From the Journal Gazette – May 14th 2007

Government record poor with private ventures

Q. “Why does the city need a new baseball park when Memorial Stadium is less than 15 years old?”

A. It doesn’t. Many confuse the difference between political wants and societal needs. Having a new baseball stadium would be nice. Having a water and sewage system that meets minimum federal standards is essential. Building convention centers and recreational facilities with taxpayers’ money could be a benefit. Failure to keep streets free of crime could be life-threatening.

When Memorial Stadium was built, it was heralded as the finest baseball facility in the league; it arguably still is. When Hardball Capital assumed ownership of the Wizards, the owners proclaimed that they were delighted to be here because of the magnificent facility they inherited. Razing the present facility, with its accommodating parking lot, in favor of a baseball stadium five times the cost is a foolhardy and inappropriate use of taxpayers’ resources.

Q. “What happens to Memorial Stadium if the downtown ballpark is built?”

A. The city will forgive an existing lease with Hardball Capital valued at about $3.2 million. Should it be determined that Memorial Stadium will remain intact, all related expenses associated with the stadium, i.e. insurance, maintenance, refurbishments and such, will continue. Hardball’s estimate for these expenses for the new ballpark are $400,000. There are no local high school, college or amateur sporting teams that could justify the cost of using Memorial Stadium. Experts testified at the City Council that the only legitimate plan is demolition.

Q. “Why should I pay higher taxes to build an unnecessary stadium?”

A . Some are promoting the idea that the $40 million baseball stadium can be acquired for free. The idea rationalizes that the city has accumulated money from other projects gone bad, that it has overcharged taxpayers for certain services and has thereby accumulated surplus funds, or that it can change existing law to redirect taxes from other areas that don’t really need it. The city controller touted the city as fiscally sound and testified it has plentiful money for community entertainment facilities. The valid question not raised is “if so, why not devote these resources to unnavigable streets and roads or to fund the potential half-billion-dollar obligation of our ancient water and sewage systems”?

Elected officials have a fiduciary responsibility to direct limited taxpayer resources to highest and best uses, not subsidize condos for the affluent.

Q. “The numbers on this project keep changing. What’s the real story?”

A. Some numbers change, some numbers don’t. Existing leases, outstanding bond obligations and acquisition costs are etched in stone, however, and will remain until paid by the taxpaying public. The government’s projections of future costs and performance have been notoriously wrong. City Hall has a documented record of failure when entering the marketplace with taxpayers’ money From Microstandard, to hotels, to shopping centers, to condominiums, to airline shipping, to apartment buildings – all failed ventures with public money. The city has squandered literally millions of dollars to promote and subsidize its vision of a vibrant city. Further government intrusion into the free-enterprise zone should merit neither our confidence nor respect.

Q. “Why not consider the proposed hotel a stand-alone project and vote on it separately from the stadium, as some City Council members want to do?”

A. Because the market already has considered it and rejected it. The city opened nationwide bids on the project and received just one bid. Our hotel consultant, CH Johnston from Chicago, informed us that a hotel would not be feasible unless it was heavily subsidized by Fort Wayne taxpayers. Polls clearly indicate that city residents do not wish to get into the hotel business again.

Q. “Is the city being too generous with the Wizards owners?”

A. Although full details are not entirely clear nor will they ever be fully known, it would appear that our managers are not Major League players. Hardball Capital has an existing lease for Memorial Stadium for $211,000 a year. This lease will be forgiven and the baseball team will move to the new stadium rent-free. At the present time, the city receives 30 percent of the concessions sold at Memorial Stadium. The city keeps 10 percent of concessions in the new stadium. The Coliseum will lose roughly $225,000 in parking fees. Although the city will pay for and own the new facility, Hardball Capital will receive one-half of the naming rights, which are estimated at $300,000 annually. The city’s portion of the naming rights will then be placed in a fund to pay for stadium repairs. The city would get $1 for each ticket sold over a 275,000 attendance level. This is unlikely to occur, but if it should, this money also will be given to Hardball for repairs.

The politicos have struck a deal with the state legislators to reward the Wizards for their downtown development efforts. They will receive an estimated $4 million tax credit paid from state taxpayers’ money. This credit could be sold for cash. With the tax credit, Hardball will enter negotiation with a huge profit and virtually no downside exposure. Should Hardball owners, therefore, be asked to forgo their corporate shield and sign personally on all debt obligations?

(Since when do we permit a small, inexperienced, out-of-state business to set the table and call all the shots for the city of Fort Wayne?)

Q. “The Wizards will only play about 70 home games. What about the remaining 295 days of the year when the ballpark is empty?”

A. Neither the city nor the Wizards has demonstrated any expertise or success in booking profitable events at Memorial Stadium. Is it wise to have them practice with taxpayers’ money at a more expensive venue?

Q. “What if the Wizards and the hotel developers go belly up? Won’t the city be on the hook?”

A. A review of the city’s record in hotel management would indicate this is not improbable but most likely automatic. Both the Holiday Inn and the Hilton have visited the bankruptcy court with the city ending up short. There may be a limited market for used hotels, but there is virtually no market for empty baseball stadiums. Whether a hotel flourishes or flounders should not be of interest to governments as they should not be at risk. When taxpayers have underwritten $40 million in bonds, however, only bad things can happen.

Q. “What’s the deal with the condos? Who’s going to buy 60 condos?”

A. Again, why should the city care? If the market assesses a pent-up demand, there will be no shortage of developers stepping forward. After the $4 million tax rebate it’s interesting that Hardball Capital is willing to put about 10 times more capital into the condominium venture than the baseball stadium. Should things head south, living space will always have some residual value. Baseball stadiums will not. The risk/reward ratio clearly favors the city holding the baseball stadium bag and Hardball Capital keeping the condominiums. If the city is at risk here, why not make things binding and require the developers to sign personal commitments in addition to the corporate ones (as all small businesses do in Fort Wayne)?

Q. “Couldn’t the city’s $64 million be spent on something better?”

A. How about police and fire protection, water and sewage systems, education, streets and roads, legal, justice and criminal administration and creating a more inviting living environment for Fort Wayners with less taxation?

The huge public debate over this issue is paradoxical. We have been asked to pay for a new, luxurious hotel to support a convention center that is unoccupied while existing hotels are half full. We are moving and expanding to a new baseball stadium to favor an existing one that plays to half empty seats. We are financing retail shops when existing retailers struggle and the market is moving to Internet purchasing. We are subsidizing residential condos when the market is in free fall and there is an overhang of 4,500 residential homes in the Fort Wayne real estate market.

The city is not powerful enough to bend the free market to its vision.

Q. “What’s the rush? Why are Mayor Graham Richard and the city moving so fast on this?”

A. An informed and educated populace simply would not tolerate this folly. By rushing this through, the calculation is that opposition will be intimidated, uninformed and too disorganized.

Q. “Is this really the best project to spend this kind of money on?”

A. (See above, Q. Couldn’t the City …)

All governments, federal, state and local, have compiled dismal records when attempting to expand their domain into private property enterprises. Fort Wayne may not be the worst, but it may well qualify for honorable mention. Watching the City Council and our officials on TV, we are presented with articulate men with nice suits and designer ties who have the lingo down. It is truly unfortunate that their fiscal record in these matters does not match their TV persona.

By year’s end, city and county officials, elected and appointed, may well burden Allen County taxpayers with debt exceeding $2 billion.

Last one out, turn out the lights. Enough is enough.

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Ron Reinking is a certified public accountant in Fort Wayne. He wrote this for Indiana Policy Review in response to an April 15 commentary.

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