations of media bias. But I am coming around to the hypothesis that the media is neither liberal or conservative but has a big government bias. Recently, as in this article, the Arizona Republic (our daily paper) has been going after the Goldwater Institute for opposing what amounts to a $200 million subsidy to a buyer of our hockey team.
The short story is that after the city of Glendale blew a bunch of money for a hockey stadium in the desert, it turns out hockey is not very popular here (surprise). So the team went bankrupt, and threatened to move. To keep it from moving, the city of Glendale wants to throw more good money after bad and subsidize the new buyer. Goldwater is challenging the subsidy as illegal under AZ law.
As I noted in the previous article, third parties value the Coyotes at $117 million. So with this new bond issue, they will have run up $380 million in debt to keep a $117 million asset in town. Further, they will have basically paid the entire purchase price of the team (and more) without getting a drop of equity in return. All they get is the right to charge for parking around the arena, which is currently free. This at first makes some sense (though the value of the concession is never mentioned) but in fact it is ludicrous as well. The entire reason for the subsidy, supposedly, is to protect the mall/apartment/office complex around the stadium that the city cut sweetheart deals with developers to make happen. So now they are going to charge for parking -- what is going to happen to all those businesses they supposedly are doing this for when their customer's parking is not longer free?
Anyway, the Republic editorialized against Goldwater on Sunday (in an editorial titled "Back off, Goldwater Institute") saying that they were hurting taxpayers because if the new bond issue and team sale fails, then there won't be any revenue to pay the old bond issue. Its hard to figure how this is any different from doubling down at the roulette table in hopes of making back one's past losses. And, Goldwater opposed the first bond issue too.
Now, the Republic has editorialized again, this time in a nominally news article. They argue that by pointing out the potential illegality of the subsidy, Goldwater is messing up their bond interest rates. I kid you not:
As Glendale prepares to sell bonds to finance its Phoenix Coyotes deal, the interest rates the city obtains make a big difference in how much debt Glendale would take on.
Team buyer Matthew Hulsizer says investors are demanding high interest rates due to nervousness among bond buyers about a potential Goldwater Institute lawsuit over whether the city is illegally subsidizing a private business. Glendale maintains it's on firm legal ground.
This is exactly the line the paper took in its Sunday editorial. Now they are giving an interested party the ability repeat it in a supposed news article. The author deliberately puts Goldwater on the spot and in the center of blame
Late Monday, Hulsizer questioned whether the Goldwater Institute wanted the team to stay.
"If they do indeed want the team to stay, then wouldn't they want the city to be able to complete financing at the best possible rate?" he said in a statement to The Arizona Republic.
He asked, if the Coyotes left Glendale, what Goldwater's plan was for the city to pay off its construction debt on the arena and for businesses nearby to survive without hockey customers. The city spent $180 million to open the arena in 2003.
Why in heaven's name is it Goldwater's problem that an earlier bond issue they actively opposed as a bad idea might turn out to, you know, have been a bad idea? The article goes on and on this way, quoting other people of the same point of view. Goldwater doesn't get a quote until paragraph 24 or so, where Darcey Olson who heads the Institute says
She said Glendale has "unlimited options" to avoid a Goldwater lawsuit. "For instance, Hulsizer could get a private loan to buy this team like most businesses do," she said. "They finance their investments not on the backs of taxpayers but take the risk privately where it belongs."
The evidence of the article that Goldwater is shaking the very pillars of Wall Street is that the city expected one set of interest rates, but the market was giving them higher rates
Glendale officials in December hoped for a roughly 6 percent interest rate.
Todd Curtis, portfolio manager for Aquila Tax-Free Trust of Arizona, said he expected to see a 5 to 5.5 percent interest rate after Moody's Investors Service in mid-February gave the Coyotes bond sale a fairly high rating.
More than a week ago, Curtis was hearing of proposed rates around 7 percent.
Of course, they present no evidence as to why this might be. We are left to assume it is because Goldwater is somehow creating unfair bad vibes. Except then we get this oh-by-the-way near the end of the article:
Moody's and Standard & Poor's raised worries in February about the city's debt levels. As a result, Moody's downgraded several city bond ratings and Standard put the city on a watch list, though the city's ratings remain high.
Also, Glendale pledged to cover the Coyotes bonds with sales taxes, a revenue stream hurt during the recession. The city in its preliminary bond statement points out its sales-tax base is strong.
OK, lets check the reporter's decision-making here. We have five facts
So our lede is that it is all about the fifth one, just because millionaire Matthew Hulsizer, who is set to feed at the public trough to the tune of $200 million, says its so?
Ask yourself, what is the first section of the paper many folks look at? The sports page? An extra professional sports team adds a hard to quantify but definite amount to the paper's bottom line. The AZ Republic clearly recognizes this and is all-in for any taxpayer subsidy that is required to keep this important part of their business running.
Here are apparently a couple of the new regs for-profit colleges are expecting:
One proposed rule, which is expected to be finalized this spring, will restrict students from using federal financial aid to pay for programs that rack up excessive loan debt but train students for occupations with relatively low entry-level salaries.
A second rule, which will go into effect this summer, will close loopholes that allowed admissions counselors to be compensated based on how many students they signed up
The first rule is particularly interesting to focus on, especially given that they do not apply to government-run schools. This means that if you want to go to UCLA and run up loads of debt in economically dead-end majors like women's studies or art history, you are still free to do so. But go forbid you want to study to be a nurse or a teacher at the University of Phoenix. This from the CEO of Apollo, the parent company of University of Phoenix
some of the trade-school-type programs may be more vulnerable because of gainful employment (the anticipated federal rule about debt and entry-level salaries). . . . Gainful employment will cause programs, in areas such as nursing or teacher education or law enforcement, (for) for-profits not to be able to offer them . . . (because the federal formula) uses first-year salaries.
I can tell you my first-year salary for what I wanted to do wouldn't have qualified. It takes time.
Two things you can expect from any set of regulations. 1) Large companies will eventually benefit, because the compliance costs will weed out smaller companies and deter future startups. 2) Innovation will be reduced, as certain established business models and practices will become safe harbors under the rules, adding risk to anyone wishing to try an additional approach.
Last year, there were about 3.2 trillion passenger miles driven by urban drivers in cars in the US. My point about light rail is that we can barely afford it for just a few people, given that we spent $1.3 billion to build a rail line for just 17,000 daily round trip riders in Phoenix. If it were truly a sustainable technology, it could be applied to all commuters. But at a national average taxpayer subsidy per light rail passenger mile of about $2**, this means that to roll light rail out to every urban commuter would cost $6.4 trillion a year in government spending, almost half our annual GDP. If it required the subsidy rates we have in Phoenix per passenger-mile, such a system would cost over $12 trillion year. In fact, the numbers would likely be even higher in reality, because light rail in most cities is almost certainly built on the highest populated corridors with the most bang for the buck (though some of the diminishing returns would be offset by network effects).
Light rail only works today because we drain resources from millions of taxpayers to benefit just a few generally middle class commuters. This is not a model that will scale.
** This includes both service on the debt, which is payment for the original construction costs, as well as annual operating losses. This subsidy is required essentially forever. After 20-30 years when the original bonds are paid off, by that time systems generally have to be rebuilt in their entirety (as folks in places like Washington DC are learning). There are probably only 5-6 cities in this country that have the urban population densities to make rail systems come even in the ballpark of working financially, and places like Phoenix, Seattle, Houston, Portland and LA are NOT among them.
Let me offer up a definition of sustainability that I think most environmentalists and progressives would accept:
We are acting in a sustainable manner if we are achieving our goals in a way that does not hamper the ability of other people in the world, or of future generations, to achieve their goals.
Most environmentalists and progressives would call light rail lines in US cities a "sustainable" technology because of its notional impact on fuel use and CO2 output (yeah, I know, but we are not going to address those assumptions today).
Let me present one fact, from Federal Transit Administration's 2009 survey of public transit authorities, whose data is linked in various ways here. Or you can download the summary spreadsheet here. For all US light rail systems in total:
User fares paid per passenger-mile: $0.18
Total cost per passenger-mile: $2.22
Taxpayer subsidy per passenger-mile: $2.04
Since I live in Phoenix and the Phoenix light rail system seems to get particular praise as a "success" from light rail supporters, here are the Phoenix light rail numbers;
User fares paid per passenger-mile: $0.07
Total cost per passenger-mile: $3.89
Taxpayer subsidy per passenger-mile: $3.82
So there, folks, is your sustainable technology. As I have written before about sustainability, "I do not think that word means what you think it means."
Nationwide, non-users of light rail pay for 92% of its costs. In Phoenix, non-users pay for 98% of the costs. Taking the Phoenix system as an example, resources are drained from literally millions of people so that 17,000 or so people can ride it round trip each day. Using resources from millions of people, and building up debts that will last into the next generation, to support the transit of just a few people, seems to be the antithesis of sustainability.
If there is any common denominator among progressives, it is that they have little respect for how individuals spend their money. So they might be unmoved by the loss of resources from so many. So lets just look narrowly at transit, which I presume the do care about.
Before Valley Metro operated a light rail system in Phoenix, they also operated a bus transit system. This system still requires a subsidy, but it is much lower than the light rail subsidy. In 2009, the bus subsidy was $0.74 per passenger-mile. This means that for the same amount of taxpayer funds, Valley Metro can provide 1.0 passenger-mile by train or 5.2 by bus ($3.82/$0.74). I can guarantee that cities building light rail are not having their budgets quintupled. So the result is that, as light rail gets built, total transit ridership falls in most cities as rail costs crowd out existing bus services.
Update: Most light rail articles in our local papers, which have been mindless boosters of the system, generally consist of asking riders if they like the system, who inevitably answer "yes!" This is somehow a proof the system is great. Well, duh. I too am likely to be happy with a service where I only pay 2% of the costs.
Update #2: Last year, there were about 3.2 trillion passenger miles driven by urban drivers in cars in the US. My point about light rail is that we can barely afford it for just a few people, given that we spent $1.3 billion to build a rail line for about 17,000 daily round trip riders in Phoenix. If it were truly a sustainable technology, it could be applied to all commuters. But at a national average taxpayer subsidy per light rail passenger mile of about $2, this means that to roll light rail out to everyone would cost $6.4 trillion a year, almost half our annual GDP. If it required the subsidy rates we have in Phoenix per passenger-mile, such a system would cost over $12 trillion year. In fact, the numbers would likely be even higher in reality, because light rail in most cities is almost certainly built on the highest populated corridors with the most bang for the buck (though some of the diminishing returns would be offset by network effects).
I love maps like this one, and a year or two ago I linked an earlier version. This one is from the Economist via Carpe Diem, and shows the name of the country whose GDP is similar in size to that of the state.
I have to criticize the map-maker, though. They used Thailand at least four times on this map -- the original version managed to do it without repeats. But I am amazed that Arizona ranks right there with Thailand. This is not to diss the rest of the state, which has a lot going for it, but in terms of population and economic activity, a huge percentage in in just one city, Phoenix.
I do have to wonder whether New Mexico being matched up with "Angola" is really very flattering, and pairing Mississippi with Bangladesh is funny on a couple of levels.
I have this same problem all the time now in Arizona:
To understand how badly we're doing the most basic work of journalism in covering the law enforcement beat, try sitting in a barbershop. When I was getting my last haircut, the noon news on the television"”positioned to be impossible to avoid watching"”began with a grisly murder. The well-educated man in the chair next to me started ranting about how crime is out of control.
But it isn't. I told Frank, a regular, that crime isn't running wild and chance of being burglarized today is less than one quarter what it was in 1980.
The shop turned so quiet you could have heard a hair fall to the floor had the scissors not stopped. The barbers and clients listened intently as I next told them about how the number of murders in America peaked back in the early 1990's at a bit south of 25,000 and fell to fewer than 16,000 in 2009. When we take population growth into account, this means your chance of being murdered has almost been cut in half.
Its almost impossible to convince folks that AZ is not in the middle of some sort of Road Warrior-style immigrant-led wave of violence. In fact, our crime levels in AZ have steadily dropped for over a decade, in part because illegal immigrants trying to hang on to a job are the last ones to try to stir up trouble with the law (charts here, with update here)
In Phoenix, police spokesman Trent Crump said, "Despite all the hype, in every single reportable crime category, we're significantly down." Mr. Crump said Phoenix's most recent data for 2010 indicated still lower crime. For the first quarter of 2010, violent crime was down 17% overall in the city, while homicides were down 38% and robberies 27%, compared with the same period in 2009.
Arizona's major cities all registered declines. A perceived rise in crime is one reason often cited by proponents of a new law intended to crack down on illegal immigration. The number of kidnappings reported in Phoenix, which hit 368 in 2008, was also down, though police officials didn't have exact figures. [see charts above, these are continuation of decade-long trends]
But over Thanksgiving my niece visited from the Boston area for a national field hockey tournament and her teachers and coaches had carefully counselled them that they were walking into a virtual anarchy, and kidnapping or murder would await any teen who wandered away from the group.
OK, I have to call bullsh*t on a certain cultural phenomenon. At the risk of uttering a blasphemy, I have to say that In and Out Burger is simply not very good. It seems to be hot among teens, so I get dragged to it from time to time by my kids, but the burgers are just meh and the fries are simply bad. Among fast food joints, Wendy's is much better and we have a veritable explosion of gourmet burger places here in Phoenix (a trend I applaud as mightily as I did the craft beer phenomenon) that are all much better. As a regional phenomenon that builds a cult following as it spreads east, it reminds me of nothing so much as the similar Coors beer craze in the 70's, where easterners used to illegally carry Coors over state lines to bring some back home (e.g. Smokey and the Bandit). And Coors sucks too.
Folks who read this site know I have been critical of Phoenix light rail since well before it was opened. So often, folks just willfully misinterpret my criticisms. The actual rail line and its service is pretty nice, and the facilities are quite attractive (lets see what they look like in 10 years though). If Santa Claus had just delivered the Phoenix light rail system for free to Phoenix, I would be thrilled with it. But Santa unfortunately was not involved, and instead the rail line was paid for by area residents, and it cost them over $75,000 per daily roundtrip rider to build, plus annual operating deficits infinitely into the future. I would be thrilled if an Aston Martin Vanquish showed up in my garage tomorrow, but I am not going to fork over a quarter of a million bucks for one. Ditto the light rail system.
Anyway, the 2009 FTA transit database is out, and Randal O'Toole has helpfully summarized it in spreadsheet form, which you can download here. You can peruse your own local system. Probably the hardest thing to figure out are the mode codes, which are deciphered here. Since 2009 was the first full year of operation for Phoenix light rail, we can finally look at data for Phoenix on an apples to oranges apples basis with other transit systems (it is really, really hard to squeeze useful information out of the data Valley Metro posts on their site).
I am just going to highlight two numbers for Phoenix light rail (TRS_ID 9209 in the data).
Years before the light rail system was completed, I made my light rail bet: That with the capital cost, I could easily buy a Prius for every daily rider, and still save money. And for less than the annual operating subsidy, I could give all the new Prius owners free gas each year. Already my bet has proved more than correct. But now we know that under my Prius plan, we also would have saved energy, since the Prius uses less than 1700 BTU/pm, less than a third of what Phoenix light rail consumes.
I was absolutely astounded several years ago when the city of Glendale (a suburb NW of Phoenix) agreed to shell out $180 million to build an arena to try to keep a pro hockey team (the Coyotes) in town. Now, they are considering doubling their investment:
Will the Glendale City Council vote to shell out nearly $200 million in a deal aimed at keeping the Coyotes in town for at least 30 years?
But there is nothing simple about the decision facing elected officials in the West Valley city that has yearned to build its reputation as a sports and entertainment hot spot.
The deal involves Glendale taxpayers giving $100 million to Matthew Hulsizer, a Chicago businessman poised to buy the Phoenix Coyotes from the National Hockey League.
And, the Arizona Republic's Rebekah Sanders reports that "Glendale would pay Hulsizer $97 million over the next 5 1/2 years to manage the arena, schedule concerts and other non-hockey events."
Unbelievable. The value destruction here is amazing. A few years ago, the Coyotes were only valued at $117 million. So the government will have subsidized an entity worth just north of $100 million with $400 million in taxpayer dollars? Nice investment. Of course they have a BS study about net economic impact of the Coyotes, with a sure-to-be exaggerated figure of $24.5 million a year. But even accepting this figure, they are spending $400 million for at most $24.5 million in economic impact, which at best maybe translates into $2-3 million a year in extra taxes. That works, how?
Losing more than 40 major events, that is hockey games, per year at the arena would be a punch-in-the-gut to bars, restaurants and retail shops that also call Westgate home.
Here is a hint: I pretty much guarantee the buyout value or moving cost of these businesses is less than $200 million. But here are the most amazing "economics"
that would only further jam up Glendale, which counts on sales tax revenues those businesses generate to pay off the debt it has amassed in trying to build its sports empire.
So we are going to spend $200 million to make sure we can keep up the debt service on the previous $180 million? So where does the $200 million come from. I am increasingly buying into Radley Balko's theory that the media is not liberal or conservative, just consistently statist. Here is the comment on the Goldwater Institute's legal challenge
City officials also may face a legal challenge from the Goldwater Institute over the conservative think-tank's belief that the deal Glendale has cooked up violates state laws that prohibit government subsidies to private entities.
That, of course, means that the city will rack up untold legal fees to defend their deal.
Waaaaa! More legal fees. Is that really their biggest concern? How about the strong possibility that Goldwater is correct, or a mention that they have won in court recently in similar cases. But we will end with this happy thought:
Now, if they say yes to the $200-million giveaway, they may keep the team in town but are only piling on to that massive debt.
And as their initial deal with the team and previous team owners has proven, there are no guarantees that the $200 million will be enough.
Postscript: Local papers have never seen a sports team subsidy or new stadium they did not love. Given the quality of their news departments, local sports teams sell newspapers.
PS#2: Long ago I wrote a post on subsidies for business relocations and the prisoners dilemma.
In 8th grade, my son won his science fair with this easy and fun project to measure the urban heat island effect around our city. I know parents and kids alike can struggle to find a good project. This is one that not only is interesting, but helps to prove the existence of a phenomenon that many climate alarmists work hard to deny. Imagine a temperature measurement point in downtown Phoenix, which we found to be 7-10F hotter than the outlying areas just 30 miles away.
What did that thermometer read 100 years ago? How much of measured global warming is due to this effect, particularly since our airport, the typical place where temperature records are based for large cities, is right in the center of town?
Anyway, we had to kluge together some stuff to make this work, but the Weather Shop now offers a simple kit. The site suggests keeping track of position in a log vs. time, which is what we did the first time and works just fine. However, the second time through, we got fancy and also had a GPS logger.
Radley Balko has a fascinating discussion about a switch in government policy in Fountain Hills, AZ (a suburb of Phoenix and a town I visit for various reasons all the time). Apparently, residents of the town got to actually select from competing trash vendors (lucky folks!) until recently when the town selected and enforced a monopoly trash provider. Balko has a fascinating discussion of why progressives seem to universally support this decision and oppose the previous choice-based approach.
It may be odd at first to see a self-styled progressive mocking someone for criticizing a corporation for exercising too much power. John Cole writes sarcastically:
My GAWD. I feel so violated. I'm going through my bills before the Steelers game and I just realized that Allied Waste is contracted to pick up my trash, so my personal liberties have been impinged by the creeping totalitarianism of nanny-statism. To show solidarity with the oppressed Fountain Hills trash protesters, I am going to dress up in my "Don't Tread on Me" t-shirt, stand at the edge of my driveway at dawn during trash pick-up on Thursday, and throw pocket constitutions at the sanitation workers. We shall overcome, patriots!
This from a progressive bunch who runs to the government for legislation when their Big Mac has one too few pickles on it. If you can understand why progressives attack any corporation that they voluntarily do business with for having too much power, but defend any corporation backed by government authority, you will start to figure out exactly what progressives are really after. Just remember that progressives have a deep distrust of individual choice related to any activities that don't touch on sex. And they are much more comfortable with lines of accountability that run through government officials (elected or not) rather than accountability enforced by competition and individual choice (more on progressives here).
I will just add this to the story -- Fountain Hills is a suburb to which the verbs tony, wealthy, and exclusive could all apply. Given its position in the foothills around Phoenix, it is perhaps one of the most attractive suburbs in the metropolitan area. It is the last place one would point to as having some sort of problem with unkept houses and rotting garbage. This is entirely a power play by the city -- it has nothing to do with the quality of the area.
Brad Warbiany has even more on the story here.
Mostly unrelated facts about Fountain Hills
As predicted by skeptics of light rail, like myself, the Phoenix light rail system is starting to kill bus service. This is a familiar pattern -- in most cities that have added rail, from LA to Portland, total transit ridership has fallen as light rail systems have been built. That is because rail is so expensive, and its costs are mostly fixed (ie bond payments for construction costs) and absolutely inflexible (ie you can't shift routes). Since rail costs far more, even orders of magnitude more, per rider than buses, this means that even with modest increases in total transit budgets, total ridership falls when capacity is being shifted to much higher cost rail. Bus service is inevitably cut, because even if you close rail lines, the costs remain.
So here we are, in Phoenix. The article is mainly about the regional transit coalition falling apart, which I have no opinion or interest in, but you can see what is going on anyway.
A bad economy has meant that building a regional bus system in the Valley is no longer a regional endeavor.
A half-cent sales tax was supposed to be the magic bullet that paid for transit and roads. But as tax revenues continue to shrink, cuts to the plan have become inevitable.
Avondale leaders say the toll includes the decimation of future West Valley bus routes and the end of the regionalism that Proposition 400 promised....
Paul Hodgins, capital-programming manager for Valley Metro, which operates the transit system,said every region took a 25 percent cut in transit dollars.
Here is what is going on, though the article only sort of alludes tangentially to this way down in the last 2 paragraphs. Half of the transit dollars in the sales tax increase went to rail, and half to buses. The rail money is almost all for debt service on capital spending which has already occurred. This money has to be spent or the local authorities will default on their bonds. The other half was for bus operations.
Now, there is a 25% cut in the sales tax dollars from this sales tax increase. The half that went to rail can't be touched. So the 25% cut results in a 0% cut in rail and a 50% cut in buses. Further, since bus service carries a lot more passenger trips per dollar spent than rail, this 25% cut will end up affecting well over 50% of the total ridership that benefited from the sales tax funds.
It is clear from the article that folks probably understand this, but no one from the AZ Republic to the transit agencies are yet ready to admit it. Expect the proposed solution to be in the form of more taxes rather than a rethinking of transit strategy. Rail is an albatross, and I wonder how often it has to drive failures like this before people start recognizing it as such.
