Well, we are a year into the financial crisis and it's a good time to take stock.
Congress has issued a report on the results of the GM and Chrysler bailouts and the results shouldn't surprise anyone.
According to the report, most of the $23 billion initially loaned to General Motors and Chrysler late last year, prior to their bankruptcy filings, will likely go unpaid, leaving U.S. taxpayers on the hook.
I think it's now clear that the bailouts were more about saving the union than they were about saving the companies. However, some politicians actually believe that they can "create jobs" by "investing" in certain projects or sectors.
When I was elected to the House in 1990, the big "Economic Development" scheme was the Wunsch Stock Exchange. A guy named Steve Wunsch had created an electronic stock exchange and the Arizona Legislature got the great idea to rename it the "Arizona Stock Exhchange" and subsidize it to the tune of a few hundred thousand dollars a year. The scheme was supposed to facilitate investors' providing capital to Arizona companies. Whatever. The exchange closed in 2001 due to lack of volume.
Of course, no one much noticed the decline and eventual closure of the Wunsch exchange. That's because the political class had moved on the next big thing in economic development...call centers. Dude, I kid you not. Somewhere between the outsourcing to Pakistan and the rise of the internet, Arizona decided that the next big thing would be call centers...whatever.
There were some fun side trips on the economic development pathway, like the time that the state Commerce Department established program to bring retirees to the valley…until someone figured out that when you add up the total cost associated with them, the state lost money on each person who moved here. But most of the economic development has involved building things that couldn’t get financed privately.
So while the call center hype was dying down, the state planners moved to the next big thing…downtown redevelopment. In theory, if you build a really nice stadium you will bring in a bunch of jobs…hmm, well, maybe if you spend two billion on a new Civic Center it will generate some revenue…dang. Of course, the stadium and the civic center are only viable if you build a third downtown Phoenix hotel. What? The private sector won’t finance a new downtown hotel? That’s fine. The city can build it. Hmm, I wonder how that’s all going?
Of course it’s not all bad news, the Cardinals got a new stadium out of Economic Development mania…and if Maricopa County is going to get a stadium—the political process being what it is--then Tucson should get $80 million for Rio Nuevo.* Let’s see, for $200 million dollars, you can…hmm buy a study with a really glossy cover and a movie theater. ..but if you spell it “Theatre” it’s totally worth the price.
Speaking of the Cardinals, Glendale doubled down on the Cardinals stadium by investing in…Desert Hockey. Now, I don’t have anything against hockey—especially since it’s the last remaining sport for mid-sized white guys—but Glendale will be lucky to avoid bankruptcy, of course, by the time the garbage is piling up in the streets, the current council and mayor will be long gone.
However, Glendale’s folly turned out to be Scottsdale’s gain. It didn’t look that way immediately, but in hindsight, Scottsdale caught a break when Steve Elman and Glendale Mayor Elaine Scruggs moved the Coyotes to Glendale in the middle of the night. That freed up Scottsdale Mayor Mary Manross to invest in…Skysong. D’oh.
Speaking of investments, how’s City North doing? I drove through there recently and , if you are looking to make a zombie movie and need a lot of vacant real estate as a backdrop, I guess it’s doing OK.
Speaking of flesh- eating zombies, it was really fun to build new Spring Training Stadiums in order to lure teams to Arizona, but the cities are beginning to learn that cannibalism works both ways. That’s why the Cubs are demanding concessions from Mesa while the Florida Grapefruit League promises some “investment” of its own. Golly, you mean that other cities will actually outbid you and you could end up holding the bag on a bunch of incentives while your Economic Development Big Fish goes to a greener pond? Err, whatever. Too bad the cities didn’t figure that out before they spent all that money on all the “motor mile” incentives.
Speaking of Florida—the guy, not the state—the big economic development fad of the last decade (somewhere between stadiums and bio tech) was luring the so called “Creative Class.” Economic development guru Richard Florida posited that by luring the sushi-loving, Bohemian “Creative” people, cities could incubate the next generation of Hewlit Packards, Googles and Microsofts—and Richard Florida knew EXACTLY what the Creative People wanted—gay bars and grunge bands.
Golly, it turned out that the people who actually create things drive Hondas, have a couple kids and are really looking for convenient parking and low taxes. Dude, who would have guessed that? Meanwhile, the cities like Tempe that adopted the Richard Florida hipster model learned that the hacky sac playing, moderately stinky street people who gravitated to these new urban playgrounds not only didn’t create anything, they didn’t even buy anything. So the independent stores that used to line Mill gave way to the chain stores that also couldn’t survive and now we have another back lot for our next zombie film.
Speaking of film, how’s that state tax credit for the movie industry doing?
While all this waste seems vaguely comical, it’s by no means harmless. Politicians from both parties believe that they can make strategic investments to improve the economy. That’s fine when we are talking about these cute little stadium, grunge band, historic Theatre, civic center and motor mile boondoggles, but we are eventually going to get into real money.
This quote from Monday’s New York Times will give you a flavor for the extent of problem.
Between financial rescue missions and the economic stimulus program, government spending accounts for a bigger share of the nation’s economy — 26 percent — than at any time since World War II. The government is financing 9 out of 10 new mortgages in the United States. If you buy a car from General Motors, you are buying from a company that is 60 percent owned by the government.
If you take out a car loan or run up your credit card, the chances are good that the government is financing both your debt and that of your bank.
Perhaps the most pernicious side effect of this Economic Development fever is that is that projects are more likely to get funded based on the skill of your lobbying team than the skill of your engineering team. That means that elected officials are supported and evaluated based on their ability to dole out stimulus money and fund individual companies. Gone are the days when pork meant a bridge to nowhere, now pork is handed out to individual companies and naturally, those companies work to ensure that their sponsors remain in power.
I don’t want to sound too cynical, but if elected officials believe that they are smart enough to make healthy returns by playing around with public money, there’s a fund available. It’s called EORP—The Elected Officials Retirement Plan. That’s the separate pension system that the state of Arizona maintains for retired elected officials. I think they should all get together and invest the fund in a downtown hotel or a start up bio tech company.
Then they can actually live with the consequences of their "economic development" decisions.
*Footnote: One funny side note to the Rio Nuevo project is that the Star’s Rob O’Dell ran a great series of front page stories about what a financial disaster Rio Nuevo has been and the legislature actually read the stories and decided to do something about it. Then the Star Editorial Board had to write an increasingly frantic series of editorials telling policy makers not to pull the plug because the project was so worthy.
It's also been fun to watch the Rio Nuewvo finger pointing...after all, if a project wastes $200 million, at least a head or two needs to roll. Here's what happened to the former Rio Nuevo Director.
Shelko's position was written out of the city budget in April by then-City Manager Mike Hein before Hein was fired by the City Council in April. New City Manager Mike Letcher also decided to let Shelko go.
Of course, heads don't actually roll very far in government. Here's the update.
Former Rio Nuevo Director Greg Shelko is back working for Rio Nuevo as the board that oversees the redevelopment district voted Tuesday to hire him as a $100-an-hour consultant for a new convention hotel downtown.
Gotta love it.