Good morning!
It’s crazy when sometimes one thinks of something and then reads about the same subject in the paper. What I’ve been thinking about is how government has failed us over the years, in some ways in costly, counter-intuitive (yet headline grabbing) ways. So, what do I mean? Here are a couple of examples…
LOBBYING OFTEN YIELDS IRRATIONAL RESULTS
Years ago, at a USC Trustees Retreat, George Olah, Nobel Prize winner in Chemistry, was lecturing about the requirement that ethanol be an additive to gasoline. Through some fairly simple chemistry and math, he was able to show us that the inclusion of ethanol, which burns clean, actually was a bad idea. Besides the fact that it packs less energy than gasoline, it also is terrible for global warming. Plus, we use more energy to generate it than it saves in its use.
And so, our legislators—those charged with the public trust—were either woefully ignorant or knowingly complicit. And this complicity has continued, even though it is generally accepted that the deforestation and over-farming required to maintain this fraud is increasing greenhouse gases and climate change. Yet, due to the powerful lobbying of farmers and environmental groups, ethanol (produced by the over-farming of corn) is a part of our economy in a big way. For a stunning indictment: https://www.npr.org/templates/story/story.php?storyId=18784732. Biofuels are bad for us and for the planet.
CASE IN POINT—THE LOS ANGELES MEMORIAL COLISEUM
My run-in with similar thinking (with admittedly lesser stakes) was when I served on the Los Angeles Memorial Coliseum Commission. It’s when I realized that big, glitzy projects may capture headlines but they often can cripple communities.
After years of substandard management, fuzzy accounting, embezzlement, payoffs, etc. (all before I arrived, I might add), with an operating deficit and rising deferred maintenance, it was determined running the Coliseum was not best managed by a governmental entity. Further, the math proved that it could never be profitable. The only way to create better management and accountability, to address the deferred maintenance, and move into the 21st century, was to lease the Coliseum to an operator that had reasons other than pure annual operational profits. That entity, of course, was USC. There were real benefits for USC (including the enhancement of its own brand) in ensuring the high-quality operation and rehabilitation of the Coliseum—and there was no way anyone else could generate profitability.
In the midst of the debate on the Coliseum’s future, there were government officials, self-appointed investigative journalists, and Commission gadflies that appeared out of the woodwork, arguing that we couldn’t “privatize” this precious regional icon and turn it over to a non-governmental entity. Forget that USC’s still is constrained by ongoing public oversight or the fact that USC would commit hundreds of millions to renovate the delipidated structure that was built in the 1920s.
SPORTS STADIUMS ARE NOT SUCH A PUBLIC GOOD
In the midst of the debate on the Coliseum, there were those who maintained that stadiums are great local treasures, to be managed by and financially supported by localities. Turning over management to another—even a non-profit university—was to these people, anathema. So we commissioned a study of public stadiums around the country, conducted by a professor who studies such things, to help support the idea that this was not a business that could be profitable to the public. What we found should not be terribly surprising—notwithstanding the hoopla supporting municipalities financing these edifices (through tax subsidies, bond issuance, and/or out-and-out cash), they are rarely, if ever, a good idea.
The professional sports industry has managed to persuade municipalities that they bring to cities great engines of economic development and growth. Then they pit city against city to generate the “best deal” for the team. What should be a rational decision of the sports team whether they want to locate for their own reasons (be they economic, historic, or emotional), city largesse arguably plays the biggest role of all.
How cities were ever misled into believing that 10 games (inclusive of the preseason and assuming no playoffs) of an NFL team would generate hotel nights, sales tax, and entertainment dollars that would justify the extraordinary payouts to keep them is astounding. What were these cities thinking? Can those 10 days ever be supplemented by enough rock concerts, fireworks shows, motocross, and truck pulls, ever make sense?
What professional sports figured out is they could create a market where the leagues basically collude regarding the ability to locate teams, so teams no longer compete with each other, while pitting cities in competition for these precious sports resources. The leagues acted as monopolies that were selling a product to the highest bidder. In study after study, the municipalities were shown to be fools.
“But why do these cities fall for this?”, you might ask. In part it is due to the time frames of each party. The leagues are going to be around for a long time. But the politicians are short-term agents of the public trust. They aren’t thinking twenty years out or more (the burden of bond terms), nor will they have to explain the under-performance of the venues or the city’s finances (by then, they’ll be long gone). They want the big headlines, the ticker-tape parade and victory in the next election. Their interests and the interests of their constituents are poorly aligned.
HOW IT RELATES TO NOW
Then came Saturday’s Wall Street Journal, and this article, entitled (in the print edition) “Stadium Debt Strangles Municipalities.” https://www.wsj.com/articles/as-covid-19-closes-stadiums-municipalities-struggle-with-billions-in-debt-11591263000.
As bad as all this was for cities, they never anticipated what an extraordinary event (like a pandemic or an act of terrorism or a weather-related calamity) could do to their calculus.
Now we are in the midst of a fight for racial justice in this country. People are clamoring for “de-funding” of police departments, so those dollars can go to other, arguably more important needs. And while cities can shift a few dollars around here and there, they still have to make good on the bonds they’ve issued to support stadiums and arenas. In a startling bit of trivia, over 40% of almost $17 billion in tax-exempt bonds issued since 2000 has gone toward the financing of major league stadiums. These bonds are paid for by tourism taxes, bed taxes, and sales taxes anticipated by cities. Yet when these taxes don’t materialize (e.g., when public spaces and large gatherings are closed), there isn’t a bond-interest holiday. The cities still must pay. And when this happens, cities will need to divert money from valuable municipal services in order to service this debt.
As much as examples of the failure of our national government abound, here is an example of how local governments, starry-eyed and all agog with the excitement of major league sports, have mortgaged our future, to our collective detriment.
QUIZ ANSWER
The quiz question about the four-man rotation with 20-wins each (the 1971 Orioles and Jim Palmer, Dave McNally, Mike Cuellar and Pat Dobson) prompted an outpouring of baseball memories. Here is Peter Bain’s memory of that team:
"I know this only because the O’s broke my heart in the 1970 World Series when they beat my Reds. One day, I will write you the long version of my boyhood relationship with the Cincinnati Reds, specifically the Big Red Machine of 1970-1976, when I went from age 12 to age 18, about as formative a 6-year period as a boy can have. I had ongoing disgust for those pretty-boy Dodgers who challenged my Reds: Garvey, Cey, Lopes, Russell, Yeager, Fernando V (anyway, you get the point)...."
Enjoy the week!
Glenn
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