Big Projects Don't Produce Big Enough Paybacks
By Roldo Bartimole
I guess I’ll have to argue with Plain Dealer architecture critic Steve Litt, as much as I usually admire his work.
Litt wrote a piece recently about the economic impact of Gateway and other downtown projects. He says the results suggest Cleveland should pursue more big projects. I say the payoff isn’t commensurate with the costs.
Litt’s piece had a number of caveats. However, he praised achievements of Gateway, Playhouse Square and the Rock and Roll Hall of Fame, all big projects in downtown Cleveland, as successes. His message was that Cleveland has to think BIG.
I believe he failed to take into account the public cost.
David Abbott, executive director of the Gund Foundation, answering a question about a special downtown taxing district, told Crain’s Cleveland Business that the foundations have invested millions of dollars downtown. However, he said there have been discussions in the last year because “we didn’t feel we were getting enough bang for the buck. We’ve put millions into downtown and we don’t always feel it’s paid off.”
Abbott has been a strong proponent of these projects. He was Cuyahoga County administrator during the building expansion of which Litt wrote. He’s the former aide to chief Gateway booster Tim Hagan. He was also an original Gateway board member.
I should rest my case with Abbott’s testimony of disappointment. However, I won’t.
Although the foundations – Cleveland, Gund and others – have invested millions of dollars (some reimbursed). However, public contributions downtown dwarf foundation funds and amount to hundreds of millions of dollars, possibly $1 billion or more.
Overestimating the benefits of Gateway, Litt advocates more Big Projects at a time corporate officials seek another Big Project, a new convention center.
I cannot argue with Litt’s outline of achievements – small hotels, some new housing and some retail – in the Gateway vicinity. There have been some achievements. The East 4th rehabbing, a centerpiece of the article, looks good. At the same time, the developers (MRN) hailed by Litt seek reductions in the taxable value of the very projects saluted though they have been subsidized already. Even the housing downtown, while it may impress Clevelanders, is small potatoes and tax abated. One just has to visit Chicago to know how small.
However, take a walk around the Gateway-Playhouse Square area; it can only be described as depressing. Since Gateway’s start, both the May Company and Dillard’s, a stone’s throw away, have closed. Halle’s renovated building at Playhouse Square is embarrassingly delinquent in its retail. In fact, it is relatively vacant. The complex of the old Cleveland Trust buildings from Euclid to Prospect, just down the street from Gateway, sits totally vacant. Euclid Avenue, anyone can see, remains nearly devastated.
The Wyndham Hotel - bolstered with tax abatement, TIF and other subsidies that probably total more than the construction costs of the Playhouse Square building - could not repay its city loan and presently seeks to reduce the tax value of its property, too.
Despite massive subsidies, the historical Old Arcade remains unable to attract substantial retail. It, unfortunately, looks sadly in decline as a shopping attraction.
In assessing success, you have to factor in cost. For the Old Arcade, here’s what taxpayers shell out:
- $8.26 million historic tax credit.
- A TIF (tax incremental financing form of tax abatement) of $6,454,000.
- A city of Cleveland, 30-year, $1 million loan at zero interest rate for 20 years and 2 percent for the remainder.
- Another $3 million loan for 20 years with at the time an estimated 6 percent interest, and a $2 million, 20-year loan via the county at 2.5 percent interest.
For that, the city did save downtown’s most historic spot, and it added a small Hyatt Regency. However, hotel managers bemoan the low occupancy and economic hardship. Business is so bad, the hotel closed its small restaurant during evenings (only the bar remains open).
Even more depressing, The Arcade, located in the very area Litt describes positively, seeks a reduction in property tax valuation of $15 million, down from $28 million. Many of the buildings mentioned here are seeking devaluations, a sign of economic hardship, not reason for applause. Such reductions result in declining income for the Cleveland schools in particular.
The city of Cleveland also heavily supported the Colonial/Euclid arcades across the street with loans of $3.3 million, and diverted other property tax revenue from public to private use.
This says nothing of the city’s costly investments in roads, sidewalk, very expensive curbing, new lighting and signage and other public infrastructure costs (services the city should be providing, by the way). Add to this the economic benefits expected by developers from another $200 million Euclid Avenue investment by the Regional Transit Authority, a project heavier on beautification than transit. RTA had already spent some $60 million on the money-losing Waterfront line.
Don’t forget also that big hole on Public Square owned by Dick Jacobs, who cleaned up on the sale of the Cleveland Indians, as Gordon Gund will now with the Cavalier sale, remains a parking lot. This centerpiece property has gone undeveloped since 1990.
Yes, you will have some development with such heavy public subsidy.
The point is, there should be significantly more private investment. Where’s the call for the private sector to ante up? Maybe that’s what Abbott wants to address. It would be nice, but doubtful.
The House of Blues addition does not tally up to a success compared with the rest of these costs. Even for the House of Blues site, the County had to reduce property tax assessments significantly, in addition to the other public subsidies. Many other requests for lower valuations are before the County Board of Revision in the very area of these new businesses.
It seems whatever the public provides it isn’t enough.
Litt cites Mark Rosentraub, Dean of the Levin College of Urban Affairs at Cleveland State University, and his claim that Gateway generates $40 million a year for the city. Methinks Propagandist Rosentraub knows how to add but not subtract.
Rosentraub, Litt writes, claims an annual $40 million benefit from increased parking, admission taxes and income taxes from Gateway. The city built two garages at public cost (some $43 million) at Gateway. Both garages have operated with continuing significant losses, made up by other city parking revenues. Admission taxes certainly were up during the Cleveland Indians’ 400 plus days of full attendance. However, admission taxes at the Gund reduce the rent for the Cavalier owners; admission taxes also are used annually to reduce payments on County Gateway Bonds.
The other problem, cited by economists, is that a dollar spent on sports is a dollar not spent on some other entertainment. It often doesn’t represent increased economic activity.
City officials in recent years have decried the lack of increase in income tax receipts. It is questionable whether the rate of increase matches inflation.
Rosentraub, now one of five members of the Gateway board, had quite a different, even depressing opinion of Gateway before he came to Cleveland. Now, he seems to say, “You Want Inflated Numbers, You Got Inflated Numbers.”
In 1997, before coming to Cleveland, Rosentraub wrote critically, “It is probably safe to conclude that Cleveland has spent more for and on professional sports teams and their playing facilities than any other community in the United States.” Rosentraub wrote this in his 1997 book, Major League Lo$ers – The Real Cost of Sports and Who’s Paying For It.
The story seems to have changed. Considerably.
Litt also notes a drop in government payments for Gateway this year with the retirement of $117 million in bonds. He, however, does not note that County residents by the end of last year anted up $230.9 million toward payment of those Gateway bonds and that they have 10 more years of the tax to pay for the Browns Stadium. (See “News Media Unlikely to Tell You” at Cool Cleveland or Lakewood Buzz for a recent assessment of Gateway costs.)
Litt writes, “Such investments show how the original outlay for Gateway continues to pay dividends, and they offer hope its successes might be repeated elsewhere.”
I won’t even go into the $92-million Rock and Roll Hall of Fame and its impact, other than to say the nearest retail to it is the Galleria, another subsidized failure, built by Jacobs. The two major office buildings to be constructed by Jacobs more than 10 years ago nearby the Galleria remain city parking lots. In addition, property taxes from Tower City are still being diverted to pay for the Rock Hall.
If all the big projects have anything to tell Clevelanders, it is go slow. Be careful and examine who pays and who benefits. Don’t get sucked into another tax drain.
As far as the convention center issue is concerned, the community should be looking to existing facilities. Why not aggressively pursue events that fit present facilities?
Rather than think Big, we should think Small.
Let’s attract the kind of meetings that can be accommodated with present properties, using the IX Center, the existing city convention center, CSU’s Convocation Center, Gund Arena and hotel meeting spaces. Other special events could utilize Jacobs Field and Browns Stadium.
We also can utilize the new 35,000 square feet of meeting space at the Intercontinental Hotel at the Cleveland Clinic. The new hotel has a 500-seat, state-of-the-art conference facility, a grand ballroom and eight “generous” meeting rooms, along with two restaurants.
Shouldn’t we be trying to host the kinds of meetings and conventions that fit what we have rather than extravagantly subsidizing another major public facility that keeps us broke?
Self-interest advocates want a new Big Project – from developers, contractors, politicians, investment bankers and labor unions. The past record shows they don’t care who pays. The burden usually ends up with ordinary people through regressive taxes and diversion of other taxes by abatements.
from Cool Cleveland contributor Roldo Bartimole roldo@adelphia.net
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