The Chicago parking meter farce is a cautionary tale of privatization.EXPAND
The Chicago parking meter farce is a cautionary tale of privatization.
bidgee/Wikipedia

Instead of Privatizing the Convention Center, Maybe City Hall Should Sell It

Interesting item in my email titled “Do you want to run the Dallas Convention Center?” My first thought: “No.” Second thought: “Thanks for asking.” Third thought: “Wait. How much do I get?”

A thoughtful reader forwarded the document to me from the city of Dallas procurement page. It’s a 25-page open invitation asking anybody on earth to send the city a proposal to become the private operator of the Kay Bailey Hutchison Convention Center.

I admit it took me three thoughts to get organized about it, but I think I finally arrived at what would be the heart of the matter for me. The money. Otherwise, I don’t really need a convention center right now. Privatization is OK, but if I’m the private, I want to get paid.

Ever since the era of Ronald Reagan and Margaret Thatcher, the privatizing of previously public functions has enjoyed a certain unearned reverence from conservative circles, as if all things private must, by their essential nature, be superior, more efficient and more beneficent than things public. But blow-ups, scandals and farces along the way — see the Chicago parking meter fiasco for a good laugh — have proved that privatization in and of itself can be as much plague as panacea.

But back to me and what I would get out of this if I agreed to take over the convention center. First, I assume I would get to change the name. The day after I take over, it becomes the Angela Hunt Convention Center.

Then I’m busy. I will need to go to the South of France for a month or so on a very full expense account to study French culinary conventions. I don’t know if there really is such a thing, but I’ll find out.

OK, now I‘m back in Dallas, all rested up. Bad luck on the French culinary conventions, but my wife and I and my sister and her husband and my wife’s cousin and his wife and some guy named Ed Earl who once worked on my wife’s cousin’s sprinkler system all had a great time.

Now for my money. The Dallas Convention and Visitor’s Bureau is not a normal city department, so its budget tends to be a bit opaque. The bureau is what’s called an “enterprise fund,” which is supposed to mean that it generates its own revenue. (Hang on to your hat.) As such, the budget for the bureau is sometimes a bit more difficult to excavate than it would be for something like Public Works.

When you and I look at the 2018-19 planned budget for the convention bureau published by the city, for example, we see what sure looks like great news: It will spend $101 million, every penny of which will come from an item listed as “Enterprise Fund.” Under “Additional Resources,” the city’s budget summary shows “0.” Zip. Not a penny. All of the money it spends comes from that enterprise fund, so it looks like the whole budget comes out of money the convention center makes by being very enterprising.

It operates in the black, according to the published budget. For 2017-18, it will come out about half a million ahead. Sounds good to me. Sounds like there’s a lot of money to be made. I can go to France a lot with my wife.

Ah, but City Council member Philip Kingston has long had doubts about those numbers. He asked for detail this week from Elizabeth Reich, the city’s chief financial officer. He tells me Reich is always a straight shooter. She shot him back a breakdown of that enterprise fund thing, which he shared with me. I did a little bit of spreadsheet fiddling with it to get some percentages. And what can I say? Forget I even used the word enterprise.

According to the numbers Kingston got from Reich, fully 60 percent of the so-called enterprise money comes from the city’s hotel room tax. Another 13 percent comes from the local booze tax. That’s almost three-fourths of the budget, straight from taxpayers.

Take the taxpayers out of the picture, and the convention center’s income goes from $101 million to $28 million. At its current level of spending, the convention center would be $73 million a year in the hole without the tax subsidy. Its deficit would be two and a half times its income. Now I’m getting seriously worried about taking over, even with the France.

And it’s headed the wrong way. Reich gave Kingston numbers going back to 2012. From my little spreadsheet tinkering, I see that the share of the total budget provided by the hotel tax has gone up significantly in that period, from 55 percent to 60 percent. The share provided by the booze tax has gone up from 10 percent to 13 percent. Meanwhile, all of the income from revenue-generating activities has fallen as a share of the total.

I do not get calling this lion’s share of the revenue from taxpayers an enterprise fund. Taxing people is not an enterprise. If I am the owner of Crazy Jim’s Preowned Automobiles (We Tote the Note), there’s no way I’m getting a huge subsidy from the hotel and booze tax.

The Dallas convention center would go belly-up in a day without taxpayer subsidy. Did anybody ever think about selling this white elephant?
The Dallas convention center would go belly-up in a day without taxpayer subsidy. Did anybody ever think about selling this white elephant?
Kay Bailey Hutchison Convention Center

And I know, I know: the convention bureau is going to argue that it does a lot more good for the city by attracting out-of-town suckers here than I would by selling them used cars. It will also say that the out-of-towners pay most of the hotel tax.

But let’s not go there. That’s in the philosophy department. Right now, I’m interested in how much money comes from taxpayers and how much from doing business because I’m thinking about taking over the business, and I need to know where I’m going to get my cash.

Clearly, I have to count on getting most of it from the taxpayers. I take over, then I lose that tax subsidy; the convention center takes me straight to the sewage treatment plant.

To be sure, the city’s invitation to would-be private operators calls on them to generate “new/creative revenue sources that exceed an agreed-on benchmark.” Who wouldn’t want that? More money.

But an eagle-eyed proposer or his attorney is going to spot all kinds of nettlesome language farther down in the invitation. The document reminds would-be proposers that the convention center isn't a regular government department, but it isn’t a regular business, either. For example:

“The Kay Bailey Hutchison Convention Center Dallas construction and numerous expansions were financed with tax-exempt bonds. Consequently, the compensation arrangements and terms that the City may agree upon with the Successful Proposer in the Management Agreement are governed by Federal tax laws that restrict the private business use of facilities financed with tax-exempt bonds.”

Get it? You can’t go in there, figure out half the joint is never occupied and do what a real business person would — lease the empty part to Crazy Jim. In fact, every time you try to do something businesslike — take a chance, break the mold — you’re going to find yourself writing more checks to your lawyer and your tax guy to find out what you can and cannot do. Your better bet is to squeeze the citizens.

In the published version, the convention and visitors budget looks very enterprising.
In the published version, the convention and visitors budget looks very enterprising.
dallascityhall.com

Right there is where so many privatization schemes have gone south. Boxed in by public sector regulation, responsible for running what has always been a huge money-loser, the private operator winds up looking at the public tax and rate-paying schlubs as profitable hostages. Take the Chicago parking meters.

In 2008, the Chicago City Council rubber-stamped a deal drawn up by the mayor to turn over the city’s parking meters to a private operator for 75 years. In five years, parking rates in the city went from $3 an hour to $6.50; the meters were bringing in $121 million a year, more than four times what the city used to get, but not one penny of that income went to the city under the privatization deal. Guess what: Business people are better than politicians at writing contracts.

The parking meter investors have been dunning the city for lost revenue every time the city grants a street-closing for a neighborhood party or shuts off a street for construction. The private operators are now on schedule to earn back every penny they paid for their deal by 2020, which will leave them 63 debt-free years to take the citizens to the cleaners.

And the deal is inked. That’s a big difference. In the public sector, nothing is inked because we can always vote the bastards out of office and write ourselves a new deal. Not so if you sign it away. Then you have to live with the deal (well, unless it’s your own police and firemen, but let’s not do that one again here today).

Here’s what would be nice. Before the city decides to ink away the convention center, it would be nice to have a big conversation about why. What do we want from the convention center? Even more fundamental: If this sucker loses more than twice what it makes every year, don’t we need to stop and ask what’s it’s even for?

That should bring us to the question of exactly what a private operator is going to do for us. Make it profitable? I don’t much think so. Something that loses more than twice what it makes? What are the chances?

So if it’s going to continue to exist, and if it’s going to continue to operate deep in the red, and if, therefore, it’s always going to be deeply dependent on tax subsidy, why would anybody take it over? That is, why would anyone take over unless his business plan is to cut services and gouge the taxpayers? What else is there to gouge?

Here’s another thought, offered by my colleague Stephen Young. Why not just sell the sucker? If nothing else, that’s one good way to find out what it’s worth.

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