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The Worst Laid Plans of Mice & men
This is from Stone Street Advisors
As anyone who's rode New Jersey Transit's
Montclair-Boonton/Morris-Essex or the Port Authority's PATH train to
Newark can tell you, a not-insignificant part of Harrison, NJ
is, to put it bluntly, a sh*t hole. Sure, there's some decent parts,
but the areas viewable from the train tracks is chock-full of abandoned
factory/warehouse buildings and post-industrial detritus. It was in
this area that MLS soccer team New York Redbull (nee, Metrostars) ownership decided to build its new stadium, Red Bull Arena.
While of questionable design aesthetic, the stadium is no-doubt a vast
improvement over the rest of the landscape. Unfortunately, in a nod to
the long and storied history of big-eyed municipal managers believing
the improbable dreams pitched by developers, Harrison went "all-in" on the project, and now, finds itself up the creek without a paddle:
The
town has no “long-term solution” for its debt load, Moody’s Investors
Service said in a May 20 ratings report. The company downgraded Harrison
five levels to Ba3, a junk-bond rating, from Baa1, the eighth-highest
investment grade.
Town
officials in December had to borrow $3.1 million -- 21 percent of its
municipal tax collections -- to make the debt payment on the 2006 issue,
and they anticipate doing so again this December, Moody’s said.Meanwhile,
the New York Red Bulls, whose owner is No. 208 on Forbes magazine’s
list of the world’s billionaires, are challenging their taxable status.
The team refuses to pay a $1.4 million property levy, according to
Moody’s.To close its $6 million budget gap, Harrison plans to
dismiss 17 percent of its police and 29 percent of its firefighters on
July 1, according to an e-mail from Town Clerk Paul Zarbetski. Mayor
Raymond McDonough is also considering selling seven parking lots.
I
played soccer for about a decade and consider myself a fan (albeit a
non-rabid one), so when the project was announced, I was excited,
although tentatively-so; Giants Stadium is easier to get to and
surrounded by the Meadowlands (and highways). Harrison, well...yea. I
could have sworn I wrote something about the Redbull stadium project a
few years ago but I can't find it, but I remember thinking the plans, as
announced, were a pipe dream. I remember thinking those who thought
restaurants, bars, and other businesses would flock to the area because
of a seldom-used stadium were delusional. Lo and behold, I was right,
at least so-far.
Restaurateurs and shopowners are wary of opening businesses around arenas because they don’t draw visitors every day, said Andrew Zimbalist, an economics professor at Smith College in Northampton, Massachusetts.
“If
you’re talking about an area that is economically stagnant, and you
simply plunk the facility there, it’s unlikely in the extreme that
something will happen,” he said in a phone interview.Harrison is the latest town to invest in sports only to find fiscal forecasts didn’t bear out. Hamilton County, Ohio, paid for stadiums for Major League Baseball’s Cincinnati Reds and the Bengals of the National Football League
with a sales-tax increase. Declining collections since 2008 have taken a
toll: A $33 million deficit is projected in 2013 for capital repairs,
said Terry Evans, county director of operations.
Let
me share with you a few images of the area around the Stadium, and it
will become immediately clear to you why I was initially skeptical, and
remain wholly unsurprised the glorious redevelopment plans envisioned by
developers and the town/country/state have yet to come to fruition.
Here's the stadium undergoing later stages of construction, facing west-ish (looking away from Manhattan towards Newark):
Notice
the very cool but unfortunately abandoned industrial building to the
right of the image? There's plenty of them around there. Notice all
the empty lots? I haven't been over there since the Fall of last year,
but unless there's been some unexpected and magical development, they're
still mostly empty.
Here's the satellite image of Harrison from
Google Earth. You can get a much better idea of what the area around
the Stadium looks like here:
The
roadway in the middle/top of the image is rt 280, which is a fancy name
for a parking lot (between morning and evening commute hours), while
the train tracks are, well, train tracks. The blue icon just south of
them is around the Harrison, which is about a third of a mile walk to
the stadium, or so says Google Earth's path tool (Having walked around
there briefly, I think it may be a bit more than that, at least it seems
that way). Planners figured that was fine as far as public
transportation goes. Its one stop from Newark Penn Station, and a 20
minute ride on the PATH from World Trade Center in Manhattan. This
image was taken 6/18/2010, and given the tone of the Moody's report and
the Bloomberg article from which the above quotes are from, I doubt it
looks much - if any - different today. To get a slightly better idea
how depressing the area is, check out this semi-horizontal view with 3d
buildings enabled:
While
none of the shorter buildings in Harrison (e.g. ~< 50') show up as
flat-land, you can get the general idea of the area from this view. The
buildings in the background across the river are downtown Newark, a
short hop on the PATH train away from the stadium, but definitely not
walkable, unless you're a masochist/like gallivanting across train
bridges. Here's a closer look of the area around the stadium.
Nice place, eh? Wouldn't you want to live in as-yet-built condo's there?
All
sarcasm aside, I think this area will eventually get developed and
eventually it will be relatively nice. Did you pick up on the key word
there (emphasis mine)?
To jump-start development,
officials of the town, Hudson County and the state had tried since the
early 2000s to craft a stadium deal for the team, then called the
MetroStars. In 2006, Harrison agreed to pay $39 million for the land,
the county put in $45 million for a parking garage and the team paid
$200 million for stadium construction.Revenue from development would fund debt service,
said the official statement of Harrison’s bonds, which were sold
through the Hudson County Improvement Authority and backed by the town
and county. The issue also carried bond insurance from MBIA, now known
as National Public Finance Guarantee Corp.
How could
that possibly go wrong? Real estate values were only going up and after
all, it worked in Hoboken and to a slightly lesser extent, Jersey
City...(again, emphasis mine)
The bond offering
described two ventures in particular. One, a 331-townhouse development,
is about half built, said James Bruno, a lawyer who represents the
Harrison Redevelopment Agency. The other hasn’t begun construction.No feasibility study was done when the debt was sold, said Edward McManimon III, partner at bond counsel McManimon & Scotland, based in Newark.
The
town forecast that developers’ payments would total $2.3 million in
2008 and increase to $11.5 million in 2011, according to Moody’s.
Instead, Harrison received only $980,000 in 2009 and $1.1 million in
both 2010 and 2011.
Whoops?
The best (er,
worst) part is when people play the blame game for their naivete,
ignorance, and lack of acceptance of their unbridled optimism. Let me
repeat this part in case you missed it the first time:
Those
involved in Harrison’s plight said thousands of condos, shops and
offices would have sprung up in its 1.3 square miles were it not for the
18-month recession that ended in June 2009, the longest since the
Depression.“Maybe we were a little aggressive,” [Mayor] McDonough said in a telephone interview. He said he wouldn’t do anything differently. “It’ll work out in the end.”
McDonough,
a 62-year-old retired plumber, has been mayor 16 years. An “old woman
crying” in his office that she couldn’t pay what she owed the town
prompted him to look for ways to boost the tax base, he said. In 1997,
Harrison designated a third of the town, including the stadium area, for
redevelopment.
As usual, emphasis is mine. I love
the spirit, but I have a hard time believing Mayor McDonough could
support that optimism if questioned by a 5th grader, let alone a
professional investor. Another thing: I'm not about to run for town
council let alone Mayor, but this is the best guy they could find for a
decade and a half? Really? I'm sure he's a great guy of high morals
and similar character, but when a plumber and friends decided to bet the
farm like this - without a freaking feasibility study nonetheless!!! -
perhaps we should spend more time talking about how some municipalities
get themselves into trouble because the people running them are given
WAY more than enough rope with which to hang themselves and their
constituents/taxpayers. I'm sure some municipal employees in
bigger/more populous areas have degrees/experience in high finance, but
I'm going to go out on a limb and guess they are the severe exception,
not the rule.
I'm not sure more regulation to protect people
(municipalities) from themselves is the right answer, nor am I familiar
enough with the process to know if any shortcuts were taken here
(besides the lack of feasibility study). I am fairly certain, though,
that there has to be a way of protecting tax-payers from municipal
managers getting them into sh*tty, ill-considered deals like this. How,
though, is another story...
- advertisements -
I SHOCKED no one has accused the World Bank or IMF of being behind this obvious conspiracy to deprive the naive 3rd world fools of New Jersey of their birthright.
It's called kickbacks fer chrissakes. Lots of city council types will have leveraged their pissy highschool or tradeschool diplomas into some sweet bribes as soon as the fuckers got into office. Not all of them, but enough of them.
Why aren't highly trained pigs, sorry police, breaking down the city council's front door? Beats arresting some poor SOB who owes money in student loans and overdue movie rentals.
It's fucking Jersey, fer chrissakes!!
I love the smell of Perth Amboy in the morning.
Well, this is only my second or third post on ZH, but my butt was
parked for ten years at a desk just about where the southern(left hand, bottom in the overhead views) goal is.
A really unceromonious eviction...
get away from it all with soccer in jersey!
Thank you for the article.
It's been known for quite a while that professional league sports have a negative impact on the economy of their host community, diverting discretionary income from sectors of the local economy that generate higher tax revenues and more employment. Elected officals see their city being known as the home of a major league pro sports team as being a big positive (status symbol) for the community and therefore worth the cost of public bond debt.
(Please note I am not saying this is right - just the way it is).
The owners of these teams (and the league/sanctioning body ownership) treat cities (and sometimes counties and states) as an easily blackmailable funding source (the typical public line is "We'll leave if you don't give us a new stadium") for free money based on the above. The only notable exception in recent years has been Los Angeles, which has consistently refused to use public funds for a new NFL stadium, yet somehow managaged to survive as a City.
Yes! If these were such great money making opportunities, we wouldn't be giving millionaires and billionaires public money to finance these things. They would be able to get private financing for them, or, use their own money! Of course, when these things go bust, it is always the public money that takes the hit, never the private fortunes of these moochers. See Paul Allen and Portland, or, Hank Paulson's son and Portland, for instance. The Miami Dolphins used private finance to build their stadium years ago. I find it funny that while they are laying off police and school teachers and raising property taxes and fees, cities/states are giving away millions to wealthy people to play games. Feh.
Soccer stadium? Why on earth does anyone in america build a separate facility for soccer. Isn't the local smallest high school enough to hold the fans?
Okay, joking aside, soccer is worse than AFL which uses already existing stadiums like nba arenas to play their games....they don't build NEW ones for them.
Misallocation again. How many scientists working on fusion could of been hired and funded for that stadium? Or scientists with mag lev engines? Or space program?...actual tangible shit.
Well at least the local high school will have a nicer place to have their commencement every year.
My sentiments exactly. Soccer fans could occupy no more than the avg college venue, so in turn should rent space from the avg college (it'd give education a boost too). I'd love to see the secret bank acct Mr Mayor has and how well padded it became when he promised to spend other peoples' money. NO WAY any billionaire should be getting subsidies for constructing a white elephant. And yes, the thought of how many productive jobs could've ben created (not just hotdog vendors at the stadium) really grates.
Seriously considering moving out of Dumpamerica...
No different than Miami's new Marlin Stadium which, at best will have average attendance at less than 15,000. The shortfall will be a significant tax burden on the citizens of MetroDade. I remember the signs from the 80's: "will the last American to leave Dade County please turn off the lights".
Looks like an ideal FEMA staging area.
Even better than a Walmart!
I'm sure if you look at the way mega-money is being spent on the Olympics project for London 2012, which is currently under construction, we would be in for a number of similar surprises. Just a reminder : Tony Blair got that nomination by taking with him several suitcases full of fiat money in spanking new notes that were generously dealt out at the venue of IOC meeting at Singapore. Thanks to middle man, the Spaniard, Samaranch, who was the ex-IOC, Four term boss, now free to wheel and deal as he was no longer nominal head. It paid dividends that is now an embarrassment as the UK is in dire financial straits but landed with a huge infrastructure expenditure...Mamma Mia! Good luck Mr Cameron.