Operating in the Black, Government-Style
posted in Regional planning |The director of Metro, Portland’s regional dictator planning agency, offers some insight into how government planners view such concepts as profits, losses, and sales. It is not a lot different from the way soviet managers looked at the same ideas.
Phil Stanford, a columnist for the Portland Tribune, recently commented that Metro’s Oregon Convention Center “has been losing money by the bucketload.” Two years ago, this convention center was the centerpiece of a Forbes magazine article about how cities are losing millions overbuilding their convention centers.
The pretentiously named Oregon Convention Center.
Flickr photo by Premshree Pillai.
Back in 1998, the convention center was losing money and Metro, which owned and operated it, was convinced that the solution was to lose more money by doubling its size. Portland-area voters were asked for the money to do this and they said no. So Metro did it anyway, spending $116 million on the addition.
By 2005, reported Forbes, the center was losing $5.5 million a year. But Metro was undaunted by Forbes‘ criticism, and proposed to build a new hotel next to it, saying that the city’s downtown hotels were too far away. (So what geniuses decided to build the convention center too far from hotels? Oh yes, it was urban planners.)
Anyway, Stanford is not enamored with the hotel proposal. But Metro’s executive, David Woolson, took offense at Stanford’s column and wrote a letter claiming there were some “inaccuracies” in Stanford’s article.
In particular, Woolson wrote Stanford, “you state the Oregon Convention Center ‘has been losing money by the bucketload.’ That’s not accurate. Actually, the OCC has operated in the black the last four years with its operating revenue and its share of the transient lodging tax.” (Notice that the “last four years” includes the year in which Forbes says the convention center lost $5.5 million.)
In other words, Metro doesn’t have to actually rent the convention center to fee-paying users. It is enough that someone increased the local hotel tax (at 11.5 percent, Portland’s is the highest in the state) and dedicated it to the convention center.
Now, I hope that even the planners who read this blog can spot the flaw in Woolson’s reasoning. If you have to count taxes to consider yourself “in the black,” you aren’t really in the black — even if those taxes are dedicated to your boondoggle convention center.
I suppose, for the benefit of some, I have to clarify the difference between taxes and user fees again. If a user pays a fee or tax and the money goes to whatever it is that the user is paying for, then it is a user fee no matter what you call it. But when a fee that is dedicated to a convention center is paid by motel or hotel users who aren’t going to the convention center, that is a tax.
Back in 1990, The Economist sent a reporter to the then-disintegrating Soviet Union to interview factory managers. The factories were going to have a hard time adjusting to markets, the reporter concluded, because their managers didn’t understand such basic concepts as “sales,” “profits,” or “costs.” (“Life in a Soviet Factory,” December 22, fee required.)
I’ve encoutered the same puzzlement from Forest Service officials when talking about the profitability of national forest timber sales. In the 1950s, the Forest Service was proud of being the only federal agency that actually made a profit, but by the 1980s, when it was losing $400 million a year from its timber program alone, its attitude was, “We’re the government. We don’t have to make money.”
When I would ask forest officials to calculate their profits, they would count tax dollars appropriated to them by Congress as revenues and timber sale receipts that they returned to the Treasury as costs (because they didn’t get to spend it on things they wanted to do). No wonder they lost money!
Anyone who thinks government is good needs to spend some time reading agency budgets. They may seem dry and boring, but that is deliberate: they don’t really want you to know where your money is going, so they overwhelm you with material. Just skip all the text and read the numbers. If you can’t read numbers, call up whatever school district ran your high school (another government agency) and ask for your money back (that is, the taxes your parents paid for you to go to school there) because they failed to teach you to understand and analyze numbers.
Mr. Woolson might be foolish enough to believe that taxes are “revenues” that can be counted when determining whether an operation is running in the black. It is too bad Metro was foolish enough to hire him and too bad that Portland-area taxpayers are saddled with an agency like Metro.
posted on August 29th, 2007 at 5:49 pm