The Public's Business
By Lisa Baker
Some have called it a time of reckoning for the private sector as once-mighty industries watch their hottest investments become frigid
in the dank economy.
As a result, many businesses, rather than chasing the next
new thing, are reforming their playboy ways, devoting themselves to more
But their very reticence seems somehow to have steamed the
shorts of the Northwest’s public sector, which despite punishing economic
indicators–or possibly because of them–seems to be throwing a coming out party.
Now, government is where ventures are launched and government is where the
Consider this shortlist of recent public enterprise: the
city of Portland is considering buying Portland General Electric and is at the
same time pursuing professional baseball--financing plans for both projects is
unknown. Clackamas County in October teed off on a $7 million golf business,
paid for by the sale of bonds. The city of Vancouver is building a hotel with a
combination of sales and hotel-motel room tax revenue. And, the city of Ashland
has pioneered its own telecommunications company on a $5.8 million bank loan.
Local government is in business like never before, seemingly
heeding the advice of economists and business boosters alike who advised that
government should “act more like a business.”
If so, why are the same economists and business boosters
more frustrated than ever?
Lost in the Translation
“That’s not what we meant,” says Greg Peden, lobbyist for
the Portland Business Alliance. He admits that he and his ilk did say, “Act
more like a business” but what they intended was sort of what your mother would
say when you dragged your shirtsleeve through the gravy: “Sit up straight,
watch what you’re doing and tuck your shirttail in.”
It was not a call to go forth and conquer.
“When people said they wanted government to act like
business, they meant to act efficiently, to be more aware of the bottom line,”
Peden says. “We were not saying we wanted them to get into private business.”
Randall Pozdena, economist with Portland-based EcoNorthwest,
agrees. “Why should they do that? We have plenty of businesses.”
He has a one-word answer to why governments should stay out
of the business world: Pamcorp.
It was the hot new thing in the early 1990s that was
supposed to make a mountain of cash for the Oregon Public Employees Retirement
Fund. The proposal was simple: $50 million in bonds would fund a start-up
aircraft repair concern at the Portland International Airport. Returns from the
investment would pay the $400,000 in monthly debt service and then the
profits–predicted to be some $145 million--would fatten the fund. The Oregon
State Treasury, manager of the fund, guaranteed repayment of the bond.
In the summer of 1993, the business opened and repaired
precisely two aircraft before collapsing under higher-than-expected costs and
less-than-expected interest from paying customers, according to accounts in The
Oregonian. Despite help from the Port of Portland, which agreed to waive
$1.6 million in land lease payments, and a $1 million bailout from the Oregon
Investment Council, Pamcorp never resurfaced. Months later, then-Attorney
General Ted Kulongoski filed suit against the company’s top executives, claiming
that the three had “milked the corporation of its assets.”
Pamcorp remains on PDX grounds, renting out its hangar for
aircraft parking, but it’s making chump change, Pozdena says. “It’s a white
The lesson, he says, is that a failed investment, however
good it looked in the beginning, exposes the public to losses that must be paid
It’s a pain the people of Ashland will soon feel in the
aftermath of the city’s attempt at the telecommunications business. In 2001,
the city went live with its own cable television/high speed internet service,
offering low-cost hook-ups to its residents.
Two years later, the business is swimming in debt, owing in
part to too-low estimates on fiber construction costs and, like Pamcorp, fewer
than expected customers. The city expects to surpass $14 million in losses by
the end of the fiscal year.
Lee Tuneberg, Ashland’s finance manager, is quick to tell
you: This is not his fault.
Hired after Ashland Fiber Network launched, Tuneberg finds
himself with a mandate to make the venture pay off when he wasn’t in on its
formation in the first place. “People thought this was going to be a boon.”
It doesn’t help that the city is not the only act in town. A
private provider, Charter Communications, was already offering service in
Ashland before the city went forward with its business plan. Why did the city
go forward? “I think people are asking themselves that very question now in
hindsight,” Tuneberg said. “But at the time, it was about creating alternatives
for our residents.”
The bank loan on the project was secured by the city’s
electricity fund, which means electricity rate hikes will likely be levied to
cover the city’s business losses, Tuneberg says. Property tax increases are
also under consideration.
Why not simply raise cable rates? “We don’t want to affect
our competitiveness by raising rates,” he says. Instead, the city will look at
“expanding product offerings” to entice customers who don’t yet have cable or
to “steal customers” away from Charter, he says. Why not sell? “We’re not
considering that at this point. Beneficial things go with having Ashland Fiber
Network,” Tuneberg says. Chief among those is cheap cable service. “I have the
expanded basic service,” he says. “60 or 70 channels…and my bill is $30.60 a
month. And then I get high speed Internet for $31 per month. I know people
elsewhere who pay upwards of $100 for these.”
The size of rate and/or tax bill increases is unknown at
this point, he says.
It’s not the only city facing financial reverses from its
outings into the business world.
The City of Portland is losing hundreds of thousands of
dollars each year on the $40 million renovation of Civic Stadium, now PGE Park,
money that was intended to be paid back once the park was operating and selling
seats and boxes. But expenses soared well beyond projections and luxury boxes
sold for less than expected. The project has been bleeding cash since its
But officials still hold out hope that the facility will
prove itself a moneymaker, and that the stadium’s successful Women’s World Cup
soccer championship in October was just a taste of what’s to come. In the
meantime, the city is discussing tax increment financing, among other ideas, to
raise money to fund a stadium for a major league baseball team.
Pozdena says it’s not surprising that local
government-backed projects have so far failed to be a smashing success. He says
government takes on business plans that private investors won’t touch because
they’re too risky or just plain infeasible. “Look at Pamcorp. This project was
shopped by promoters to everyone–banks and investors--everybody turned up their
noses at it.”
Moreover, Pozdena says, government agencies are less
thorough in investigating the loss-benefit picture because “it’s not their money
anyway…If there were money in it, developers would be stepping up begging you
to let them do it.”
It’s hard to be realistic about anything on a golf course.
The dead-even cut of the grass, graceful bending of trees,
the ripple your Titleist makes as it drops short and low into the water hazard
for the third time. Ah, golf.
In the 90s, golf took off like a line drive, adding fairway
after fairway as golf fans competed for tee times and compared drivers and
Tiger Woods sightings. From 1986 to 1990, there weren’t enough putting greens
to satisfy golf-crazed hordes. And so, between 1991 and 1999, course developers
got to work, unfurling green carpet over every picturesque knoll they could
Oregon was part of the boom, adding, among others, two
courses at The Reserve in Aloha, two at Pumpkin Ridge in North Plains, one at
Stone Creek near Oregon City, and one at Langdon Farms in Aurora.
And then the economy slowed. Stopped, even. Executives, if
they still had jobs, no longer had expense accounts with which to entertain
clients at local courses. Families cut household budgets, deciding to keep Dish
Network, dump golf. Not enough new players have taken up where departing
players left off, leaving an inflated number of courses to fight over what is
left of the market, according to course owners and managers.
The fairways have cleared.
The National Golf Foundation has declared that golf, once
thought to be somewhat recession-proof, is in a slump.
But that fact has not cooled local governments’ desire to
invest in it, and not just to settle for the love of
the traditional par-3 muni course, which has been a popular government fare for
Clackamas County acquired Stone Creek Golf Club in
October, a designer, regulation course that in its first year of operation
earned more than consultants predicted while charging more than most
government-owned courses per round. Stone Creek General Manager Gordon Tolbert
says that once the novelty wears off, the number of customers will drop
somewhat and level off. Even so, he believes the course will do well because of
its comparatively ungolfed east side location:
Now the west side, he says, that’s
where the crowd of courses is.
But that fact has not cooled the
City of Sherwood’s desire to play through. Armed with a consultant’s glowing
feasibility report, council members say they’re confident their short course,
likely to be funded with bonds, will succeed despite generally acknowledged
saturation of the field, and two other short courses nearby.
Ross Schultz, Sherwood city manager, says the concept comes
recommended by respected golf consultants at Pumpkin Ridge Associates who came,
Brainstorm NW discovered that Pumpkin Ridge
Associates is indeed well-regarded in course design and construction. However,
Oregon golf officials say they are unknown in the business of feasibility.
Greg Crawford, a principal with the 2-year-old company, says
the Associates have performed two or three feasibility studies, aside from
Sherwood’s, but that they prefer design work. “Feasibility studies are not our
favorite thing to do,” he says. At the same time, Crawford said the firm would
“absolutely” like to design Sherwood’s course, should the city proceed. While
the Associates report gave figures and estimates showing future profitability,
Crawford said it did not actually recommend building the course. “We try to
steer clear of recommendations.”
Stone Creek’s Tolbert said Sherwood’s course “might be
doable” if it included the right amenities–clubhouse, restaurant, driving
range–and if it was maintained and managed by experts in the field. He said he
does believe that there can be too much golf for the sport’s own good.
“Eventually, you can kill the golden goose,” he says.
Told that the course is not slated for a restaurant and that
the Sherwood Family YMCA is being tapped to manage it, Tolbert said: “Well,
they’re being optimistic.”
But failure would not be the worse thing that could happen
to Sherwood’s venture, some say. Against the odds, it could succeed.
And that’s what bothers Chris Maletis, owner of Langdon
Farms, an 18-hole course about 15 minutes from Sherwood. He says the city’s
course will likely take precious rounds from his business and others, most of
which are suffering from declining rounds in the past two years. Ditto plans
for a Newberg-area course being pushed by the Chehalem Park and Recreation
Todd Rohrer, marketing director for Langdon, puts it this
way: “We’re keeping our head above the water, but these are tough times.”
It’s especially galling that the competition is coming from
subsidized courses that will pay no property taxes on their land, he says. “We
don’t need government to help us, necessarily, but we’d prefer government not
make it harder for us.”
Sherwood Mayor Mark Cottle is unsympathetic. “Well, you
know, life’s hard,” he says. “Yeah, we’re subsidizing to the tune of about $2
million. So what? If you can’t stand the competition, you should do something
Cottle says he believes the city’s rapid population growth
will ensure plenty of players for the new course and that the recession-caused
slowdown will end soon. “Everything’s down big time. Let’s face it, the economy
sucks. Now, you can wait for a good time and then (build the course) or we can
assume the historical trend will hold true and the U.S. will come out of bad
It’s not the only sports enterprise Sherwood is attempting.
There’s also soccer: The city has announced plans to build an indoor soccer
arena just three miles from a new, privately owned arena whose owners had
carefully selected their site to be in an underserved area, well away from
Beaverton and Clackamas indoor facilities.
Dave Heironimus, Sherwood city councilman, says he heard
about the Tualatin arena, but is unconcerned about competition. “My only
concern is for our facility. If it takes business away from theirs, I’m sorry
for that, but my job is to look out for the best interest of the city of
He was similarly nonchalant about the potential for Sherwood’s
golf course to shove private golf out of business. “If it’s for the public good
that we’re doing this, then I don’t care about private enterprise. It’s not our
job to make a for-profit enterprise work…Besides, Langdon Farms isn’t local
anyway. It doesn’t provide anything for Sherwood.” Heironimus said that if
Langdon Farms goes out of business, “they can all work at our course.”
The Inn Crowd
The newest player in the hospitality business would like you
to know: They’ll leave the light on for you.
The City of Vancouver, with hoped-for cash help from Clark
County, is preparing to try its hand at the hotel business, hoping receipts
from the 225-room hotel venture will help pay for an accompanying conference
center. Hilton Hotels have tentatively agreed to act as manager for the $71
million project, which will be financed largely with proceeds from the city’s
hotel-motel room tax.
Stephen Burdick, economic development manager for Vancouver,
said the plan makes sense because no one is interested in simply building a
convention center because such facilities traditionally lose money. He says he
believes this one, with the hotel attached, will make the city $1.5 million per
year in continuing revenues–revenues that are currently heading across the river
to Portland because of lack of conference space in Vancouver. And there’s the
added attraction of a long-term revenue source that isn’t dependent on taxpayer
But Washington’s Hotel and Lodging Association is incensed
over the deal.
Jan Simon, executive vice president of the association, says
the city’s hotel will drain the market advantage out of having a convention
center in the first place. “A convention center in its purest sense drives
room nights,” she says. In this proposal, the city absorbs all of the benefits
and keeps them to itself. In addition, it will take customers away from
Worse, she says, the city is using the industry’s own
tax–one that’s expected to be used to promote the lodging industry--to compete
against it. Given that the city’s hotel will not have to pay local taxes while
the others will, “It will not be a level playing field,” she says.
Good for the Goose…
Public sector officials say it’s silly to suggest that
government shouldn’t have the same opportunity to make money as any other
business. And during economic stress times, government projects can pave the
way for new investment and thereby put the private sector back in business,
they say. So, a new conference center brings travelers to a city who also shop
in the downtown and patronize local restaurants.
But primarily, they point out that every dollar government
makes in investments potentially lightens the load on taxpayers.
Take Portland Public Schools. The district is planning to
rebuild Whitaker Middle School, which was shut down last year after it was
found to be infected with both mold and radon. The district has little cash for
construction but if it allows a portion of the 13-acre school property in
northeast Portland to be developed for housing or retail, it could use the
profits to leverage construction of the new school.
So far, a mix of commercial development and housing is being
explored. While district officials don’t fancy themselves in the development
business, they say there is advantage in maintaining ownership of the
commercial portions to create a revenue stream over the long term rather than
settle for a lump sum.
Marc Abrams, former member of the school board, pushed the
concept of the district using private enterprise to buy new school construction
but said there was significant resistance from the community for what he
believes is prudent fiscal policy.
“There is political pressure that is contrary to acting like
a business,” he says. “People who want us to keep the land for green space so
they can walk their dogs, for instance.”
But Abrams believes it is the district’s job–especially in
times of financial crisis–to wisely invest district resources in ways that
bring more private money into the coffers to be used for the public good.
Failing to take advantage of opportunities makes the burden on the taxpayer all
the more ominous–school buildings aren’t cheap.
Others say the tough economy has made the public resistant
to more taxes, yet unwilling to let go of the services and amenities government
offers. And so, the mandate is to be creative in finding projects that offer
both amenities and cash return.
Sometimes, a significant cash return is unnecessary as long
as the service is provided without an actual sucking sound emanating from a
city’s bank account, public officials say.
Such is the parking scene in Eugene. There, the city of
Eugene and Lane County have a lock on the parking business. Between the two,
nearly every parking garage and surface lot is publicly owned.
Despite the near-monopoly, however, public officials say
they don’t see much profit–just enough to pay for maintenance and debt service
on the properties. “We are self-supporting,” says George Jessie, who manages
parking services for Eugene. “It doesn’t cost the city anything and there is,
arguably, some profit–more like a dividend to the general fund.”
He says the city has mulled turning the parking business
over to the private sector, but because the cost of doing business is higher
for the private businesses, it’s unlikely to be profitable. In the end, Jessie
says, he sees it as a support to businesses downtown that otherwise would end
up having to provide parking to their customers at an added cost.
Peden, of Portland Business Alliance, says government is
losing its grip on the big picture. “Look at it this way: Say you have a city
enterprise fund that’s self-sustaining, there’s (no loss) of taxpayer dollars,
so it’s a wash. It is not good or bad for taxpayers. Compare that to a private
business that would pay taxes on its profits. That is good for our economy,
without robbing Peter to pay Paul.”
He says government could whip up its revenues simply by
letting private industry do what it does best “rather than trying to compete
Pozdena is more blunt about the prospects of government in
business: “Government can’t do what it’s supposed to do, let alone run
businesses like these. Most of them are fiscal disasters…because most people
who go into government are those who already failed at the private sector.”
BrainstormNW - November 2003