Economics

If Supporting a $700 Million Bond Issue is "As Free Market As It Gets," Well, That's Why We're All So Broke

|

Like a lot of states stuck in long-term economic goo, Ohio is pushing for more public funding for the shift from old dead technological industries to a bright, shining future of…taxpayer-financed industries. To wit, the pay-for-itself "Third Frontier" initiative which only apparently needs $1.2 billion in public bonds to get the high-tech party started:

Ohioans face the choice whether to authorize $700 million in bonds for the program, extending the $500 million bond issue approved in 2005.

Backers of the initiative claim that already the Third Frontier has generated almost $7 billion in "economic impact" and "a nearly $10 return on every dollar of State investment" (page 9 in PDF).  You know, if that's plausible, then why the hell wouldn't they tell voters to quintuple down on the damn program?

Like a lot of states, Ohio is dead-broke, with a current $3.2 billion budget deficit. That's for all sorts of obvious reasons (such as massive and growing pension and health-care commitments, overspending on all sorts of non-core businesses, funding B.S. development programs such as "Third Frontier," etc.) and for some less-obvious reasons. A big one? The mentality that is summed up in the following statement by the owner of the Cincinnati Reds, Bob Castellini, a big supporter of the "Third Frontier":

"This is a no-brainer," said produce-company owner Castellini, calling himself an advocate of limited government who is "about as free market as it gets."

"Ohio needs to transform from an old-school manufacturing state to a technology-based economy," he said.

And what better way to do it than get the public to pay for it? If they don't, Ohio might have to woo new businessess the old-fashioned way: via lower taxes, less regulation, a decently edumicated workforce (try vouchers!), decent infrastructure (a rare good the state might oversee), and other less-glamorous activities than shoveling grants at businessmen. More here.

You know what else was a no-brainer? The deal the Reds got for their newish stadium, which opened in 2003:

Owner: City of Cincinnati and Hamilton County
Cost: $325 million
Public financing: $280 million, or 86 percent, primarily from a half-cent-per-dollar sales tax increase approved by the voters in 1996
Private financing: $45 million, or 14 percent, primarily from a naming rights deal with Great American Insurance Company
Lease: 35 years (2003-2037); $2.5 million annually for the first 9 years; One dollar annually for the final 26 years; The Reds keep all revenue generated by the ballpark.

I'd like to humbly submit that whosoever calls himself "as free market as it gets" and backs these sorts of public fleecings of the economy doesn't understand the meaning of the term "free market."

NEXT: Gonna Kick Tomorrow, Entitlement Edition

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Great American Ballpark. About as free-market as it gets.

    Of course, the Blue Jackets are now trying to get the city/county/state to buy Nationwide Arena in Columbus ’cause they don’t get enough revenue under the current deal. Otherwise, you know, they might have to bail to Peoria or someplace.

    (Nationwide was built with private money after taxpayers turned down five stadium/arena levies.)

    1. And, given the Blue Jacket’s record, many might say Columbus has suffered enough.

  2. whosoever calls himself “as free market as it gets” and backs these sorts of public fleecings of the economy doesn’t understand the meaning of the term “free market.”

    He got a free stadium, didn’t he?

  3. In Oregon, which is one of the few places that’s repeatedly attracted high-tech from California, the solution is strong business tax breaks followed by good building policies to keep people interested in living here. Of course, the fact that taxes are about to go through the roof likely means better tax breaks elsewhere will pull the business back out.

    I’m not sad that I left Ohio, by the way.

    1. There’s a little 20-acre piece of Ohio that I love dearly, and I’ll be good and goddamned if I ever let the bastards run me off.

      1. Ohio? Is that a state?!?

        1. More of a state of mind, Epi.
          More of a state of mind…
          Beautiful Ohio in dreams again I see
          Visions of what used to be

  4. but Marge Schott loved Hitler!

  5. The Cincinnati Reds = Band of Thieves.

    Ken Griffey–both of ’em–should be washing the feet of Queen City taxpayers.

  6. Backers of the initiative claim that already the Third Frontier has generated almost $7 billion in “economic impact” and “a nearly $10 return on every dollar of State investment” (page 9 in PDF).

    Because everyone knows that Greedy Capitalists would never fund industry for a paltry 900% return.

    1. I’m trying to figure out what ‘economic impact’ is. I think it’s one of those tricky little terms people use to fudge their numbers and claim crap they didn’t do.

  7. I miss Marge Schott. Well, not really, but I do miss all the Schottzies.

      1. D’aww.

  8. Because everyone knows that Greedy Capitalists would never fund industry for a paltry 900% return.

    They’re too busy keeping the electric car perpetual motion machine off the road.

    1. We eat babies roasted on spits. With apples in their mouths!

      1. And roasted babies > 900 percent profits!

    2. Perpetual motion machines require dirty factories to manufacture them. Can’t we all just ride unicorns, I promise mine won’t fart or make any road apples. I’ll name him Goretopia, he’ll be the bestest unicorn ever.

  9. “This is a no-brainer…”

    Well, that part’s true, anyway.

  10. Why in the world would hi-tech locate in Ohio, that doesn’t make sense for many reasons.

    Why not just let the rest of the state revert back to those folks that drive the horse and buggy combos around.

    1. Ohio is home to the world’s largest Amish community.
      So there’s that.

      1. Really, why not pass a “First Frontier” bond issue to fund those cutting-edge Amish industries?! And since the Amish don’t want government funds, the cash can go directly into the pockets of whomever the pols want!
        Win-win!

        1. You’re underselling this.
          Since the Amish don’t drive cars or use electricity, IT’S GREEN JOBS!

          Win-win-win.

          1. That’s brilliant! Somebody form a PAC, stat!

            1. That’s it. I’m voting straight Amish Party next time.

  11. Since the Amish don’t drive cars or use electricity, IT’S GREEN JOBS!

    Just be careful where you step.

  12. Moral hazard and cognitive limits prevents most folks from considering bond measure votes rationally.

    Voting economic decisions is not a rational market. Actually there are no rational markets for the most part if humans are the actors. Humans use heuristics that are not strictly rational in a “predicate logic applied to certain/sure empirical evidence” sense. The evidence has high uncertainty and usually biased as well by moral hazard and cognitive limits that make future risks discounted irrationally.

    “Free Markets” presume universal market rationality that is provably not possible. To a first order approximation, it’s a fine goal and generally in the right direction, but to a second order approximation it fails so taking things to their “logical” end point ideologically results in epic fail.

    1. Really, truly, I have no idea what you’re trying to say, or if this is a serious or funny comment. Feel free to call me to the carpet not getting it … but “Free Markets” presume universal market rationality that is provably not possible is most certainly not true. The efficient market hypothesis assumes rational actors. A free market, one unencumbered by governmental regulation and other immoral forms of coercion, not so much.

      1. Yup. A free market doesn’t give a damn if market actors are rational. You want to spend your life savings on potting soil and lox? Go for it. Just don’t ask the rest of us to bail you out when you discover you can’t grow a salmon.

  13. I love Ohio. I can drive sixty miles from where I am, into a whole different world — my own inland sea to the North. Mountains, to the east and south. Wide, open flatlands to the west. You’ll find every brand across the political spectrum, and a surprisingly high number of creative people depending on where you look.

    But damn, my state is stupid in terms of finances. I mean… damn are we. In this northeastern corner, labor unions and bad management sent our industry into a death spiral there’s no recovering from. And yet, we just keep throwing money at the problem that we can’t afford to, and people wonder why industry won’t return.

    Blah. I wish some sense would reign.

  14. You miss the point of the Reds stadium, because you aren’t thinking about it like a government bureaucrat. The stadium itself is irrelevant. What matters is that the stadium is an excuse to trick the voters into a permanent salves tax increase. Any cash over and above the cost of the bonds the city floated to construct the stadium is “free” money to pad wages and benefits for the employee’s unions. This is money they would not have had if they had tried a straight-up tax increase, because I doubt the voters would have said yes in that case.

  15. Let’s not forget our 3C railway in the works linking Cincinnati, Columbus, and Cleveland that will require Hugh taxpayer subsidies. Bob Taft (Republican) decimated the economy, driving out business with annual spending increases 4 to 5 times the national average and Strickland (Democrat) is trying to finish it off with initiatives like these that we don’t need, as well as his unwavering support for the Teacher’s Union. The graduation rates in our major cities is a freakin’ crime and the first thing he tried to do when he came to office was to kill the charter programs in Cleveland. It’s really a shame cause it doesn’t have to be this way.

  16. …apparently needs $1.2 billion in public bonds to get the high-tech party started.

    Hey, Aeron chairs and cappuccino machines don’t buy themselves! You want Ohio’s high-tech startups to go without?!

  17. “This is a no-brainer,” said produce-company owner Castellini, calling himself an advocate of limited government who is “about as free market as it gets.”

    I think you are right. It is amazing to me that so many have not figured this man out. There have been lots of deals; Chiquita, riverfront land, the stadium. Then there are the little things as well; like the little freight company that his trucking company has stepped on, his stance on steroids in the game and the thing that really bugs me the most….

    He’s got the Reds as a Delaware corporation. Freebee Bob once again.

    That small freight company, they are suing his trucking company RWI in Federal court in Arkansas. Maybe David is about to kick Goliath’s ass.

    We can only hope.

  18. Recently I learned about the Texas high-tech investment fund. It was created by the legislature and it is run like a VC firm. They invest, they own (at least in part), they stand to profit, and they seek to sell their share in, but they do not manage the things (people, IP, companies, assets) they invest in. A large part of their goal is to permanently move talented people and profitable businesses into the state.

    Regardless of how I feel about where the money came from, or the right of the state to take it for that purpose, it’s one of the smarter things I have seen Texas do: become a state-sized free-market actor on its own behalf. Any VC will tell you it takes a small number of successes to outweigh the cost of many failures. They’ll also tell you that an entrepreneur who is successful once is likely to be successful again. Of course, it only works well if there are good bets to be made, lots of money to spend, and someone to make the good bets.

Please to post comments

Comments are closed.