Gas Tax Holiday a Vacation from Market Realities

Presidential hopefuls McCain and Clinton are both suggesting we take a summer vacation from collecting the federal tax on gasoline. Obama is coming the closest of all the major candidates to just putting it out there — China & India are now crazy about cars, just as we are, the world only has so much oil and the refineries can only convert oil to gas so fast.

We’ve spent nearly a century investing in infrastructure that only works when oil is cheap. Now that most Americans live in auto-dependent suburbia the world market rules have shifted. This is our new reality. There is no good short term solution. The long term solution is invest in different transit systems that move people more efficiently. Of course we are so spread out now that becomes increasingly costly.

Government is going to have to make some tough decisions. In the St. Louis region, for example, we need to rethink the idea of MetroLink being a regional system. I don’t think we can afford to build enough lines to encompass our region. We need to think at the local street level — how can mass transit get the average Joe to work, to the store and so on.  We also need to think about goods — where do they come from, can we ship them more efficiently and better yet can we produce that same good locally for less?

We are in the midst of the reality we created for ourselves.  No summer vacation from the gas tax is going to change that.

St Louis Centre; Different Owners, Different Standards

In 2005 the failed downtown mall, St. Louis Centre, was at the center of Mayor Slay’s priorities. At the time the Mayor and others were busy pushing Centre owner Barry Cohen to tear down the sky bridge that crosses over Washington Ave and move forward with redevelopment.

From the Mayor’s blog on Sept 25, 2005:

Stories in the business pages last week confirm the obvious. Barry Cohen, the owner of St. Louis Centre, is stalled. After a summer of fumbling, Mr. Cohen lost the funding proferred by Downtown Now’s Tom Reeves to demolish the skybridge.

Since purchasing the downtown mall more than a year ago, Mr. Cohen has promised, announced, floated, and projected some plans – none of which has come to anything. It is not clear to me whether he is hapless or canny, hoping for a profit on the $5.4 million the Biz Journal says he paid for the property.

Whatever.

As Tom Reeves told us, there’s plenty else to do Downtown. Meanwhile, we’ll keep sending Mr. Cohen those tax bills.

Wow, he had the mall for a whole year and the mayor calls him out. Slay supporter, now former developer John Steffen, was treated differently from day one:

Friday, February 17, 2006

This is a note to every developer hoping to be able to make a deal in the City and to every citizen hoping for redevelopment: John Steffen has announced ambitious plans to turn St. Louis Centre and the One City Centre office building into a mixed-use development.

These plans are possible because a public/private team, including Barb Geisman, Rodney Crim, Rollin Stanley, and Tom Reeves, kept their eyes on the goal line — not the headlines.

Not every real estate transaction can be negotiated in a blog.

I congratulate Barb, Rodney, Rollin, and Tom for their discipline — and I wish John good luck in getting this done.

This was well over two years ago and today the mall is totally vacant and the bridge still hovers over the street. Pyramid is out as developer with their equity partner Spinnaker taking over the now very stalled project. In fact, as reported here a week ago, Steffen and his company are out of the development business completely. Does this mean that Geisman and company dropped the ball? Were they all too cozy with Steffen?

Oh wait they did manage to give Steffen a sweetheart deal — a TIF backed by the city’s general revenues. That was also in 2006.

In the year and a half since then we’ve seen only slick marketing — drawing a line around a few blocks and calling it a district, The Mercantile Exchange or MX for short. That is almost as clever as the cards calling Ballpark Village a six block area (Broadway/5th to 8th and Clark to Walnut is 3 blocks no matter how many times they say otherwise).

So my question is this —does the city-backed TIF deal run with the property regardless of who takes over? If so, how long does Spinnaker have to complete the project? A year? Five years? A decade?

I think Steffen wanted this project so the city put up roadblocks for Cohen so he’d be forced to sell to Steffen.

Finally on Wednesday KMOX reported Pyramid’s story with greater detail and certainty than I had last Friday:

The developer of major St. Louis projects…St. Louis Centre and the former Dillard’s building, in the Mercantile exchange project…is getting out of the development business. Pyramid Construction’s John Steffen made the announcement through Steffen’s attorney Attorney Steven Goldstein… Problems in the real estate lending market are the main reason. Goldstein says Pyramid is currently working with other developers, investors, lenders and the city to make a transition for its development projects…but will continue to operate it’s property management division…which oversees a thousand apartment units in the city and surrounding area.

For someone with $609 million in development on his plate, Steffen has gone on a crash diet. Two years ago Steffen had this to say;

“We literally have more people offering to finance us than we have projects to finance,” Steffen said. “I need more projects because I have banks wanting to do business with me.”

Our city’s leaders bought Steffen’s hype. Or did Steffen buy off their better judgment with generous campaign contributions and illusions of success? Regardless our leadership has once again failed us. They claim Steffen was a victim of the current crisis but the roots of this go way back (see my post from June 2006) .
Perhaps we would have been better off giving Cohen a chance to prove himself? Of course then many of us wouldn’t have been able to enjoy the fancy parties thrown by Steffen for each project he announced. We sold out for some sushi.

I do hope all their projects are assumed by others and that they perform well. I also hope the next time we’ve got a developer bragging about his ability to get financing that we recognize the red flags.

Just North of $3/gallon

As I am sure everyone has noticed, gas prices have risen sharply. World demand for crude oil continues to increase while the supply remains maxed out. Many blame the oil companies, who are making record profits, for the high prices. I don’t fault then for making a profit but we need to end the tax subsidies they receive — they can invest their profits as most companies must do to stay ahead.

Back in December I suggested that Dubya might try to get gas prices reduced to keep a Republican in the White House. A few of the comments went like this:

“Can someone explain how the President has any effect on gas prices?”
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He doesn´t. Only an idiot would suggest that he does. Oil prices, and by extension gas prices, are set on a world market. It´s that pesky supply and demand thing.
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The sad part is, these idiots are allowed to vote, which is why we get the “leaders” that we do.

The answer was the President controls the strategic oil reserve. Yesterday truckers staged protests of high fuel prices — diesel now costing far more than regular. From an AP article yesterday:

Using CB radios and trucking Web sites, some truckers called for a strike Tuesday to protest the high cost of diesel fuel, hoping the action might pressure President Bush to stabilize prices by using the nation’s oil reserves.

Just as with the Federal Reserve putting new cash onto the market, manipulating the nearly 700 million barrels kept for emergencies can have an impact on the supply/demand equation and thus the price we pay.

I personally like the higher prices as I think they are more likely to curb our drive everywhere mentality … I’d still raise the Missouri gas tax. Yes, poor individuals that drive and businesses are impacted by the rising costs. Items that are shipped will begin to have price increases where the market allows. It will be harder and harder for companies to offer “free shipping.” The trucking industry will shrink — not all will make it. Rail will take over more transport duties. Hopefully we will source more of our food and goods locally.

The question becomes at what price do people take transit or buy the more efficient vehicle?  How expensive must gas be for someone to decide to buy a house in St. Louis Hills or Kirkwood rather than way out in St. Peters and drive to work in Clayton or downtown?  Those with kids are going to claim the need for the 7-passenger minivan or suv and I can understand although many families were raised without such vehicles.  Plus our demographics are heading to more single person households.  Most of you reading this probably drive your own car to work by yourself each day.  Do you need that much car to get yourself from A to B?  Hopefully gas prices will have a long term impact on people’s buying choices from vehicles to homes to food and other goods,

Beware of the Sweetheart Dell?

In 2004 my hometown of Oklahoma City was all excited about being selected for a new Dell “customer contact center” to be located on 60 acres near downtown. Around the same time, Dell announced plans for a similar center in Edmonton, Canada. Everyone in Edmonton seemed excited, from a Business Edge article from January 2005:

“With 475 of the initial 500 positions now filled, Dell said it will hire another 250 people and hopes to have a total staff of 750 working in its Edmonton customer-contact centre by July.

Dell’s entry into Edmonton was first projected to create economic benefits pegged at $600 million over a 20-year period. That figure now rises to $900 million.

“The new jobs could mean another $300 million over the 20-year period,” said Edmonton Economic Development Corp. (EEDC) president and CEO Allan Scott, who added that these numbers may have to be revised upward once more.

The EEDC inducements included lease incentives valued at $1.1 million – equal to five years of property taxes during the first five years of the 20-year agreement – and assistance in helping Dell to locate a permanent site for its customer-contact centre. Further, land for Dell’s permanent Edmonton home will be leased to Dell for 20 years at the rate of $1 per year. Dell will pay all school and business taxes from the beginning of its operations in Edmonton. Over the first five years, those taxes are valued at about $750,000.

In return, Dell agreed to provide and maintain at least 500 full-time positions within its first six months and to begin construction of a permanent facility on the leased land within 18 months.

According to Scott, the incentives were necessary to level the playing field with highly competitive prospects in the U.S. Dell was considering a total of 153 locations, and that also included Calgary.”

Time for Edmonton’s EEDC to recalculate — Dell today announced the closing of the facility. In Oklahoma City another 200-300 employees got pink slips, 1,200 in total between the two locations. Did the deals with Edmonton and Oklahoma City include any type of clawback in case Dell backed out before the end of the deal? Given the competition among cities, probably not.

So what happened? Many things beyond the control of the respective governments of Edmonton and Oklahoma City. HP passed Dell to be the #1 supplier of computers in the world (or was that US?, doesn’t really matter), Dell’s quest to offer the public a $400 computer didn’t really leave room for a profit. While computer sales have been growing, Apple’s sales have far outpaced the growth of the overall market. Microsoft released Vista upon the world and many ordered new computers with XP instead — the sales boom that makers like Dell expected never happened. Finally, Dell’s delivery method — a very efficient system —- has saved every penny it can. I should disclose that I am a major Mac fan — logo tattoo and all.

Interestingly, as I’ve gleaned from my professors, companies often do not select a city based on the incentives offered. Other factors such as a workforce skilled for the proposed work, availability of a suitable site (which could play into incentives) and such are the bigger forces. Of course, if offered, the companies are not going to turn them down.

So what does all this have to do with urban life in St. Louis? Plenty.

St. Louis’ RCGA (Regional Commerce and Growth Association) does business much like all the other cities out there. Local governments do the same. Centene’s decision to locate in downtown St. Louis at the delayed Ballpark Village comes to mind. We’ve all seen the reports — x-number of jobs to be created, generation of so many hundreds of millions of dollars — yadda yadda yadda. In all the excitement we lose track that markets can change quickly.

One day Enron is a wonderful corporate citizen and the next it is bankrupt because of mismanagement by owners. The St. Louis region has some great long-term companies — those that haven’t cashed out yet. Small to large, longevity is more important than flash and show for the short term. If they want incentives here is one — on the 20th anniversary of a facility with an average of x-number of employees over the years then the company will get a refund of Y. Break it up in five year increments or whatever. We need to know more about these sweetheart deals that companies like Centene are getting and what happens if they are bought out, go under or just decide to move?

Edmonton’s Dell center was only open just over 3 years. It probably took the city a year to put the deal together. Certainly not a good return on their investment.

Should Missouri Eliminate Self-Service Gas?

In at least a couple of states, motorists don’t pump their own gas — I know from personal experience that Oregon and New Jersey both require, by state law, that an attendant pump the gas.

Yesterday when I was getting gas in NJ we had to wait in line at a fueling station just off the turnpike, before entering Manhattan on the Cross Bronx Expressway (I-95). For those wondering what I am doing driving through the Northeast — I was driving a friend of a friend, her two cats and her car to her new job in the Providence Rhode Island area. I’m flying back late Thursday evening from Boston.

OK, back to the gas issue. So while the wait issue was a pain it was interesting how a state law could create jobs. We paid $2.97/gallon for regular — far less than the $3.17/gallon we paid in Pennsylvania that I had to pump myself. The lines would have been shorter but everyone, including us, seemed to have the tank filler located on the driver’s side of the vehicle. And no, this was not full service — they did not check tire pressure, clean the windows or check under the hood. It was simply gas.

Still, think of the number of entry-level jobs that could be created statewide by eliminating self serve. You guys discuss that while I catch a train to Boston.