Tag Archives: subsidies

Airport Corridor Free Rides

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The Airport Corridor Transportation Association (ACTA) provides free, on-demand shuttle bus service for employees in the airport corridor area. According to the ACTA, 80,000 riders per year travel to 150 employers in a roughly one mile radius of the Robinson Town Centre. The cost of the service is stated to be $750,000 annually, about $9.40 per ride. 80,000 riders per year is the equivalent of about 220 riders per day. $750,000 dollars in cost per year is $2,054 per day.

Assuming three buses operating for 17 hours per day means on average there are 4.3 riders per hour of bus operation. With two buses, the ridership per hour of bus operation would be 6.5.

No wonder the cost per ride is so high. Let’s hope the taxpayers are not covering that cost. After all, they are already heavily subsidizing the bus riders (probably $3 to $4 per ride) who arrive on the 28 Flyer and the 29 Robinson bus. Presenting a transfer from the PAT bus gets a free ride on the ACTA shuttle at the IKEA bus shelter. And then the riders can request individual pickups when they are ready to come back to IKEA.

No one is opposed to helping folks get to work but at some point, the cost of the ride needs to be borne by the beneficiaries of the service. 150 employers who are benefitting by having employees able to get to work should be willing to make a contribution to the service. If they put in $5,000 apiece per year that would cover the cost. And if they were willing to pay for the cost, they would certainly demand major changes to reduce the outrageous costs. Over $2,000 per day to carry 220 people cannot be close to what an efficient operation would cost. $20 per hour for drivers would cost less than $800 per day. Fuel might cost another $100. And those are generous allowances. Surely, $2,000 per day is far too high.

And to be completely politically incorrect, why can’t passengers chip in a dollar or two a day? Two bucks per day should cover half of reasonable expenditures.

Thus, the appeals for state dollars to pay for the service, while not surprising, is not appropriate or justified.

Oh Joy, Free T Rides on the North Shore Connector

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With agreement reached between the Port Authority (PAT) and the Steelers and Rivers Casino to provide free light rail service from the North Shore to Downtown in exchange for the payment of $200,000 this year, $205,000 next year and $210,000 the year after that, all rides between North Shore stops and center city will be free.

 

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People’s Airline Coming to Pittsburgh?

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Plans to revive the old People Express evidently include flights into and out of Pittsburgh International. Great. We have always supported the idea of competition as a way to hold down fares and improve service. And, to the extent the new carrier will offer service to cities not currently being served, that is even better for Pittsburgh area travelers.

But wait. There is a big fly in this ointment. To get the as-yet-to-get-off the ground carrier to commit to Pittsburgh, the Airport Authority is offering the airline free landing and gate fees. Not a good thing. If the carrier is planning to be competitive, and possibly take business away from existing airlines by offering very low fares via the free landing and gate fees, then this is a bad move by the airport. Indeed, the move could be counterproductive if the new carrier, with its enormous costs advantage, forces existing carriers to reduce the level of service and thereby reduce landing and gate fee revenues.

Three cheers for competition. Raspberries for subsidized competition that harms the unsubsidized competitors.

Convention Equilibrium Still Off

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We wrote a decade ago about the new convention center and where it stood in terms of national context: as Pittsburgh was expanding so too were many other cities. When the dust settled convention center square footage was up 41% among the top fifty markets. Convention demand, on the other hand, fell rapidly and was up less than 2% per year.

Clearly those trends have not abated: a recent study by the Manhattan Institute found that "In 2010, conventions and meetings drew just 86 million attendees, down from 126 million ten years earlier. Meantime, available convention space has steadily increased to 70 million square feet, up from 40 million 20 years ago." Much of the expansion-then and now-is fueled by feasibility studies and wildly optimistic projections of economic activity, nearly always accompanied by subsidies of some sort.

Those subsidies extend to convention hotels as well, as evidenced by the money the gaming bill set aside (which has since been redirected due to lack of interest) and the fact that cities like Boston, Dallas, and Baltimore have gone full bore on using public money to construct convention center hotels. There is no guarantee that convention boosters won’t come back to the public trough at some point in the future, whether it be from the pot of gaming money or some other source, saying that they really have a committed partner and need a subsidy to make the convention center hotel a reality.

Macy’s is Downsizing-Not Asking for Government Help

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Macy’s is reducing its Downtown store’s active floor space by 32 percent. Of course, employees are worried about possible job losses. This downsizing comes on the decades long trend toward smaller downtown retail operations. Since the early 1980s Horne’s and Gimbel’s have left, Kaufmann’s sold and downsized while heavily subsidized Lord and Taylor’s and Lazarus have come and gone quickly.

Meanwhile, Saks Fifth Avenue is telling City officials that it will need government financial help if it is to keep its Downtown store open. One can hope that after the horrible experience and financial losses Pittsburgh has suffered had in trying to prop up or grow Downtown retailing, and in view of the City’s own fiscal problems, elected officials will resist the temptation to waste even more money subsidizing an upscale retailer.

The encouraging part of the Macy’s downsizing story is that the store has not asked for government financial help to maintain its current size or to avoid possible employee cuts. Perhaps the company is being a good citizen expecting to pay its own way and to rise and fall on based on its own efforts and resources. Or perhaps the company simply has seen the pushback to the Saks request and understands the City and state are not in a position to subsidize retail outlets.

Not that there is ever a justification for subsidizing retail. Retail is driven by consumer spending. Helping selected retailers creates an unfair competitive disadvantage for non-subsidized retailers and produces no long term net increases in total sales. It merely attempts to redistribute where sales occur. As Pittsburgh has learned to its chagrin, fighting long term retail trends by throwing money at Downtown department stores is foolish. Too bad City officials refused to listen to folks who tried to tell them back in the mid 1990s what was going to happen if they embarked on a massive scheme of subsiding Downtown retail.

Will Horsehead Get the NLRB’s Boeing Treatment?

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Horsehead Corporation has announced plans to move a big part of its operations from Beaver County to Rutherford County North Carolina. That move will involve building a $350 million dollar facility in Carolina and the possible loss of as many as 500 jobs in Beaver County.

The company, in explaining the decision, mentioned utility costs, logistics and development incentives. It did not mention the fact that North Carolina is a Right to Work state. Probably for good reason. In all likelihood, the union in Beaver County is already in the process of asking the NLRB to file a stop order (a la Boeing in Charleston) to prevent the plant from moving. Surely, as imaginative as the NLRB is-as it is currently constituted-will have no problem coming up with an unfair labor practice charge of some kind to justify issuing such an order.

Pennsylvania needs to make company moves of this type less attractive by enacting a Right to Work law. The state cannot depend on a new discovery of a valuable natural resource every time it needs an economic boost. Marcellus Shale might be godsend but it should be viewed as an opportunity to remove obstacles to growth in the state, not an excuse to delay doing what is right.

Can Western PA Board the Gravy Train?

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Florida has declined $2.4 billion in Federal funding for a Tampa-Orlando high speed rail link, noting that it likely cannot pay to operate the system once built. What a contrast in outlook compared with officials here, whose "use it or lose it" attitude kept the boring of the twin tunnels of the North Shore Connector moving forward. Somehow, someway, someone will have a plan to fund operating the system, but that is another story for another day.

The key issue with the Tampa story is that the $2.4 billion now goes up for grabs and Pennsylvania is right in line for a slice of the pie. If we are to believe what local officials said here a few years ago Tampa may never get another shot at Federal money since they turned this opportunity down. What do Pennsylvania officials want to put it towards? Newspaper reports say they have applied for $248 million for additional improvements on the Harrisburg-Philadelphia connection, where the money could increase travel speeds from 110 mph to 125 mph. Note that the corridor received $145 million from 2002-06 and $26 million in 2010.

At some point the incremental improvements-in this case, spending $248 million in order to increase speed 15 mph-just are not enough and the purported benefits of rail travel will have to stand on their own merits.

That’s especially true if the government recognizes the opportunity cost of the rail money and the fact that there is another part of the state to traverse. Federal money has funded half of an upcoming $1.5 million feasibility study to determine what good would come of improving the connection between Pittsburgh and Harrisburg. The study would presumably confirm what PennDOT stated in an October 2009 funding application that "Increasing service from Harrisburg to Pittsburgh is a logical progression to create a successful corridor linking most of Pennsylvania. The improved service corridor would encourage increased rail travel between key cities such as Harrisburg, Altoona and Pittsburgh as well as to other Midwestern destinations in Ohio and beyond".

Given the fiscal reality facing Federal, state, and local budgets, and realizing that taxpayers have already invested in the Harrisburg-Philadelphia connection, and realizing that returning the funds from the de-committed Florida project to taxpayers is a pipe dream, shouldn’t Pennsylvania’s officials hold any successful receipt of dollars in escrow for the Pittsburgh-Harrisburg connection?

Shaking the Gaming Money Tree

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Residents and taxpayers in Allegheny County might be surprised to find that some of the sidewalks upon which they traverse were made possible by people playing slot machines. So too with some bridges, parks, buildings, and other physical structures as well as planning, marketing, and loan initiatives.

One of the eight distributions of slots money Allegheny County received under Act 53 of 2007-the law that divvied up the share of economic development projects funded by gaming-was $80 million for a "…community infrastructure fund of a county of the second class to fund construction, development, improvement, and maintenance of infrastructure projects". The law further stipulated that the County would get ten annual disbursements of $6.6 million through 2018. Thus far $13.2 million has been received by the County and handed over to be administered by the Redevelopment Authority. Some $9.2 million has been distributed through September 2010.

Under the most recent program guidelines for the Community Infrastructure and Tourism Fund (CITF, and the tourism aspect was added by the County’s Redevelopment Authority after Act 53 was passed), the money can fund acquisition of land and buildings; for costs related to storm water, sanitary sewer, water supply, and transportation projects; demolition; environmental projects; planning,; streetscape; and other site preparation costs at the discretion of the Authority. The money cannot be used as bridge financing, for operating expenses, to refinance debt, or municipal vehicles or structures.

Municipalities, authorities, councils of government, and non-profits can obtain a grant or a loan; for-profit businesses are eligible for loans only; the maximum amount for a single project or application (whether a grant or loan) is $250,000.

It is too early to assess the benefits of many distributions from the fund: the guidelines do say that awards are evaluated on job creation and retention over a three year period, the amount of funding per full time job, the amount of matching funds, etc. Much of that will come by way of a close-out audit when funds are drawn down.

Two follow up entries on the blog will detail the money that has been handed out through September of 2010 and the policy framework going forward.

Taxing Bodies in a TIF…or Two

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We’ve said it before, we’ll say it again: subsidies beget subsidies. Instead of doing what proponents of publicly-funded development believe will happen-that a publicly-funded anchor or targeted area will stimulate private, non-subsidized development, it is the inverse that we see happening. More developers line up looking for their fare share and when prior subsidies don’t stimulate development then officials simply dole out more preferential tax treatment.

Just this week Pittsburgh and Allegheny County discussed participating in two new tax increment finance districts, one in the lower Strip District and one at the Summerset development at Frick Park. Bear in mind that the lower Strip is in close enough proximity to the economic engine that is the new convention center and Summerset has received a lot of state and local incentives to get it up and running including costs related to acquisition, site preparation, and infrastructure.

Are the subsidies worth it? It depends on the cost to benefit ratio. Realize that a tax increment finance package deprives taxing bodies of the full increase of real estate taxes attributable to the new development for a fixed period of time. That means the costs associated with providing municipal services to these areas will largely be covered by some other taxpayers for the duration of the districts.