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Sunday, November 8th, 2009

Pro Sports As Naming Rights Deal

Over at Columbus Underground they are discussing a report commissioned by the Columbus Blue Jackets NHL team claiming the team and its arena had a $2 billion economic impact in the region. I’ve no doubt that a lot of money was spent around the team, but if anyone believes that this resulted in net $2 billion in benefits to Columbus, I’ve got a bridge to sell you.

Every independent study I’ve seen suggests that pro sports and stadiums are a bad deal. But city after city invests in them. If this is so seemingly irrational, why? Some of the arguments include ego, corruption from the influence of rich team owners, the fact that local fat cats will get to enjoy the boxes, etc.

It strikes me, however, that we really ought to take a very different view of pro sports. Rather than seeing this as a direct economic investment with a direct ROI in the way a company models investing in a new plant, we should look at it as a marketing and branding expense. In effect, when cities pay hundreds of millions of dollars to team owners to put a franchise in their town, what they are really buying is naming rights to the team.

Is this rational? I haven’t seen a study that attempts to model it this way, but I think we could evaluate it by comparing what cities pay for naming rights on a team versus what non-public sector actors might pay and comparing the prices on some type of normalized CPM basis. CPM, cost per mille, that is, the cost per thousand impressions, is the way advertising is typically sold in the United States. (Other countries use slightly different albeit conceptually similar models such as cost per gross ratings point). If a city is getting as good a CPM rate as private advertisers or naming rights sponsors, then it could be in at least some sense justified.

Is that standard met? Again, I haven’t run the numbers and don’t have the resources to conduct such a study, but my hypothesis is that cities are getting a very good deal indeed.

Consider the Indianapolis Colts. The city initially paid about $80 million to build the Hoosier Dome, which it used to lure the Colts from Baltimore. But that was in 1984, a different era. To keep the Colts, the city had to build them a new stadium at a cost of $725 million. Plus, the city is foregoing a large chunk of the revenues from the stadium. Let’s assume that when you add up all the lost revenues, factor in interest, etc, you are looking at $1.5 billion over time. That’s just a rough, finger in the wind measure.

Lucas Oil Products, desirous of building a brand for itself, purchased the naming rights on the stadium for $120 million. This is far from the high water mark, by the way. Reliant Energy signed a $300 million deal in Houston.

So Indianapolis paid 12.5x to put its name on the team versus what Lucas Oil paid to put its name on the stadium. This means it needs to draw 12.5 times as many impressions to have paid the same effective rate as a private business that is presumably purely profit motivated. I don’t think it is hard to imagine that the name “Indianapolis” appears or is mentioned on TV with regards to the Colts way more than 12.5 times more than “Lucas Oil Stadium” does.

That puts it in perspective. How much money do advertisers pay to get their names on TV? A 30 second Super Bowl ad is $2.7 million or so. That’s what Budweiser pays to get 30 seconds of air time. But when the Colts were in the Super Bowl, the name “Indianapolis” appeared for a heckuva lot longer than 30 seconds. Think about what you would have to pay the TV networks to put your name on the screen and on the lips of the commentators (even that jerk Chris Collinsworth, who has always hated the Colts) as often as “Indianapolis” appears. The price tag would be staggering.

Beyond just having distinctive names versus a generic one, sports teams and major events are likely the main reason everybody in America knows where you are talking about when you say Indianapolis, Cincinnati, or Cleveland, but “Columbus” does not have the same resonance.

This also helps explain why small cities subsidize sports so much more than big ones. It’s not just about big market vs. small market revenues. Bigger cities aren’t as dependent on pro sports to get their brand message out. That’s why Mayor Daley could afford to take a comparatively tough line with the Bears these things go. There are lots of ways he can market Chicago.

Of course, we can still debate whether or not the investment is wise. Just because the cost is market competitive doesn’t mean you should purchase something. But again, I think about the way companies brand themselves and wonder about the ROI for them too. Think about it. Everyone in America already knows Budweiser and their brand promise intimately. But they still advertise heavily to build the brand, not just for specific promotions. They know they need to stay top of mind with their customer.

My previous employer, which was a business to business concern whose buyers are high end executives, nevertheless spends money on television and outdoor ads. I can’t disclose the amount obviously, but let’s just say it is a lot. Why do this if there is no value? Clearly, when tracking various independent measures of brand equity value, there was a payoff. Also, we built sophisticated modeling tools and utilized a team of math Ph.D’s. to help our clients’ marketing organizations calculate the response curves for various advertising types to help identify the marginal value and optimize outlays for various variables. So while there is still an art to it, there’s a lot of science that could be brought to bear to study this, if indeed someone wanted to do the research.

Now, if you contrast the brand recognition of Indianapolis and Columbus, Indy is far higher. On the other hand, if you compare their demographic and economic performance, they are virtually identical twins despite Indy’s far greater investment in sports. That’s a bit of a cautionary tale. Of course there are a lot of variables involved. That’s why we also shouldn’t be so quick to use some sort of “but for” modeling to claim too many benefits for pro sports – and it is why we needed so many math Ph.D.’s!

From what I’ve seen, a lot of chief marketing officers think they are over-spending on advertising. But clearly there is real value in marketing budgets or highly profit-motivated firms wouldn’t spend so much on it. It strikes me that if you look at pro sports investments and stadiums in this light, there’s a stronger possible rationale for doing them than traditional economic impact analysis would suggest.

If there is a study out there that has modeled pro sports in this way, I’d love to see it.

Saturday, November 7th, 2009

Principles of Privatization – Part 3: Uses of Funds

Continuing my look at privatization transactions, this installment focuses on appropriate uses of funds.

Some types of privatization involve paying a third party to deliver an outsourced service. If, by outsourcing, you are able to save money and get better service, great. If you are able to realize recurring savings from this, then you can put that money to use in many potential ways: special projects, new services, tax cuts, or making up for cost increases elsewhere.

I’m going to focus on non-recurring revenue, the type realized from transactions like the Indiana Toll Road and Chicago Skyway leases. Those leases generated multi-billion one time windfalls. What should governments do with one time lump sums?

My principle is that one time revenues should be spent on one time expenses.

So you are sitting on a big one time pile of money. What are some things you could do with that? Various good uses of the money would include:

1. Paying Down Debt. If you can retire debt early, that’s good news. However, by paying off debt you are basically transforming a lump sum into a stream of future payments – namely the interest and principal on the debt you no longer have to pay. It’s sort of like a reverse capitalization. So now instead of figuring out what to do with a lump sum, you have to figure out what to do with a lesser sum of money each year for some fixed number of years. I won’t profess to have analyzed this completely, but if you are considering doing it, you should. One possible benefit of paying down debt is that it could improve your credit rating, lowering interest costs on all civic debts. One downside is that the annual savings might get frittered away on operating budget bloat and you end up with nothing to show for it.

2. Establishing a Reserve. Another option is to simply put the money in the bank. This could be for a rainy day fund or some other purpose. Chicago established various reserve accounts during its privatizations that it is now tapping into during the recession. Indiana created a $500 million trust fund with a portion of the Toll Road lease that will generate income for future transportation projects, and could potentially be used for unexpected but important expenditures. For example, the state spent $60 million in road improvements to attract a Honda assembly plant to Greensburg. It is good to keep some powder dry to be able to move rapidly on opportunities like that. Reserve accounts can also raise your credit rating.
3. Capital Projects. Indiana and Chicago both used the majority of their proceeds to fund capital projects. Chicago funded numerous streetscape improvements, for example. Indiana used its proceeds for the “Major Moves” highway plan. This is a huge benefit for the state since it is at least partially clearing a major transportation deficit for the state. The reality is, without the Toll Road money, many of the larger projects would never have gotten done. One gotcha with capital projects is that when you build a new piece of infrastructure, there is an operations and maintenance tail on it. If you don’t fund that properly, as Indiana did not fund the operations of a new Colts stadium in Indianapolis, then you end up with a major problem. So even one time spending can generate recurring costs as well. One benefit of financing infrastructure maintenance such as road reconstruction is that this can actually reduce the ongoing maintenance expense, since older pavement needs more repairs, etc.
4. Rebate Checks. There’s no reason the government has to spend the proceeds at all. It could simply divide up the money and send out checks like Alaska does with its oil revenue. Spending privatization proceeds on anything is still a conscious decision to spend and should be treated as such. Of course, sending out checks from say the Indiana Toll Road lease would have been quite controversial, not least of which because the nakedness of the income transfer from one part of the state to another. And it would have left a transportation deficit. I happen to think the Major Moves program is a good one, but it is not automatic that proceeds from a highway have to be spent highway construction. The money could have been given back to the people in cash, or spent on other things such as transit systems or state parks. If the government did decide to give the cash back, then checks are much better than tax cuts. Tax cuts are permanent and should not be funded via one time chunks of cash.

In short, Indiana and Chicago used their proceeds wisely, to fund one time expenses and establish reserves. The money could have been used to paper over operating deficits or otherwise defer tough choices.

Now, Mayor Daley has utilized funds from the parking meter lease for the operating budget, including tapping some of the reserve funds it established. This has been controversial. And, as with all things involving that amount of money, it should be scrutinized. I think the real question is whether or not the money is being used to, again, defer tough choices and needed actions, or whether it is being used to weather the perfect storm. If this recession isn’t a rainy day, then what would be? Even a super fiscal hawk like Gov. Mitch Daniels tapped into $300 million of Indiana’s rainy day fund (which was carried over surpluses, not the Toll Road money). So in this environment I would not say tapping reserves from privatization proceeds is per se bad. With the word on the street being that Daley will run for re-election, any downstream fiscal problems created by this will land his own lap anyway, so presumably he’s motivated to make the right choice. But remember, once the money is gone, you can never get it back.

More in This Series

• Part 1: Taxonomy of Transactions
• Part 2:Value Levers
• Part 3: Uses of Funds (this post)
• Part 4: Guidelines for Action

Thursday, November 5th, 2009

Report from the Rail~Volution

I was in Boston last week for part of Rail~Volution 2009, America’s premier transit conference. I was part of a panel on the use of social media for transit advocacy. It’s clear this is a topic a lot of people are trying to figure out. I don’t want to go too far topic, but maybe I’ll do a post on that in the future, since obviously I’ve got a lot of experience in the space. In the meantime, just ponder this: why are almost all influential blogs and web sites in this space run by more or less independent people instead of agencies or organizations?

Election Results 2009

First, a quick Midwest election rundown in some key races:

• The great news is that Issue 9, the anti-rail charter amendment in Cincinnati, failed. I mentioned briefly before Issue 8, which would require a public vote before transferring the Cincinnati Water Works to a water district. That issue passed.
• Issue 3, permitting casino gambling in Ohio, passed
• Mark Mallory was re-elected Mayor of Cincinnati
• Frank Jackson was re-elected Mayor of Cleveland
• Cuyahoga County, OH approved a charter form of government
• In Indianapolis a referendum on building a new Wishard Hospital passed
• Dave Bing was elected to a full term as Mayor of Detroit
• Macomb County, MI approved a government reorganization
• R. T. Rybak was re-elected Mayor of Minneapolis
• Chris Coleman was re-elected Mayor of St. Paul
• Luke Ravenstahl was re-elected Mayor of Pittsburgh

John Robert Smith

I was able to catch up with John Robert Smith, CEO of Reconnecting America, and he recorded a short two minute video for me. If you only watch one of the videos I post, make it this one. He makes two incredibly important points that are too often overlooked when it comes to the livable cities agenda. The first is that we need to build an urban-small town-rural coalition around a new transportation policy. The other is that these issues are, or should be, non-partisan. (If video does not display, click here.)

Streetsblog and Streetfilms

I got to see an inspiring presentation by Aaron Naparstek, Editor in Chief of Streetsblog, and Clarence Eckerson, Director of Streetfilms. I’ve talked about Streetsblog here many times, but you might not be familiar with Streetfilms. Streetfilms produces short, high quality films on innovative transportation and livable communities projects from around the world. These films can be an extremely effective sales tool because they can show people in a very real and tangible way what a city looks like when it adopts these types of progressive ideas. The videos are under a Creative Commons license, so can be re-used as necessary. It’s a great resource.

I’ll share a couple of them with you today to give a flavor. This one is a ten minute piece on Bogotá’s “Ciclovia” program. This was one of the many innovations by Mayor Enrique Peñalosa and it has been widely imitated, including in the US. Every Sunday, 70 miles of streets are closed to cars and given to people for walking, biking, relaxing, or socializing. Also, exercise classes and other public events are held in the streets. It’s pretty amazing if you are not familiar with it. (If the video does not display, click here.)

This video has been viewed over 200,000 times.

Here’s another three and a half minute piece on students in New York “painting the pavement”. I hear people all the time say that livable cities initiatives are too expensive and that we can’t afford them. Well, something like Ciclovia does cost money for policing. However, there are all sorts of things we can do that cost virtually nothing. Here is the type of project that can be done for next to nothing. There is simply no excuse. (If the video doesn’t appear, click here.)

Here’s a similar example, where people paint wonderful murals in residential intersections. It’s in Portland, so it’s a little crunchy, but even if that’s not your bag, it’s a great idea. (If the video does not appear, click here).

Again, how much does it cost for a few buckets of paint? The video also talks about the practicalities, such as getting neighbor sign-off and working with city engineers. They even leveraged people sentenced to community service to help with the project!

Dallas TOD

Loyal blog readers know that I’ve written extensively about the challenges of inner ring suburbs in America. One of those inner ring suburbs is Carrollton, TX in the Dallas-Ft. Worth area. They are trying to build a future for themselves based around transit oriented development. I also ran into Peter Braster, who is the TOD Manager from Carrollton, and recorded this 40 second teaser video. Anyone looking for lessons learned or someone to network with about TOD in an inner ring suburb, reach out to Peter. (If the video doesn’t show up, click here.

Boston Cityscape

Since the good people in Boston were nice enough to host us, I thought I’d share a few pictures from the city.

Remember the “Big Dig”? This is where it happened. Where once a huge elevated freeway cut through downtown Boston, now there is a park. At $20 billion, it is certainly questionable whether the expense was worth it, but they at least got the results they were looking for.

Boston was home to America’s first subway. Today, the regional transit system is known as the “T”. Here’s a picture of the Red Line as it crosses the Charles River. Note the iconic “T” logo.

Don’t be fooled by the MBTA maps. The Green Line is principally a streetcar. And the Silver Line is a bus.

Here’s South Station. It’s a rail terminal used by Amtrak and commuter lines. There is a North Station as well – located on the lower level of Boston Garden.

A pedestrianized street in downtown Boston.

Beacon St. in Back Bay

Boston Common

The Brutalist Boston City Hall

Tuesday, November 3rd, 2009

Midwest Miscellany

California Follow-Up

As a followup to my “What’s Killing California” piece, here are a couple of other takes in the media of late.

Time Magazine staked out an optimistic position on the state in a major cover story called, “Golden State is Thriving, Despite Its Woes“.

John B. Judis takes a more centrist track over at The New Republic in his lengthy “End State“. While he grants Time’s assertion that California is a powerhouse in high tech, biotech, and green industries – but notes that jobs in those sectors continue to decline despite output gains.

Conservative writer William Voegeli had a piece in City Journal taking California to task for its high tax ways. He followed this up with a rebuttal to Time, and also an LA Times op-ed.

Detroit Roundup

My piece on Detroit as an urban laboratory and new American frontier is still going crazy out there on the web. I wouldn’t have expected it when I wrote it, but that is now the all time number one article on my site.

The international press continues to have a field day. The Guardian weighs in again this week, talking about how the Motor City became a ghost town.

Popup City looks at how the car drained Detroit.

Yahoo says Detroit house auction flops for urban wasteland.

Time magazine talks about how private security is booming.

Detroit native James A. Reeves looks back at the city he grew up in.

City Journal’s Steven Malanga looks at feral Detroit.

Daniel Howes expresses outrage at an interesting Detroit practice. Various groups endorse and support candidates based on how much the candidates donates to them. They fund their PAC’s from candidates.

A Detroit city councilor says the city needs a Marshall Plan.

And here’s another Detroit classic from Sweet Juniper.

GOOD Video: Emerging City Innovation

The folks at GOOD put together this interesting video on innovation (if video does not display, click here):

GOOD also has a look at crappy bike lanes in pictures.

High Speed Rail – A Simple Point to Point Service

The Transport Politic has a great piece up on high speed rail corridor market share in Europe. Eurostar has an 85% market share on the London to Paris market, but for trips involving transfers on either end, market share is only 5%. This prompts the author to ask if direct service is the defining element of high speed rail.

This backs up something I said all along about the proposed Midwest high speed rail network. Namely that we should not view Chicago as the hub in the sense of an airline passenger or package sorting hub, which is all about traffic interchange, but rather as being about a series of point to point corridors driven almost entirely by O&D to and from Chicago. This has important implications:

• If each corridor stands alone, then you don’t need to build the full network to get value. Every corridor you build brings value in its own right. On the flip side, so-called network benefits may not be large as the system is built out.
• It is not necessary to have a single high speed rail terminal in Chicago. Rather, let each line use its own logic terminal station. This is important because the logical corridor is the IC/Metra Electric for all trains from the south and southeast (St. Louis, Indianapolis, Cincinnati, and Louisville). Rather than Union Station, you could have a station at Van Buren St. or Millennium Station.

More HSR:
High speed trains are making China smaller (Newsweek)
FRA preliminary rail plan: no plan at all (Transport Politic)
Spain’s high speed trains out muscle airlines> (Business Week)

The Economic Development Potential of African American Men

Rust Wire pointed us at a study by an organization I’d never heard of called Policy Bridge on African American men in Northeast Ohio. I haven’t read the entire thing in detail yet, but Rust Wire’s take looked interesting and the abstract hit a lot of the points I’ve pounded again and again on this blog:

The loss of African-American male potential is, in fact, a loss of income that is crippling the regional and state economies. Creating economic opportunity for African-American men is, in fact, creating opportunity for Greater Cleveland. By investing in better educating, fully employing, and fairly compensating the African-American male population, the area is investing in its own well-being. The return on investment will come in the form of increased consumer buying power, increased income and property taxes, increased civic engagement, and renewed economic growth.

Before this reward can be realized, however, the community must undergo a change in viewpoint: The African-American male population must no longer be seen as a potential drain on community resources, but as an untapped well of economic potential and a key ingredient to Northeast Ohio’s economic recovery.

Sad Transit Chart From Cleveland

Brewed Fresh Daily ran a great analysis of RTA ridership, which is poised to hit its lowest level ever:

Columbus to Use Conservation Easement to Preserve City Center Site

I previously reported that Columbus wanted to scrape the City Center Mall site and put a park there. I said this might not be a bad temporary use of the land, but that they would be unlikely to create the type of civic gathering place they hoped for. Well, not only is the city moving forward with the park plan, they also want to use a conservation easement to try to make sure it stays a park forever.

This would be a mistake. Not only will this park again likely not achieve the goals set out for it, one legislative body has no right to try to bind what future legislative bodies can do with that land. The world belongs in usufruct to the living. Just as the policies of the past – including many pernicious practices – don’t and should not control us today, we have no right to tell future generations how they ought to run their city.

Previous: City Center Mall to be demolished

Featured Site: American Dirt

I’ve linked to the relatively new blog American Dirt before, but wanted to highlight it again. The blog is written by a landscape architect in Indianapolis who takes a look at public spaces and the design of our cities in a critical and super-in depth way. He just started a major series on the City Market. This guy writes as long as I do on occasion – and that’s saying something – but it is excellent stuff. I actually have him on my National Blogroll because what he writes about is very relevant nationally and not everything is about Indy – he’s done pieces on many other cities. Suggested starting points:

• Is It a Chain? The Writing Is On the Wall
• Nature’s Impartiality Includes Nature Itself
• Stairways as an Unanswered Question

National and International Roundup

The Paris ideal of bike sharing meets reality. Apparently 80% of the initial Velib’ fleet has been destroyed or stolen.

New York was voted the most attractive place for business in the world, according to Japan’s Mori Memorial Foundation (Bloomberg via @jorgeimontalvo). Also in New York, Doing more with buses (Streetsblog).

A talk with Fred Siegal about three ways big cities go bad.

Safety costs chafe railroads (WSJ)

The Economist looks at the Dallas performing arts complex.

More Charlotte schadenfreude: the Washington Post looks at the bust in the boomtown, which, of course, attracted notice in Charlotte.

Atlanta water and sewer rates are among the nation’s highest, according to the Journal-Constitution. Again, Clean Water Act compliance is an incentive to working class people to head to the exurbs. One person had a water bill of over $200. And also in Atlanta, the New York Times reports on how the city’s string of black mayors may be broken.

After generations in the spotlight, Harlem fades as center of black politics (NYT)

Great Mayors: Denver’s John Hickenlooper (Smart City Memphis). Also in Denver, can FasTracks be saved? (Denver Post)

Free parking spots could sprout meters in Arlington (WashPo)

The Southern Piedmont: Where NASCAR Meets NASDAQ (New Geography)

Melbourne predicts a population of 7 million by 2049 (The Age).

Columbus Dispatch: Sprucing up sidewalks seems to pay off for cities.

More Midwest

“When somebody tells you they just moved to Youngstown it probably isn’t helping the town’s image to blurt out, ‘Why?’” – new resident Liz Hill in at vindy.com (via Rust Wire)

Amid the ruin of Flint, seeing hope in a garden (NYT)

Chicago
Big Plans Afoot for Congress Parkway (Chicago Architecture Blog)
New Modern Wing Crosswalk on Monroe (Blair Kamin @ Chicago Tribune)
Environmental Report Gives NWI Another Bad Mark (Gary Post-Tribune)
Railbed Redux (Architect’s Newspaper) – Piece on Bloomingdale Trail

Cincinnati
Can Cincinnati be the Silicon Valley of consumer marketing? (Hard Knox Life)

Indianapolis
The Accidental Mayor (RiShawn Biddle @ The American Spectator) – Note: RiShawn is a former Indianpolis Star columnist.

Kansas City
City’s P&L district subsidy increasing to $20 million/year (BlogKC)

Louisville
Re-writing history in the suburbs (Broken Sidewalk)
21C named best hotel in North America (Broken Sidewalk)

Pittsburgh
Pittsburgh Mayor Faces Tests if Re-Elected (NYT)
Churn (Utterly Opinionated) – Via Burgh Diaspora

Twin Cities
Girl, 12, is youngest Minnesotan to kill moose (MPR) – the picture is priceless

Sunday, November 1st, 2009

Cincinnati: Water Works and the Commonwealth

It is not unusual for for core cities in America to own water utilities that provide service on a regional basis. Indeed, it might be the most common publicly owned regional utility service. Louisville does it, so do Indianapolis, Detroit (a massive operation that, among other things, supplies Dasani water – yup, I’m told it’s good ol’ Detroit tap water), and Cincinnati.

Many of these operate as non-profits, others as for profits. Cincinnati is in the former camp. In the latter, the Louisville Water Company is a corporation whose stock is owned by the city and from whom the city receives a dividend of millions of dollars per year.

With cities strapped for funds, they are increasingly looking at assets like water utilities as a way to raise money. Cincinnati is among these. Its city manager used to work in Louisville and wanted to know if it would be possible to transition to a Louisville like model.

Today, the Cincinnati Water Works operates as a city department that operates as a non-profit. It supplies water to 85% of the metro area’s population, including service in part of Northern Kentucky. By law, it cannot earn a profit. Also, by law, it cannot build facilities outside the city of Cincinnati that are not for the benefit of people in the city. The city believes this constrains its operations and ability to grow, however, also notes that water consumption is declining due to declines in industrial usage, so it doesn’t sound like expansion is necessary in any case.

The city manager has proposed that the city sell the water utility to a water district for a price of around $425 million. This would be paid in installments over 75 years, with the city collecting $5-6 million per year initially, expanding to $14-18 million over time. The district would remain controlled by the city, but would eventually bring suburban leaders on board, making it a truly regional district.

If this sounds a lot like a privatization, you are right. Some have argued that it is not necessary to truly sell or lease public assets to private entities in order to recognize the types of gains associated with the Indiana Toll Road or Chicago Skyway lease. Rather, cities can do it themselves. This proposed transaction demonstrates how. You create a special purpose government entity – in this case a water district – then, in effect, sell the assets to yourself. This was also recently done in Detroit, where Detroit and Winsdor created a special purpose toll authority to take over the tunnel linking their two cities.

So, if this is a synthetic privatization transaction, where is the value coming from? How do you earn $425 million selling something you own to yourself? Well, as I noted before, if it isn’t obvious where the value is coming from then there is either is none, or there is an embedded price in increase. In this case, water rates will increase starting in 2021 in order to cover that $425 million plus interest.

Cincinnati is, in effect, converting its water utility to a for profit enterprise and raising rates. This enables it to start drawing regular “dividend” checks, just like Louisville does. And, as a bonus for the city, a majority of that profit will originate outside the city limits. It creates an income transfer from the suburbs to the city, via water company profits.

Whether or not the conversion and rate increase is a good thing is one I will leave to the residents of Cincinnati to decide. It is like any other tax or fee increase. It depends on community values and the bets the community wants to take about the future. I am not taking any position on the ballot issue regarding this matter.

[Update: Issue 8, requiring a public vote prior to any Water Works transfer, passed ]

It is the regionalization aspect that I’d like to consider. I tend to think that some level of regionalization is a good thing in most communities. One of my core principles is that regionalization should build bridges and bind the city and suburbs together around common interests. Clearly, water service is a common interest. Yet getting it right is very difficult. It’s a fine line between creating goodwill and making people think they are being held for ransom. That’s a point I did not see covered in any of the materials and which I believe merits extensive evaluation prior to moving forward.

As I noted, rates are going up, and the reason they are going up is partially to let the city earn profits off suburbanites. It doesn’t seem realistic to think that people in the suburbs aren’t going to figure this out. What are they likely to think when they do?

Tocqueville noted that a decline in feelings of mutual obligation and respect often were accompanied by an increase in cash payments. When people do not seem themselves as part of a commonwealth or web of reciprocal duties, then transactions become merely financial. Or, to look at a it a different way, people may try to use money to buy themselves out of moral or social debts.

Think about our core cities, especially in the Midwest. They’ve got enormous legacy costs, bear a disproportionate share of regional social service obligations, have large amounts of institutions and institutional land that is not on the tax rolls and, while having a large percentage of key assets that benefit the entire region, are often obliged to fund the upkeep of those obligations themselves.

Clearly, the suburbs have a vested interest in a healthy core city. When the central city implodes, as in the case of Detroit, the entire region suffers. Indeed, Cincinnati and Hamilton County have lost significant population off their peak and I believe that right there explains a lot of the difference in regional economic and population growth between Cincinnati and places like Columbus and Indianapolis that are growing faster.

Beyond that, one can make the argument that there’s a moral duty as well. Should people be able to escape the problems that they (or their parents and grandparents) helped to create just by fleeing to an adjacent jurisdiction? Should they be able to wall themselves off in upscale enclaves, leaving the poor or others not so fortunate to look longingly at the gates?

Yet duty and self interest are often not enough to overcome the problems of the free rider or the diffusion of responsibility. Still, there are some things suburbs absolutely do need from the city. In this case, one of them is water. What do they have to offer in return? Clearly, the easiest thing for them to do is write a check. If they do, they can then sleep well at night knowing that they paid a “fair” rate for the one service they wanted. It’s a small price for them to pay to escape the call of duty or “self interest well understood”. Particularly this is the view that most of them are likely to take if the payments are actually forced on them by the city.

Cincinnati more so that most regions seems to have a serious city-suburb divide. I would encourage Cincinnati to view any Water Works transaction not just as financial engineering, but as an opportunity to engage in a regional dialog and figure out how to use this transaction to help bridge the divide and bring people together. It could be an opportunity to help have a broader discussion about advancing the entire region and creating a more complete regional commonwealth. For example, perhaps instead of profits from the Water Works, it would become a regional non-profit, with the city sharing control, but the suburbs would agree to help fund other regional assets or needs that are currently the sole or disproportionate responsibility of Cincinnati or Hamilton County.

If the city lets its suburbs off the hook for mere money, it way well live to rue the day. Believing that they “gave at the office”, they suburbs may feel more than justified even further turning their back on the fortunes of the city at the heart of the region in favor only personal growth and prosperity.

It is certainly in the best interests of the region as a whole that Cincinnati remain vital and fiscally solid. But it also of importance to have a region that realizes the real battle is with other cities and regions around the world, not within its own backyard. In an ever more complex, competitive world, every part of a region, city and suburb, needs to bring its “A” game. To do that, people in a region need to be thinking and acting like they are all on the same overall team.

Related:
Water Works Proposal Executive Summary
Imperial Columbus and the Principles of Regional Finance

Remember: Vote No on 9

Remember, Cincinnatians should Vote No on 9 on Tuesday. Here’s one more funny video on the subject. (Click here if the video does not display for you).

[ Update: Issue 9, which would have required a public vote prior to any and every expenditure on any rail transportation project, failed. Thank you everyone who voted No on 9 ]

More Cincinnati

The Great Streetcar Debate
Cincinnati: A Midwest Conundrum
Agenda 360

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