For the last few days, I’ve looked at different municipal projects that have underperformed for one reason or another. (There’s always a reason, by the way.) The T-Mobile Center in Kansas City, The Grand Haven Community Center, the Falls at Crackerneck Creek in Independence, MO and even WCC’s own Health and Fitness Center are all in the uncomfortable position of drawing off the General Fund of their respective public entities to pay their bills.
All these multimillion-dollar projects were supposed to pay for themselves. But they don’t. And when they don’t, the General Fund takes the hit. It’s not surprising that these projects don’t go according to plan. The people running them aren’t risking their own money, and face no consequences when things go wrong.
Public sector managers have no idea how to manage risk in publicly funded revenue generation. That’s largely because there is no risk to manage in the public sector. Because a public entity operates for the public benefit, it has no need to generate profit.
For example, it’s stupid for WCC to justify closing the Children’s Center because it wasn’t making money. It provided childcare for students and staff. It wasn’t designed to make money. The Children’s Center was performing a subsidized service. That was its job, and it was doing its job. Under that logic, the Health and Fitness Center should be closed because it is not making a profit.
The real explanation for closing the Children’s Center appears to be that the WCC Administration wanted the building for something else. Closing it because it was a money-loser was simply a convenient explanation.
There is no general fund in the private sector
Public sector administrators fancy themselves as entrepreneurs. (Except real entrepreneurs don’t have a taxpayer-funded General Fund to fall back on.) They’re not. They don’t calculate, plan for, or mitigate risk. They don’t establish clear guidance for measuring the success or failure of their strategies. Even if they did, they don’t have an exit plan for when their ideas fail.
Addressing failure is essential. Two-thirds of businesses fail within 10 years of establishment. Only one-quarter make it to 15 years. The likelihood of a business venture failing is greater than succeeding. The Health and Fitness Center is a prime example. If the Health and Fitness Center operated in the market, it would be closed by now. It cannot operate without assistance from the General Fund. But with General Fund support, it can operate indefinitely. The problem, of course, is that this thing was supposed to make money.
When the WCC Administration proposes the construction of a hotel (business venture) and a convention center (business venture), there is no accompanying business plan. There is no financing strategy that does not eventually rely on the General Fund. There are no critical indicators of success or failure. And there is no plan to stop if/when things go poorly.
These are all questions that a functional Board of Trustees would be
asking demanding answers to. But WCC doesn’t have a functional Board of Trustees, so these questions won’t be asked. The Trustees will plunge headlong off the cliff in some bizarre “show of support” for the Administration, and the taxpayers will be stuck paying for the results for decades.
Herndon VA project demonstrates lack of risk management
Herndon, VA is considering the public financing of a mixed-use development and arts center project in its historic district. The project has been delayed by more than two years and the City is now contending with a “funding gap.” City officials have revised the plan by eliminating elements, but the project still costs $5M more than the City has. Herndon is now asking Fairfax County to chip in to cover the gap.
The Arts Center portion of the plan is of particular concern to the City Council. They want to make sure the Arts Center is “an asset to the public.”
“[Herndon City Manager Bill] Ashton said that the arts center will include programmable outdoor space and a public plaza. The council will determine an operating model for the arts center once groundbreaking begins, he said.”
In other words, “Build first, ask questions later.” This is exactly why public sector employees are fully unsuitable for the task of operating a business venture.
Washtenaw County voters should carefully assess who they elect to the WCC Board of Trustees. The current trustees have demonstrated that they will commit your tax dollars to frivolous ventures without asking questions.
Photo Credit: Cobber99 , via Flickr