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This week's Crain's Cleveland Business features a now-familiar front-page news title: "County Continues to Bail Out Gateway." The article is ostensibly about the county's repayment of a Cleveland Foundation loan made to cover cost overruns, but we're also reminded that "[e]ach year the county pays $7.5 million to $8.5 million to repay debt issued to build Gund Arena. Most of Jacobs Field's debt is covered by revenue from the county's sin tax."
That analysis is a little misleading to begin with. We keep hearing about the overruns at the Gund, as if everything would have been fine had the project been limited to just the ballpark. But Gateway's financing scheme was never designed to be self-supporting even including the dedicated sin tax revenues.
The Indians are paying rent now only because their tickets have been sold out season after season. That's not going to go on forever; when average attendance dips below about 24,000, based on the lease Gateway offered and the team management accepted, they will pay no rent at all.
Fingers are being pointed at the Gund property because it's currently not politically correct to mention the Indians in an unflattering context. When the Cavs get healthier (and out from under Danny Ferry's contract!) the tune will change.
But, to Crain's, excuse me for saying "I told you so." Let's go back almost exactly four years. What did the same paper say, editorially, when the Gateway project was still new?
A Crain's editorial-page opinion (3 July 1995) by Brian Tucker lauds Tom Chema's contributions to Cleveland as director of the Gateway Economic Development Corporation during the time the groundwork was laid for this long-term debt problem. Tucker excused "the critical financial dilemma of how to pay $28 million in cost overruns," the same way a private business might refer to cutting a profitable new contract but going a bit over the travel budget.
But Gateway never had a chance to break even on long-term operating expenses, let alone to have the $50 million surplus that was promised for areawide economic development. To cast the overruns as a down payment on a lucrative investment was wrong. It would have been more accurate to use the tip-of-the-iceberg metaphor.
Tucker, in mid-1995, waved off the obvious financial problems because of "what is seen by most Clevelanders and the rest of the nation as a true urban success story." This kind of rhetoric I never understood. I could owe $40,000 on a new Lexus and nobody would call it "a Schumann success story" even though it's just about as useful to me. Had I, like Gateway and Chema, gone over budget before the thing was even delivered, "success" would be about the last word anyone would use.
In fact, my neighbors would call it stupid. My wife would call it a mid-life crisis come early. Bottom line, the luxury car--or the "unprecedented" two-facility sports project for that matter--is an exercise in fantasy.
The trouble with fantasies, the kind that involve impressing people by buying cool things, is when the bill comes due. Now that the "new car" smell has worn off Gateway, our hero Chema is long gone. He's "consulting," if you can believe that, for cities who want the same kind of "success story" we've had with Gateway here. (Gracious. Desperate politicians will buy anything, won't they?) The county commissioners who approved multiple subsidies to cover operating costs and building overruns have scattered. For some reason, though, the taxpayers are still here to keep writing checks.
There have been no surprises since the Indians and Cavs signed their leases. Everyone expected some overruns, and in fact Chema was claiming up to the last month of construction that costs were going to be only about 5% over budget.
Subsequent events didn't change the financial picture.
Anyone with the imagination of a perceptive ten-year-old and the ability to read a bank statement could have figured out four years ago that debt service would exceed sin tax revenue, and that the leases were rigged in such a way that operating expenses would always be problematic. Everything about the overruns and ongoing financial pressure has been utterly predictable since the time of Chema's command.
It's as if someone had dropped a big rock from the Terminal Tower and then expressed shock and amazement that it hit the sidewalk. Regular adults know about cause and effect. It's no mystery. Politicians and media people are the ones who have trouble with it.
It's not shocking that a respected publication like Crain's would hype the Gateway project in 1995, neglecting the glaring lack of a sensible cash-flow plan, only to report on the project's easily predicted failure four years later. It's not shocking, just... unbusinesslike.
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