April 2012

GUEST POST: Private investment VS. Public (Andy Traub)

l3wis April 15, 2012 24Comments

Last week Scheels announced they were investing $25,000,000 of their money into their Sioux Falls store at 41st Street and Western Avenue. They’re adding over 100,000 square feet of shopping and entertainment space to an already large and polished store. Scheels representatives expect to add at least 100 jobs because of the expansion that will be completed in 2014. A private company is investing $25,000,000 of their own money and they’re creating 100 jobs in the process. Is anyone else here seeing the contrast of business acumen (Scheels) and fiscal ignorance (the City of Sioux Falls)?

This post is about math, not about being a sore loser. I wanted the events center in Sioux Falls to be built. I wanted private funding involved before we asked taxpayers to support it. I wanted it downtown. I wanted it to be smaller than the 12,000 seats proposed. I wanted it to be voted on during a presidential election so we’d have a larger voter turnout. I didn’t get what I wanted but you don’t have to be a discouraged downtown supporter to see the folly of our city’s leaders in contrast to the business acumen of Scheels’ leadership.

Our city leaders, some major hospitals and other large donors sold voters on a plan to borrow $150,000,000+ to build something that’s projected to bring 185 jobs to our city. Just like Scheels some of those jobs will be minimum wage and others will be better paying. Let’s try to be fair and compare apples to apples. Scheels is spending $25,000,000 and they may borrow that money from a bank and pay interest on it. Let’s assume they pay another $5,000,000 in interest over the life of their loan so they pay $30,000,000 for 100 permanent jobs. That’s $300,000 a job.  The best plan the Mayor could put together was estimated to be $185,000,000 for 185 jobs. 60% of voters signed up to spend their hard earned dollars on jobs that cost us $1,000,000 each. Of course we get an events center too, but let’s focus on one thing. Jobs.

Jobs are an economic engine unto themselves. When jobs are created those wages filter into the community. The money gets recycled. A paycheck on Friday becomes dinner at Spezia on Saturday or a beer at a bar just a few hours later. I’m not naive enough to believe that jobs should be the ONLY deciding factor in building something or spending public money. How many jobs are created when we build a park or pave a street? Not many, if any. When we create a business, and that’s what an events center is, then we should expect it to sustain itself and make our community grow. The truly alarming part of investing in an events center with 100% taxpayer financing is that if it loses money the taxpayers have to chip in even more. That’s right friends, since the “good people of Sioux Falls” own the events center if it loses money we have to subsidize it. And what happens if it does lose money?

Nothing happens if the events center loses money, nothing good that is. No one will lose their job (right away). No one will get their money back on the bad investment (our money). No one will say they’re sorry (politicians are allergic to apologies). We can’t close the place down because we’ve got too much invested in it. It becomes a $150,000,000 clunker of a car that we have to keep putting money into for gas and parts even though we’ll never be able to sell it. One man’s political capital would become our city’s responsibility.

Back to Scheels. If Scheels is about making a profit then why are they putting $25,000,000 into one corner of our city? They’re doing it because that’s what they do. They sell stuff. They make money. If they don’t make money people lose their jobs, their customers go somewhere else and the building closes. I believe that we need government but there are some things the government has no business participating in. Most of the things they have no business participating in are related to business.

But what about all of the other business that will come from these events? The times that my family has gone to the events center we drove from our home to the event and then after the event went home. Where were we supposed to go to dinner, Burger King? Last I checked Buffalo Wild Wings doesn’t hold 1,000 people, at least not the one by the arena. My own experience is backed up by the reports we paid so much for as taxpayers. The immediate development impact to the arena area is around $7,000,000. That’s about 1/3 of the Scheels expansion. It’s far less than is being spent on a downtown hotel going up at the same time. This “economic engine” that was sold to voters is in fact a dead man walking. It’s projected to create very little new development. It’s a $150,000,000 expense that will create 185 jobs (they hope) and you’re paying for it if you’re a Sioux Falls taxpayer.

I’m not a Kermit Staggers disciple. I’d like to pay off the riverfront work we’re so close to making a jewel in our city. I’m pro events center if we could have found one in the right location, right mix of private support and right size. I’m for government supporting business but I think Kermit is going to look like the one with the business acumen after this all shakes out because of what he’s against. He’s against gambling on non-essential entertainment that by the most optimistic estimates won’t make us much money.

I think Sioux Falls voters got suckered when we voted in someone to lead the city who made their living peddling debt and raking in the interest. Now he sold our city on the same thing except this time it’s our debt and our interest. Funny thing is he still gets paid and consumers still lose. I guess old habits are hard to break. Congrats Scheels. Your prices are outrageous most of the time but I love my $85 sandals. They’re better than $85 tickets to Bieber.