It snowed this spring in Bossier City when its officials addressed the $21 million the city shelled out for a parking garage that could have been paid by the developer of the Louisiana Boardwalk. Good for the developer who is going into receivership as the garage cost would have made the project even less financially feasible for it; bad for the Bossier City taxpayer because what was obvious to everybody except the financial half-wits in elected city office, that the money could have been used in a more productive way on behalf of the citizenry, was worse than thought.
Still, not being the sharpest tools in the shed on these matters, even after making the people pay the wages of their policy sins exemplified through the city’s budget collapse of two years past, Bossier City policy-makers don’t seem to realize their continued defense of this and other poor decisions aren’t convincing to observers who actually can run two brain cells together. Their latest attempt comes through an assertion that, by 2015, the property will have “paid off” the costs associated with it.
At a figure quoted at $43.5 million, roughly half of that figure represented legitimate expenses appropriate for government to pay, such as infrastructure. It also managed to get the bankrupt owner to pay for some as well as the Red River Waterway Commission (which gets its money also from taxpayers). But the simplistic method it uses to claim a payback fools nobody who has any financial sense.
Essentially, it takes city revenues that can be associated with the property, divides it into total city cost, and, presto, that’s the amount of time it takes for payback. That is, a method which introductory finance students are taught to reject because of its inherent validity problems.
First, sales tax figures assume every cent of business at the location was created new and whole. In fact, some portion of it was extracted from existing Bossier businesses. How much beggaring occurred the city could tell us by a comparison of sales figures and a little statistical modeling, but even if they had the expertise to do it, don’t expect it as it ruins the narrative being pushed. Related to this, the property tax figure is unadjusted; for its contribution to be accurate, the previous amount being collected must be subtracted.
Second, the additional costs imposed by the property are not figured in. There are garage and street maintenance costs, extra public safety expenses (that is, back when the city could afford it), and the like. These alone probably substantially surpass the $131,000 property tax collected annually.
Third and most troubling, this incorrectly apportions use of sales and property tax dollars. Business revenues (for example, utilities provision) aside, over half of the city’s revenues come from these sources for a reason: because these taxes collect for expenses not just of those at the location the business activity exists, but also to pay for a number of other city activities that have little or no direct revenue sources. Of every tax dollar taken from a business’ activity, only a small portion of it goes to expenses by the city solely on behalf of that business, either directly or indirectly. Much of it goes to fund other city functions that have nothing to do with business activity at that place, such as administration, parks, social services, etc. So, arguing that all taxes collected at a place of business go to “paying off” any startup costs incurred by the city for that concern shows absolute ignorance about government finance.
The truth of the matter is, as I have demonstrated previously, using valid figures it likely will be decades, if ever, that any payback to the city occurs (and this does not even include opportunity costs such as forgone interest that could have been earned on the money or reduced interest costs with less need to borrow for other things). But what can you do when, days before its foreclosure sale that could be avoided by definition if the property actually could turn a profit, the Old Faithful of Nonsense, Bossier City Council Pres. David Jones, erupts again by declaring, “the Boardwalk is a viable, profitable property.”
Not according to the Wall Street Journal, which wrote about it, “Busted real-estate developments, of course, dot the landscape in postrecession America. What makes Louisiana Boardwalk unusual, though, is the heavy amount of public financing that went to support the project and the vulnerability the city is now facing.” So the joke’s not so much on Bossier City’s dullards in office because they believe their own tripe, but on us because we keep reelecting cretins who act on this belief with our money.
Posted by Jeff Sadow at 09:00