As Warning Flags Flap In Breeze Homestead Twists In Wind
Written by Michael Lewis on March 3, 2011
By Michael Lewis
Homestead’s mind-numbing plan to hand over its $22 million, 140-acre sports complex for less than a penny an acre for 30 years raises seven stern warning flags for us all:
1. Giving away assets saves upkeep but is pennywise and pound foolish.
2. If it sounds too good to be true it’s probably not true.
3. Every business plan with government is a big economic generator — or claims to be.
4. If money is around, government will find something to build.
5. A corollary: build it and they won’t necessarily come.
6. Governments need ironclad guarantees when businesses get great deals based on what they intend to do with public resources.
7. A sad corollary: Major League Baseball can void any contract without penalty.
Unfortunately, we keep ignoring these seven warnings.
Homestead’s story is poignant because the city seemed to do everything right in building facilities 20 years ago.
It signed a baseball team to a contract, built a 6,500-seat stadium and topflight complex for spring training, had no debt on the complex and counted on a bright future that — like the team — never showed up.
For 20 years the city has been searching for a purpose for the complex while paying about $8 million to keep it shipshape.
Now, rather than pay more, it’s negotiating a contract to lease the whole shebang to 4-month-old La Ley Enterprises for $1 a year for 30 years and quit paying upkeep.
The giveaway would solve the problem of costs in the same way the Florida Marlins solved the salary cost of outfielder Cody Ross last year by giving his contract free to the San Francisco Giants and watching him lead the Giants to a world championship. But the Marlins did save on salary.
Miami-Dade County faces a similar problem in trying to keep a jewel, Jackson Memorial Hospital, operating without losses. It’s being sorely tempted to virtually give away a tremendous asset because, like Homestead, it can’t find the way to break even.
In fact, virtually every government asset loses money and costs taxpayers dollars. How much, if any, should we give away at far below replacement cost?
About sounding too good to be true: Homestead was all set to become a tourist magnet via a new stadium. But while the Cleveland Indians cited Hurricane Andrew’s ravages in backing out, a less-apparent reason may have been that the city was short of hotel rooms, apartments, restaurants and visitor magnets needed to lure Ohioans there for a month each spring.
Truth was, Homestead needed more than a ballpark. The same is true in Little Havana, where a rising Marlins ballpark will attract Miamians but not out-of-state visitors to dwell in its shadow.
The Homestead ballpark was to become an engine for the south end of the county. Now the potential user touts giving it away as a generator of $60 million to $80 million. Proponents say the new Marlins stadium and a potential upgrade to Sun Life Stadium for the Miami Dolphins could generate hundreds of millions each.
But each dollar anyone spends for anything is an economic generator. You buy something with the dollar, and the recipient buys something, and so on. A good — or a not-so-good — economist can multiply any spending many times over.
Deepen the Port of Miami and we create 33,000 jobs, the port says. Don’t deepen it, one county commissioner emphasized last week, and we lose 100,000 jobs. But when we asked him how he got that number, he said he meant 30,000 jobs, not 100,000. How did he know? He read it somewhere, but he doesn’t recall where.
Does all this mean we should shop till we drop, spend until we bend so we all get rich? Or should we carefully pick targets and carefully vet statistics that purport to tell us how well this deal is going to turn out? Probably the latter.
The Homestead stadium rose because tourist taxes were around and the city cleverly figured out how to get $22 million of them, including the largest slice from Miami Beach’s share. Homestead has no stadium debt because taxes countywide have been paying for its stadium for decades. Homestead hit the jackpot — and now is about to give it away.
Meanwhile, an outdated convention center and a privately owned football team are scrimmaging over another tourist money jackpot. Proper or not, government will find something to spend the money on just because it’s there. And every use will be a massive economic generator — at least on paper.
But the Homestead stadium proves big generators on paper may never match reality. Build it and they won’t necessarily come.
A roof on Sun Life Stadium, for example, would bring no guarantee that Super Bowl games the roof is ostensible to lure will ever come here. Ask Homestead.
That’s why we need ironclad guarantees about future use of government resources or facilities.
The head of the newly founded corporation that wants to take over the Homestead complex, for example, told us "Our intention there is [to] redo the main baseball stadium as well as the nine fields surrounding the stadium. We’re going to add a football field, about 20 indoor basketball courts, an Olympic-size swimming pool and we’re going to bring a substantial number of sporting events," including University of Miami baseball games and others totaling 25 to 30 games a week.
Sounds great. But the key words are "our intention." Everyone has good intentions. But the road to government hell in business deals is paved with good intentions of those who don’t pay for default.
If the county hands over the keys to Jackson Memorial, it needs not just intentions but firm contractual guarantees point by point, with penalties specified and resources to tap in any failure to perform.
If it’s not in the contract with firm guarantees and penalties, and if government finds no assets to attach if it doesn’t happen, it’s merely intention — good as the Cleveland Indians’ intention to come to Homestead 20 years ago.
Or rather, not as good. The Indians had a two-year firm contract to come, with a 22-year option to extend. But they played only two games there in 1993 — as the visiting team — in the only major league exhibitions ever in the ballpark.
Which leads to point 7: Major League Baseball insists it can void any provision of any contract one of its teams is involved in with no penalty. The Indians walked away from a firm contract. Homestead got nothing.
Unfortunately, nobody learned. That provision sits in the Marlins stadium contract too. The public is paying $3 billion in hope the league never changes or voids the contract to leave us twisting in the wind along with Homestead, with no more remedy than finding someone to take our $3 billion investment for $1 a year.
We just didn’t heed the warning flag.