Thursday, January 27, 2011

Bend's quagmire.

How to turn a gift into a boondoggle.

Wiki Definition: BOONDOGGLE: A term for a scheme that wastes time and money. (See also:
Cost Overrun; Megaproject.)

Once upon a time, the City of Bend was gifted 1500 acres of land. Yes, "gifted."

Caught in the throes of a land boom, the city council decided to create a 'megaproject,' and hired outside consultants to develop the land. The plans flopped, but the consultants were paid off millions of dollars. So far, Bend has spent 18 million dollars in development costs.

Meanwhile, the Oregon Department of Transportation said, "Wait a minute. You don't have the infrastructure for a megaproject!"

Meanwhile, it turns out that developing megaprojects actually costs some investment; like with sewers (estimated $15 million) and roads and such ($7.3 million.)


Meanwhile, the boom collapses.


The Bulletin's Headline is: "Bend May Profit off Juniper Ridge."

But reading the fine print, you really have to wonder why they chose that wording. (Actually, I'd love to know why they printed that headline. Did they read their own article?)

Turns out, Bend has to sell 7.5 acres A YEAR, for ELEVEN YEARS STRAIGHT, at DOUBLE THE COST OF OTHER INDUSTRIAL LAND and with ESCALATING RATES!!! ($7.5 million profit on $82 million in sales? -- ouch.)

Sorry to shout, but just read that sentence again....(??!!?)

This, of course, in a down economy. With competition from Redmond and other parts of Bend which have suddenly become very, very available. As the city of Bend's general fund is facing a $17 to $27 million dollar shortfall over the next five years....

Since 2005, the city has managed to sell $9.5 million worth of land to three businesses. (All of which had a presence in Central Oregon already.) By my reckoning, that's less than 2 million per year, of which the first three years were in an unprecedented boom. A once in a lifetime boom.

But suddenly, we're going to sell three and half times that much land per year, with no hiccups, at twice the going rate? (And the reason a business would pay double the going rate? Because Juniper Ridge is "unique." I'm sorry, as a businessman I'd like to know how that translates into profits for my business...)

The two new city councilors express some doubt, but they've obviously been captured by the group think over there at city hall. They seem so married to this project, that they can't let it go.

It's a quagmire, and they can't seem to extricate themselves. They seem to be worried about morale and momentum and wounded pride; when they should be worrying about not bankrupting Bend.

I don't know what the costs of mothballing would be, but this just seems like throwing good money after bad. They mention that they can sell some land before improvements need to be made, and it would seem to make sense to sell that land first and then see where they stand.

At least get some commitments, before going forward. How about some nibbles?

Let's see if I can sum this up: In an economic time known as the Great Recession, the City of Bend is planning to sell $7.5 million dollars a year for the next 11 years at twice the going rate (and escalations built in) when they've only managed to sell $9.5 million in the preceding five years, three of which were in one of the biggest land booms in history but in order to do so they have to invest at least 22.3 million in infrastructure not counting what ODOT is going to want at a time when we are facing a $27 million dollar shortfall in the general fund.

Because....we don't want to retreat. It sends the "wrong message."

But really, you have to wonder what they're thinking. Sound like a big roll of the dice, to me. A Hail Mary pass. Actually, those have some chance of success. I think this is more like jumping out of airplane and hoping you land in pile of hay.

9 comments:

Duncan McGeary said...

I'd be willing to bet that by the time the city makes concessions to possible tenants, that 7.5 million profit will evaporate.

As outlined, they are almost certain to lose money --even if they succeed.

Duncan McGeary said...

Did I read these figures wrong?

Because I can't understand how anyone with any common sense would think this is a viable plan.

The only two reasons to go forward are: planning for a pie-in-the-sky future; and wounded pride.

Anonymous said...

Econ 101, First Week of Class: Never make decisions - economic or otherwise - based on 'sunken costs'. Unfortunately, in the Real World, there still exist Snake Oil Salespeople and suckers born every minute that provide the formula to perpetuate stupid is as stupid does. Until / unless there is a major change in the management of Bend this is what we have to look forward to for the foreseeable future.

Anonymous said...

So you would argue that the city should have turned down the opportunity to take Juniper Ridge ... that is, it should have said "no thanks" to the county.

Or taken it, and done nothing anyway?

Duncan McGeary said...

I think they should have developed a industrial park, one step at a time.

H. Bruce Miller said...

"The Bulletin's Headline is: "Bend May Profit off Juniper Ridge."

They also could have written: "Blackdog May Sell His House for $17 Million."

But that don't mean it'll happen.

"I think they should have developed a industrial park, one step at a time."

The vision the city had for JR was fine; they just didn't have the wherewithal to carry it out. If you're the Disney Corp. or The Rouse Company, you have or can raise the capital to bring something like this off; a little jerkwater town in Eastern Oregon, not likely.

H. Bruce Miller said...

"And the reason a business would pay double the going rate? Because Juniper Ridge is "unique.""

Actually, it ain't. But Bendites have sold themselves on this peculiar idea that everything about them, their little burg and everything that happens here is "unique."

Believing your own PR -- always dangerous.

RDC said...

One thing to keep in mind is that the purpose of Juniper Ridge is not to directly make a profit for Bend. It is to bring more jobs to Bend that directly helps the residents of Bend.

As the result the question of if it will make a profit or not make a profit for the city is irrelevent. The question should be are the expenses incurred by the city of Bend justified by the results.

At this point they are not and based upon the direction the city is moving they probably will not. The city should pretty much mothball the project at this point and minimize expenses, while being ready to activate smaller portions as opportunities permit. Having a land supply that can be used to take advantage of opportunites is a valuable asset.

Anonymous said...

The purpose of JR was to get SUTERRA out of bend city limits, and out in the burbs where they could cook their bio-toxins and continue to be the world leader in bio-weapons delivery.