Six reasons DC taxpayer money shouldn’t buy some rich guy a stadium

I’m sure there are more.

DC’s lameduck Council, with the full support of the lameduck Mayor Gray and Mayor-elect Bowser, have agreed to borrow up to $140 million ($200 million counting tax giveaways) so the foreign billionaire who owns the DC United soccer team can build a private stadium for his private franchise land we all buy for him. Happy New Year, Washingtonians!

If you suspect we are being had, fear not, the DC government has an incomprehensible 400-page report to hand you to prove how smart they are. Hopefully they are smarter than the consultants who wrote it, who managed to botch the only important question in it – how much economic activity will the stadium generate? They were off by only about 200%.

So yes, like nearly all publicly-funded stadiums, this is a bad deal. And you don’t even have to be indifferent to Major League Soccer to see this. It’s in the data. Stanford Economist Rodger Noll has basically debunked all of these deals for some pretty straightforward reasons, which he supports with solid research:

  1. The economic benefits of stadiums are usually inflated, or just made up. Economic outcomes are notoriously hard to predict, and in this case, the initial estimate that the economic consultants gave was $70 million too high. The revised number is about $30 million, with an estimate that the stadium may pay itself off after 30 years. Bet you $30 million DC United wants another stadium before that happens. Either way, that’s a loss to the city in economic terms.
  2. Most stadiums are empty most of the time. When they’re empty, they are giant empty swathes of land that are generating no economic benefit to anyone. Football stadiums are the worst – they usually host 10 games plus about as many concerts and other events in any given year. A new DC United would host 20 matches or so, plus other events. But the fact that the taxpayer-funded, privately-owned Washington Nationals stadium is just down the street would limit the potential for these kinds of events, wouldn’t you say? And the DC Council is already talking about building the oblong football team a new stadium too. How many outdoor venues with lousy acoustics can Bon Jovi fill in one city every year?
  3. Costs are almost always more than estimates. The baseball stadium was over budget by about $140 million. Even the cost estimated for buying this land for DC United is under question – think the owners (developers Akridge) are going to let go of the one piece of land under consideration?
  4. Those who benefit also donate to the campaign funds of those who make decisions. No shit.
  5. Most stadiums are designed to make money for their operators, and certainly not for the cities that surround them. We have a great example of this in FedEx Field, home of the oblong football team, which is conveniently located somewhere off a highway in some cheap marshy woodlands in Prince George’s County, in a biblical sea of parking lots. Not a lot of additional spending going on here – you pay Dan Snyder to park, you pay him to get it, you pay him to eat and drink, then you wait in your car to go home. DC United’s stadium should be better served by surrounding restaurants, but not because the stadium developer actually wants them there. Every beer sold outside is one that could be sold inside. Ever wonder why no stadium allows you to leave and come back in anymore? It’s not because of security.
  6. Just because people spend money on sports, doesn’t mean they wouldn’t have spent it. Part of the whole farce is this assumption that people come in to the city for a match, spend money at bars or restaurants as well as the stadium, then return to their homes in other jurisdictions. Well, what’s to say they wouldn’t have gone downtown that day anyway? DC is a huge draw for tourists, diners, theatergoers, and the like. Do they need a somewhat better soccer stadium to help them decide how to spend their money?

Why do teams want new stadiums? Two reasons. Elite seating, and designs that facilitate more spending from everyone else. Elite seating is the high-margin earner of the stadium itself, and are attractive only to an elite crowd of buyer. And design is more about the placement of concessions and the ability of fans to spend money on food, souvenirs, and other novelties for every spare second of their stay. Stadium designers get better at this stuff every year, and they’ve gotten a lot better since RFK Stadium, the current DC United home, was built.

There are stadiums that work for cities. This isn’t one.

Noll has some criteria for a stadium that may pay off, even potentially enough to be worth taxpayer subsidy. By and large, these are:

  1. Located downtown, ideally with little or no parking available, so people have to ride public transport and spend money en route to and from
  2. Are unique gathering assets in the city – perhaps the city has no other convention center or large theatre that could hold events of similar size
  3. Host as many games as possible, ideally both a hockey and a basketball team. These two sports will cover at least 100 events per year, five times more than soccer and ten times more than football.

By these metrics, DC United’s stadium will fall far short, and will be another giveaway to corporate developers and a sop to the jingoism of the government. Which is surprising, because I can’t imagine enough people were even aware that we had a soccer team to be inspired to support or oppose the deal.

One writer even demonstrated that buying DC United would be cheaper for the taxpayer than building them a stadium. My fellow advocates have been pushing the DC government to spend a few million cleaning up our somewhat dilapidated commercial streetscape on Kennedy Street NW, which will soon host dozens of locally-owned, locally-serving businesses. For the money we’re going to spend on this stadium, we could have bought market rate three-bedroom apartments for 650 homeless families in the District.

Iran’s Turn on Turkmenistan’s Gas Dispute Carousel

Iranian Oil Minister Rostam Qasemi announced November 14 that Turkmenistan had halted gas exports to its southern neighbor over a price dispute. Shortly thereafter, a Turkmen official told Reuters there is no price dispute, but that pipeline repairs are to blame for the gas cut.
For now, the gas is back on, Reuters reports, citing a Turkmen official who said Iran requested repairs to the pipeline. But the episode – complete with contradicting reports from the two sides – looked familiar, and suggested a few possible scenarios.

Iran-China Railroad – Tajikistan’s Latest Mega-Distraction?

With work essentially stopped at Rahmon’s marquee ‘project of the century’, including thousands of layoffs of construction workers who might be wishing they had gone to Russia this summer, time has arrived for Tajikistan to come up with a replacement nation-saving mega project. Perhaps this is why we are again hearing talk of a plan to build a railroad linking the country with China and Iran.

The line would run from Iran’s existing spur to Herat to southern Tajikistan, assumedly near the US-funded bridge at Nizhny Pyanzh, then proceed to Yavan, through the Rasht Valley to Kyrgyzstan’s Alai Valley, cross the Irkeshtam Pass and descend to Kashgar, in southwestern Chinese Xingjiang.

The project has been kicking around for years, though somehow has never gotten off the ground. Perhaps that somehow was the likely multi-billion dollar tab that no one is committed to picking up. Or the technical complications of building the line at high altitudes and through narrow river valleys. Or the fact that China, Iran, and the Central Asian republics all use different rail gauges. Or that existing lines already link Iran and Central Asia. And that Afghanistan is a war zone. And occasionally, so is the Rasht Valley.

All that aside, Iran and Tajikistan have started talking up the project again of late. Kyrgyz officials expressed no interest in the project as recently as June, and rightly so, it would only pass through a remote and sparsely populated valley. Then this month, Iran’s ambassador in Bishkek recently announced that Iran would pay for the stretch through Kyrgyzstan, which was swayed by the no-risk proposition. While any charity is generous, this stretch is short and almost entirely flat. The Tajik line would also not connect to Kyrgyzstan’s own nation-saving mega project, a rail line that would connect China and Uzbekistan across the Torugart Pass, north of Irkeshtam across an impenetrable range.

Kyrgyzstan has bandied that rail project around since at least the mid-90s, though Atambayev and Babanov have all but staked the country’s economic future on the idea. The two repeatedly insisted after repeated results-free trips to Beijing that ‘every issue related to the project is solved, except financing’. When talking about two threads of iron to cost Kyrgyzstan about 40% of a year’s GDP, financing is really the issue, is it not? Thus, Kyrgyzstan is left with two bad options: rails for minerals, or rails for tolls. Either Chinese enterprises would get privileged access to mineral concessions, or would be permitted to run the railroad to recoup the costs. Both options bring serious political risks for Bishkek, as I have argued in the past.

Tajikistan would have to offer China a similar deal. Like when Dushanbe unceremoniously gave away 1,100 sq km of mountainous territory to China in 2011, or when leases agricultural land to Chinese farming enterprises, Dushanbe will have to test its people’s patience yet again. Iran may be willing to pay for Kyrgyzstan to play nice, but the initial ascent from China and the descent through the Rasht Valley will be by far the most costly aspects of the project. Iranian media already acknowledges this, and provides some decidedly low-ball figures. The Rogun stoppage shows just how far Tajikistan can go with this projects without massive foreign backing, which is, not far. Heavily-sanctioned Iran can’t possibly have the cash lying around for a huge up-front outlay.

Even if China could be enticed to cover the cost, the whole plan would run up against the US policy of ‘No Silk Roads Lead to Persia’. Despite the possibility that this particular railroad might be more valuable to Afghanistan than alternatives options to expand Uzbek or Turkmen spurs into Afghan territory, it seems quite likely that the US will veto any progress while US troops are on the ground. And after they are gone, will the investment be protected?

Iran is supposedly still in the feasibility study phase – a process that in this part of the world means “study just how great an idea this is”. Rail investment best addresses the need to move heavy, often low-value-added goods, in large bulk, and without a tight time schedule. Marble in Balkh? Oil in Faryab? Afghanistan’s now-legendary Angyak copper deposit would be far removed from the line. Realistic studies of the rail lines viability would have to measure the actual probability of success of such nascent ventures. They would also have to measure them against the next-best alternative, not against the status quo. In this case, Iran and China have an existing rail link through Turkmenistan, Uzbekistan, and Kazakhstan. Cutting across Afghanistan and Tajikistan would save some time. But containerized trucks can already do the same thing, and without the need to switch wheels three times. Without greatly increased demand for freight services between the countries involved, such a rail line may not make economic sense. But as Rogun shows, nation-saving mega projects are bigger than economics. They’re about national mobilization, national pride, and, perhaps, national distraction.

This post was originally published by Registan, with full maps and links.

Could Kyrgyzstan’s Microfinance Bubble Burst?

Late last month, the Kyrgyzstan’s National Bank abruptly shuttered 94 microfinance lenders, allegedly for charging well above the industry-average interest rate of 38 percent. But observers fear the move will do little to cool what appears to be an overheating microfinance market.

Kyrgyzstan’s poor, unbanked and largely rural population, along with its lax regulatory environment, has triggered a microfinance boom in recent years. A microfinance institution (MFI) can be founded with only 100,000 Kyrgyz soms ($2,175); staff need no expertise in microfinance, let alone banking. With so little data and transparency, a crisis analogous to the US subprime mortgage meltdown of 2008, where the riskiest loans at the fringes of the market ended up sinking the entire economy, is not difficult to picture.

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Bishkek Burger Barons Channel Ray Croc’s Spirit

This is a tale of a hippo emulating a behemoth. The outcome is a Central Asian version of a Happy Meal.

For a region that has long associated the term “gamburger” with Turkish-style mutton sliced from a spit, the meals served up at Begemot are a bit unfamiliar—beef patties on a fresh white bun, layered with cheese, lettuce, tomato, pickles, ketchup and mayonnaise. Even stranger, the food is served up in less than five minutes, even at peak hours, and made to order by an assembly line of young men and women dressed in clean red and white uniforms. Continue reading Bishkek Burger Barons Channel Ray Croc’s Spirit

Kyrgyz-Russian Relations Salvaged, as Gazprom Weighs Another Buyout

Kyrgyzstan President Almazbek Atambaev, in an interview with the Russian daily Kommersant on April 10, said that while some may want to drive a wedge between Russia and Kyrgyzstan, “this will be hard to do.” Considering Atambayev’s streak of bewildering statements on Russia, and Kyrgyzstan’s policy over the last month, fallout appears to be becoming a permanent possibility.

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Troubles at Kumtor Gold Mine May Spill into Bishkek Politics

A sharp cut in the production forecast of Kyrgyzstan’s lone large industrial enterprise could spell disaster for the country’s finances. A labor strike by workers at the mine in February led to an immediate freeze on production, which led to the company revising its 2012 production forecast from around 600,000 to around 400,000 ounces. The announcement led to an immediate downward revision of Kyrgyzstan’s industrial output and GDP for the first quarter of 2011 by 2 percent. But the government’s growing reliance on indirect taxation for revenues means Bishkek can expect ever greater fallout when the operations of Kumtor are disrupted.

Continue reading Troubles at Kumtor Gold Mine May Spill into Bishkek Politics

Azerbaijan Planning Oil Refinery in Kyrgyzstan

Azerbaijan’s state oil company, SOCAR, is negotiating with authorities in Kyrgyzstan to set up a refinery in the country. While the project may help the Kyrgyz economy, it remains unclear whether it will help wean Bishkek off Russian energy supplies or force Kyrgyzstan simply to swap its dependence on Russian refined fuel for a dependence on Russian crude oil.

Continue reading Azerbaijan Planning Oil Refinery in Kyrgyzstan

Ski Industry in Central Asia Shows Signs of Life

On a recent, cool March morning in a village near Bishkek, 20 Austrian tourists boarded an aging helicopter for the 30-minute flight to 4,000-meter-high peaks. Over the course of a week, they each pay over $4,800 for 12 hours of flight time in the Kyrgyz Air Force Mi-8MTV, giving them access to some of the world’s best heli-skiing. Meals, accommodation and local cultural excursions were included in the package.

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China-Kyrgyzstan-Uzbekistan Railway Brings Political Risks

The below article originally appeared in the March 7, 2012 edition of the Central Asia and Caucasus Analyst, a bi-weekly publication of the Central Asia-Caucasus Institute and the Silk Road Studies Program Joint Center.

The signature infrastructure project of Kyrgyzstan’s new leadership is a 268 kilometer railroad line that would link China with Kyrgyzstan’s southern provinces and Uzbekistan. President Atambayev insists that Kyrgyzstan would profit greatly from inter-regional transit trade if the US$ 2 billion-plus line were built. Restrictions on Kyrgyzstan’s once lucrative practice of re-exporting Chinese goods to Russia and Kazakhstan have been increasingly curtailed by new Customs Union rules, leaving Bishkek searching for new sources of national income and employment. While the railroad would lower the costs for traders, its price tag in both monetary and political terms will not be insignificant.

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Gambling in Kyrgyzstan: The Thirty-Day Itch

Officials in Kyrgyzstan appear to be of two minds about the country’s gambling industry.

Until a ban came into force on January 1, the sector was booming, relatively speaking. The injunction, drawn up under former Prime Minister Almazbek Atambayev (now president) and his deputy prime minister, Omurbek Babanov (now prime minister), was, they said until a few weeks ago, necessary to crack down on organized crime. Now the Atambayev-Babanov tandem seems to think allowing some gambling could burnish their pro-business credentials.

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Geographic Engineering Par for the Central Asian Course

Tajikistan has joined the list of Central Asian countries rumored to be planning to relocate its capital.

The construction of a new international airport in tiny Dangara, 100 kilometers southeast of Dushanbe, has invited speculation that President Emomali Rakhmon plans to relocate the seat of government there, RFE/RL reports.

Continue reading Geographic Engineering Par for the Central Asian Course