Heinz Field Expansion

Yet another reason taxpayers should have a basic understanding of economics.

The director of planning and development for the Steelers, commenting on the impending trial of the team’s lawsuit against the Sports and Exhibition Authority (SEA) for refusing to pay two thirds of the cost to add 3,000 seats, is quoted as saying "it (the pre-trial hearing) was an important step to make sure the SEA lives up to its obligations." And then he proceeded to add, "The expansion of Heinz Field will allow an opportunity for more Steeler fans to attend games." Not content with that, the speaker went on, "If this matter is not resolved in the near future, another year of increased fan attendance and increased revenue will be lost."

This self-serving commentary notwithstanding, the question the Steelers should answer is this: "Will the new seats and scoreboard pay the full cost of building them with additional ticket sales, seat licenses, concession revenue and other in-stadium and game day parking revenue resulting from the 3,000 additional seats?" If the cost of the project, along with any borrowing costs, can be recouped and perhaps even boost profits through increased revenue generated by the additional seats within ten years, the Steelers ought to build the project and pay for it themselves.

If the project will not generate enough revenue to pay for itself, the Steelers should not build it.

Clearly, they should not be asking taxpayers to subsidize a project that will add to Steeler profits. And they certainly should not be asking for taxpayers to help pay for a project that cannot pay for itself.

Why should taxpayers subsidize another 3,000 fans who want to see Steeler games in person? When is enough, enough? If fan demand for tickets is sufficiently strong to warrant putting in another 3,000 seats, then fan demand is strong enough to raise prices to pay for seat additions. The attitude of entitlement on the part of the team and many of its fans with seats who are happy to get the heavy subsidy they receive is nothing short of deplorable.

Come on and Take Free Ride

It seems the County Executive is a great fan of the Edgar Winter Group’s long ago hit song that invited folks to take a free ride. The difference is that the Executive is the "boss" at the Port Authority and has a taxpayer built light rail system that he can invite people to ride for free.

The Executive and some downtown groups want to see a fare free ride between the North Shore and Station Square. The draw is the free access to the North Shore with the stadiums, parking and entertainment as the attractions for T riders.

There is so much wrong with this idea. First of all, when the Federal and state governments put up hundreds of millions to support construction of rail systems and then pour in more hundreds of millions to subsidize ridership, they do not intend that rides be free. Free rides can and almost certainly will lead to artificially induced overuse of the system that will entail requiring adding trains to handle the free riders. More trains, more driver time, more costs for vehicle and track maintenance, security, more management time for scheduling etc. In this regard, the amount of money the Executive has requested from businesses to cover the cost of the free rides is a pittance compared to the cost of providing the North Shore service.

As was observed soon after the opening of the North Shore Connector, free rides after large events result in long lines and very long wait times. The problem for the Port Authority is that it can carry only a few thousand (perhaps as few as five thousand) people per hour safely. If 20,000 people show up at the North Shore stations after an event expecting a ride, they are going to create a massive logjam. The system is not designed to handle that kind of crush.

Far better to stop the free ride regime now. If someone rides the North Shore Connector they should pay at least a nominal fare. The subsidy per rider from construction costs is already at least $20. Given there is little chance the Connector will ever pay for its construction costs, the Port Authority ought at a minimum try to recover the operating costs of the system.

If the Connector cannot cover its operating costs through fares, then the massive expenditures to build it were even more of a boondoggle than opponents argued it would be before it was built.

Pennsylvanian per Rider Subsidy

While passengers who use the Pittsburgh to Harrisburg Amtrak service-known as the Pennsylvanian-are gleeful over the state’s willingness to allocate $3.8 million to keep the train running, it is important for taxpayers not using the service to know what this means for them. Bear in mind that the total subsidy, including money from Amtrak sources, is $6.5 million to keep the train running in the next fiscal year. Remember too, that the one way fare between Harrisburg and Pittsburgh-and the other way round-is $40.

At a recent Transportation hearing in Harrisburg the deputy secretary of PennDOT told legislators the $3.8 million represents a subsidy per rider of $15 to $16. Coincidentally, that is the one way fare for a trip between Pittsburgh and Harrisburg on the MegaBus that offers three times a day service and makes the trip in less than four hours instead of the five and a half hours on the train.

Now, with the $3.8 million being just over half of the entire subsidy, then the total per passenger trip subsidy is $30 or more. Isn’t that swell; all those folks enjoying the train from Pittsburgh to Harrisburg while taxpayers pick up nearly half of the actual cost of their ride.

To his credit, the secretary did say that it might be time to contemplate higher fares on the service to lower the taxpayer subsidy. But raising the fare to, say $60, to cover two thirds of the subsidy would almost certainly reduce the passenger count as riders seek lower cost transportation. Some might even consider the $16 MegaBus trip. Then the reality would set in. If train riding demand is elastic over the range of the price hike to $60, then the Harrisburg to Pittsburgh service would generate less revenue than currently and the subsidy per passenger could go up rather down (assuming the cost of the operating the train is nearly independent of the number of passengers). Then too, the amount of the subsidy rises with the length of the trip so that someone going to Altoona from Harrisburg would receive less of a subsidy than a traveler going on to Latrobe. But the secretary was using an average and that is the best way to look at the situation. Without the volume of passengers from Pittsburgh to Harrisburg and vice versa the service would be far too expensive per rider to operate.

What a quandary for politicians. They could do the right thing and stop the heavy subsidization of train rides between Pittsburgh and Harrisburg altogether since there are no appreciable external or societal benefits compared to letting people take a bus that pays fuel taxes and tolls to help maintain the roads it travels. Now that is concept worthy of consideration.

Predictable Praise for State Subsidy of AMTRAK

Proponents of all things paid for by someone else are effusive in their praise of the Governor’s agreement to pay $3.8 million to keep the once a day Pittsburgh to Harrisburg service operating. One editorialist was atwitter about how the $40 one way price is such bargain compared to the cost of driving a car and paying turnpike tolls. Never mind that almost $40 in taxpayer funds are required to subsidize that trip. Also ignored is the fact that the MegaBus service which take two hours less for the journey and offers three trips a day costs only $16 for a one way ticket. And guess what. No taxpayer subsidy is required.

The Governor’s deal sounds great to those who prefer riding trains. So why not ask the riders on the train to pay higher ticket prices to cover the true cost? Why can we not let go of the notion that just because some people like being subsidized, it is not mandatory that taxpayers have their pockets picked endlessly to accommodate their wishes?

Here’s a reasonable challenge for all the pundits who have pushed for the state subsidy and are now gleeful that the Governor has acquiesced. Push and cajole to get more passengers to use the Pennsylvanian in order to lower the per rider subsidy. If the decades’ long trend in declining passenger count continues, this move by the Governor will look foolish as the per passenger subsidy increases.

Maybe the big supporters of subsidized passenger service would be willing to buy up blocks of tickets to help defray the cost to taxpayers. Probably when pigs fly.

Should the State Subsidize Pittsburgh to Harrisburg Train Service?

AMTRAK has informed Pennsylvania that the Pittsburgh to Harrisburg service-known as the Pennsylvanian-would likely be suspended unless the state comes up with the $5.7 million needed to cover the subsidy now being covered by money from the Federal government. 

 

 

 

The Keystone train service between Harrisburg and New York via Philadelphia offers several departure and arrival times each day. The Pennsylvanian, on the other hand, provides only one train a day inbound to Pittsburgh and one train outbound from Pittsburgh to Harrisburg with continuing service to New York City.  The single inbound train arrives in Pittsburgh at 8:05 PM having left New York at 10:52 AM and Harrisburg at 2:36 PM. Outbound from Pittsburgh departs at 7:30 AM and arrives Harrisburg at 12:55 PM and New York at 4:50 PM.

 

 

Does it make good economic sense for the state to contribute such a large sum to keep the Pennsylvanian running? The following discussion of the train’s status and some key data will shed light on the advisability of the state government subsidizing half the annual cost of operating the train between Pittsburgh and Harrisburg.

 

 

For fiscal year 2012, there were 129,372 boardings and disembarkings at the Pittsburgh station for both the Pennsylvanian train and the Capitol Ltd. service that goes on west to Chicago by way of Cleveland and east to Washington DC. The Capitol Ltd service is also one train per day in each direction leaving for Chicago at midnight and DC at 4:50 AM. Total ridership on the Capitol Ltd and Pennsylvanian are very nearly the same, posting just over 100,000 passengers each in the first six months of fiscal 2012.

 

 

The Pittsburgh station passenger count has fallen substantially since 2008 when it was well above 140,000. In any case, even if the majority of passengers at the Pittsburgh station are from the Pennsylvanian, the number of Pittsburgh passengers from that service is almost certainly fewer than 100,000 per year or 270 people per day-probably about evenly split between boardings and disembarkings.

 

 

Furthermore, the passenger count at the Altoona station, the busiest between Pittsburgh and Harrisburg, has fallen from 35,850 in 1998 to 26,798 in 2012, a drop of 25 percent. Thus, the recent trend of ridership on the Pennsylvanian is clearly down.  The key question is, “will the downward trend be reversed soon?” If not, should the state be putting money into a train route that will require increasing subsidies year after year as the gap between revenues and costs widens?  Obviously, with falling passenger counts, raising ticket prices to offset the loss of riders is not a viable option as an effort to raise revenue. 

 

 

Moreover, the single daily train in each direction way is obviously a weak selling point.  The departure and arrival times in Pittsburgh (the biggest station on the line) is not convenient for many potential passengers.  Then too, the five and half hour travel time to Harrisburg is off putting considering the alternatives.  Granted, the trip from Altoona to Harrisburg is shorter and if the final destination is Philadelphia or New York the trip times are much more comparable to travel by car or bus. But, that being the case, why has the passenger count at Altoona fallen so steeply?

 

 

Passengers going from Pittsburgh to Harrisburg on the train will pay $40 for the trip. Meanwhile, passengers traveling by MegaBus from Pittsburgh to Harrisburg pay $14 or $16 depending on which of the three daily departure times they choose. The MegaBus trip is a three and half to four hour journey with no stops.  Thus, the advent of the MegaBus has created major competition for the train in terms of departure time convenience, travel time and cost. By way of note there are three return trips from Harrisburg by MegaBus as well.

 

 

And without question, for most people making the trip to Harrisburg, especially people on business, getting to the Harrisburg train station is just the start of the excursion.  If they want to go to a meeting in Swatara or other neighboring communities, they will need transportation.  Unless someone is there to provide transportation, it will mean getting a cab or renting car. Either would represent considerable extra expenditure of money and time.  Moreover, the business person going to New York would not arrive in NYC until very late in the afternoon and would have missed most of the work day, meaning a night in a hotel. Whereas a flight leaving Pittsburgh at 7:30 AM or so would have the person in NYC in time to get in several hours of meetings or sales calls and still catch a late afternoon or early evening flight home.

 

 

In short, business travelers are unlikely to ever make up a big part of the Pennsylvanian’s passengers. And non-business travelers seeking to save time and money now have a much better alterative in MegaBus.

 

 

For the state to ante up the $5.7 million, which is about half the estimated cost of running the Pennsylvanian service, it will have to justify the expenditure of funds on other than economic considerations. Indeed, the state ought to survey the ridership to ascertain whether subsidizing half the cost of the trip is warranted.  Do passengers have alternatives or are they too poor to travel any other way? Are they riding the train simply because they enjoy the train ride experience and are happy that taxpayers are paying half the cost of the ride? What, if any, non-transportation benefits accrue to spending millions in subsidy to keep the Pennsylvanian running?

 

 

Absent compelling answers to these questions in favor of providing the subsidy, the only other reason to keep the line going would be to have it available and in working condition against the possibility of a major long term east-west corridor highway outage or restriction. Or perhaps Turnpike tolls will rise to a point that people will abandon the Turnpike in favor of a train ride.  

 

Romantic notions surrounding train travel should not drive the decision. The Commonwealth does not have money lying around that is not needed more elsewhere. Roads and bridges and unfunded pension fund liabilities come to mind.

Should the State Subsidize Pittsburgh to Harrisburg Train Service?

AMTRAK has told Pennsylvania that the Pittsburgh to Harrisburg route-known as the Pennsylvanian-would likely be suspended unless the state comes up with the $5.7 million needed to cover the subsidy now being covered by money from the Federal government. This route has one train a day inbound to Pittsburgh and one train outbound from Pittsburgh to Harrisburg with continuing service to New York City. The inbound train arrives Pittsburgh at 8:05 PM having left New York at 10:52 AM and Harrisburg at 2:36 PM. Outbound from Pittsburgh departs at 7:30 AM and arrives Harrisburg at 12:55 PM and New York at 4:50 PM.

For fiscal year 2012, there were 129,372 combined boardings and disembarkings at the Pittsburgh station for the Pennsylvanian train and the Capitol Ltd. service that goes on west to Chicago by way of Cleveland and east to Washington DC. The Capitol Ltd service is also one train per day in each direction leaving for Chicago at midnight and DC at 4:50 AM. Ridership on the Capitol Ltd and Pennsylvanian are very nearly the same, posting just over 100,000 passengers each in the first six months of fiscal 2012. The Pittsburgh passenger count has fallen substantially since 2008 when it was well over 140,000. In any case, even if the majority of passengers at the Pittsburgh station are from the Pennsylvanian, the number of passengers is almost certainly fewer than 100,000 per year or 270 people per day-probably about evenly divided between boardings and disembarkings.

Further, the passenger count at the Altoona station, the busiest between Pittsburgh and Harrisburg, has fallen from 35,850 in 1998 to 26,798 in 2012, a drop of 25 percent. Thus, the recent trend of usage of the Pennsylvanian is clearly down. The key question "is the trend reversible?" If it is not, should the state be putting money into a train route that will require increasing subsidies year after year as the gap between revenues and costs widens?

The single trip each way is obviously a weak selling point. The departure and arrival times in Pittsburgh are not really the most convenient for many potential passengers. Then too, the five and half hour travel time to Harrisburg is off putting considering the alternatives. Granted the trip from Altoona to Harrisburg is shorter and if the final destination is Philadelphia or New York the trip times are much more comparable to travel by car or bus. But that being the case, why is the passenger count at Altoona in such decline?

Passengers going from Pittsburgh to Harrisburg will pay $40 for the trip. Passengers traveling by MegaBus from Pittsburgh to Harrisburg pay $14 or $16 depending on which of the three daily departure times they choose. The MegaBus trip is a three and half to four hour journey with no stops. Thus, the advent of the MegaBus has created major competition for the train in terms of convenience, travel time and cost.

And without question, for most people making the trip to Harrisburg, especially people on business, getting to the Harrisburg train station is just the start of the excursion. If they want to go to a meeting in Swatara or other neighboring community, they will need transportation. Unless someone is there to provide transportation, it will mean getting a cab or renting a car. Either would represent considerable extra expenditure of money and time. Moreover, the business person going to New York would not arrive until very late in the afternoon and would have missed most of the work day, meaning a night in a hotel. Whereas a flight leaving Pittsburgh at 7:30 AM would have the person in NYC in time to get in several hours of meetings or sales calls and still catch a late afternoon or early evening flight home.

In short, business travelers are unlikely to ever make up a big part of the Pennsylvanian’s passengers. And non-business travelers seeking to save time and money now have a much better alterative in MegaBus.

For the state to ante up the $5.7 million, which is about half the estimated cost of running the Pennsylvanian service, it will have to justify the expenditure of funds on other than economic considerations. Indeed, the state ought to survey the ridership to ascertain whether subsidizing half the cost of the trip is warranted. Do they have alternatives, too poor to travel any other way, or have no bus service? Is there a sizable group of people who ride the train to take advantage of the subsidy but who could easily afford to drive from Johnstown or Altoona?

The only other reason to keep the line going would be to have it available and in working condition against the possibility of a major long term highway outage or restriction. Or perhaps Turnpike tolls will get so high people will abandon the Turnpike in favor of a train ride.

Steelers’ Ludicrous Rationale for Heinz Field Subsidy

A clearer example of hubris and sense of entitlement could not be found than the Steelers’ justification for having the public underwrite the cost of expansion and upgrades at Heinz Field.

"This state- of- the- art expansion assures that Heinz Field would remain the first-class facility our fans expect and deserve." Is this what we have come to? Fans deserve to have the public subsidize a stadium that is already a tax exempt structure and is occupied by a team that has been massively enriched by the public’s underwriting most of the cost of construction?

For goodness sake, why should fans expect or deserve a first class facility at the expense of the public? When is enough enough? And how is adding seating capacity creating a first class facility for fans? Will they be really good seats for viewing games? Or will they simply add to Steelers’ revenue?

This is a prime example of what is wrong with today’s culture and perforce our economy. The notion that fans of professional sports teams deserve a "first class" facility in which to watch games and the public should subsidize that facility is simply outrageous. One can only marvel that the world has come to this.

The Steelers’ have been enriched enormously by the taxpayer investment in Heinz Field and the rights they received regarding development on the North Shore. The stadium pays no property tax and the Steelers’ rent payment is de minimus considering the value of the stadium.

Why is there so little gratitude on the part of the Steelers’? Is there no limit to their willingness to keep asking taxpayers for more money? If the Steelers’ want to expand the stadium, let the expansion pay for itself.

Or how about this. The Sports and Exhibition Authority will agree to pay for the expansion if the Steelers’ sign an ironclad agreement to pay sufficient additional rent necessary to cover the borrowing costs needed to build it. What could be more fair? But in the world of Steelerdom fair is apparently what they say it is-no more, no less.

Slow Down the Shell Tax Giveaway Train

The Governor’s plan to offer tax credits totaling $1.65 billion to plants, including the proposed Shell ethane using facility, needs to take a breath in its headlong charge toward passage in the Legislature. There are several important questions that need to be answered.

First, why would tax credits be given to a plant likely to be located in a tax free Keystone Opportunity Zone? Under the provisions of the amended Opportunity Zone law, no state taxes or property taxes will be owed for up to 15 years of operation. And if other eligible ethane using plants come, will they insist on having a Keystone Opportunity zone designation at their chosen site?

Second, how can anyone be sure that the optimistic job creation numbers will ever happen? We have seen too many instances where large taxpayer subsidies given to companies have failed to produce anything close to the projected numbers-or where the development failed to last very long such as Volkswagen and the Kvaerner shipyard, or Lazarus or Lord and Taylor.

If other states, such as Ohio or West Virginia, are willing to give the store away to get the Shell plant, why not let them? Pennsylvania has the gas. We could slap a significant severance tax on any gas leaving the state and going to an out of state chemical plant. That might produce enough revenue to allow major cuts in the state’s outrageously high corporate income tax, one of the biggest deterrents to companies locating in the Commonwealth. Making Pennsylvania more business friendly through lower taxes for all companies is far preferable to making the state tax free for some companies. And we still have the drilling related jobs, the royalty and lease payments. Let another state worry about the inevitable environmental lawsuits.

Moreover, what will existing petrochemical or pharmaceutical plants already in the state think about the enormous tax breaks being offered to some newcomers? Will they demand tax breaks as well? Where does it end?

The present effort is not infrastructure enhancing and is not business climate improving. It merely adds to the perception that Pennsylvania is driven by special interests and favored companies. This is the price the state pays for being unwilling to enact Right to Work, repeal the prevailing wage law and adopt a more reasonable regulatory environment.

Opportunity zone tax incentives for blighted and costly-to-rejuvenate areas saddled with toxic waste, rusted out hulks of unusable equipment and buildings are one thing. Tax credits on top of those benefits make no economic sense.

Reaction to Saks Closing Announcement Will Be Telling

"Based on the current circumstances, we cannot justify such an investment since it is unlikely that we could achieve a reasonable return on the investment due to declining sales volume". This comment from a Saks Fifth Avenue spokesperson during an announcement the upscale store will be closing its Downtown location when its lease expires next September because it failed to gain a commitment for $10 million in improvements from the store’s landlord and the City. Perhaps this was too much honesty from the spokesperson in terms of trying to solicit taxpayer help.

The failure of heavily subsidized Lazarus and Lord and Taylor’s stores in Downtown during the past seven years has substantially lowered competition for Saks. The fact that the store still cannot make a go of it is very instructive about the shopping patterns in southwestern Pennsylvania.

How the City, the County and the state, react to the Saks announcement will be very telling. As short as a dozen years ago the development "vision" for Downtown was as a retail destination. In pursuit of that vision, several publicly funded schemes were put together to promote Downtown retail establishments. Should Saks close, Macy’s will be the lone downtown department store, a company that is reacting to economic conditions by downsizing its footprint, not asking for a subsidy.

If the owner of the building is not willing to meet Saks’ terms, why should taxpayers be on the hook? The apparently honest statement by the spokesperson that future sales will not justify Saks undertaking the needed investment is a clear signal to elected officials: they would be ill advised in putting tax dollars into this situation. In light of previous bad experiences with subsidizing retail, they would be incredibly tone deaf if they spend $10 million to prop up a store that caters to high income shoppers.

Is a Convention Center Hotel Warranted?

Proponents of a convention center hotel are lamenting the fact that, after a decade since the completion of the new center, the hotel project has failed to get underway. Advocates are looking for a 500-room full service hotel that would act as a “front door” for the convention center.  Their argument: the hotel is necessary to maximize the center’s potential and they are willing to throw taxpayer money at it to make it happen. 

 

 

Continue reading