Flunking the Yellow Pages Test

An edited version of this piece was published in the May 24, 2006, issue of Urban Tulsa Weekly. The archived version is no longer online. Posted on the web July 3, 2010.

Flunking the Yellow Pages Test

By Michael D. Bates

When he was Mayor of Indianapolis, Stephen Goldsmith had a simple test for whether city government ought to be performing a service or whether it should be left to the private sector:

"Look at the city's yellow pages. If the phone book lists three companies that provide a certain service, the city probably should not be in that business, at least not exclusively."

Using the Yellow Pages Test, Goldsmith cut hundreds of millions in city expenses, money that was then spent on city improvements. City government focused on the tasks that only it could provide. Dozens of functions were completely turned over to the private sector or contracted out. In order to keep a task in-house, a city department had to compete successfully on cost and quality with private providers.

Goldsmith's example is more often applauded than followed. Oklahoma politicians have been all too anxious to get into businesses like entertainment, resorts, and commercial aviation, providing public funds to help private enterprises that are in competition with other private businesses.

These interventions are always justified as essential to the public good, but instead they always seem to drain money away from the basic functions of government.

On Sunday, May 14, the Oklahoman reported that the $27 million in transferable state tax credits used to finance Great Plains Airlines was coming out of fuel taxes, money that would otherwise go to replace

Oklahoma's roads and bridges. Rather than fund the rehabilitation of 90 bridges or the resurfacing of 135 miles of highway, Oklahomans are paying for a failed airline that never got close to its stated purpose of providing air service between Oklahoma and the coasts.

(Don't go looking for that story in the Tulsa World, whose parent company was a major investor in the failed airline.)

With that lesson on the front page of the state's biggest paper, you'd think it would deter the Legislature from making the same mistake again.

Instead, there's a push to approve $30 million in state tax credits for redevelopment of Grand Lake's Shangri-La resort. Earlier this session, a bill containing the credits stalled in the House, but they may be inserted into the massive budget and tax cut bill.

There's no question that Shangri-La is not much of an attraction any more. My wife and I spent our fifth anniversary there 12 years ago and were so bored with the place we left early to visit Buffalo Ranch and the Precious Moments Chapel.

Backers of the plan claim we need a revived Shangri-La to compete with convention centers and resorts in other states. It seems more likely that it would compete for convention business with city-owned convention centers in Oklahoma City and Tulsa and with tribal and privately-owned facilities like the Cherokee Resort in Catoosa and Tulsa's Renaissance Hotel.

Left to its own devices, the free market would be unlikely to pick the southern end of Monkey Island for a major resort. Shangri-La is nearly as inaccessible as its literary namesake. It's over 80 miles away from the nearest commercial airport, and there's only one two-lane highway leading to it.

By now, GOP leadership in the House should have poured cold water on the plan, but they have remained silent. Perhaps they're concerned about protecting the bill's sponsor, Doug Cox, a freshman representative from Grove serving a traditionally Democratic district.

House Republicans should be more concerned about protecting a reputation for common sense and integrity. That will do more in the long run for maintaining their majority and building popular support for their platform than meddling in an area that should be left to the private sector.

Closer to home, there was much ado last week about the city's meddling in the competition for local entertainment dollars.

Last Thursday night, the City Council authorized payments to the Tulsa Oilers hockey team, the Tulsa Talons arena football team, and the Professional Rodeo Cowboys Association (PRCA).

Former Mayor Bill LaFortune changed the formula for splitting concession revenues with the Oilers and Talons. As a result, each team will receive more money back in concession revenues than they paid in rent, about $20,000 more for the Talons and $50,000 more for the Oilers.

The PRCA and Professional Bull Riders (PBR) are each getting a $50,000 sponsorship payment from the city.

During Thursday's Council meeting, Council Chairman "Landslide" Bill Martinson called the payments corporate welfare and said they were offensive. That's ironic: The same Bill Martinson now fretting about $100,000 was just a few months ago pushing to have the city bail out Bank of Oklahoma to the tune of $7.5 million for the bad loan it made to Great Plains Airlines, a loan for which the city has no liability.

The Tulsa World's Friday front-page graphic painted a distorted picture of the payments to the teams by omitting the money the city received in concession revenues from the events. Between rent and concessions, the city made $187,952 from Oilers' games and $63,409 from Talons' games. That's after paying the teams their share of concession cash.

The real question, one the monopoly daily paper doesn't want to address, is whether the city makes enough money from these events to cover the expense of operating the facility. Conventions and major concerts might bring in a significant number of out-of-town visitors, so that theoretically, the increased sales tax revenue from those visitors would offset any operating loss.

But the Talons and Oilers draw mainly from the local area, so the revenues need to be enough by themselves to cover the expenses. Otherwise, we'd be better off keeping the place closed.

LaFortune was quoted in the World as defending the deals on the grounds of quality of life: "Professional teams in our city are absolutely critical to our city's economic well-being."

Minor league sports are really just one entertainment option among many in this city, competing with night clubs, restaurants, and movie theaters for the disposable income of Tulsa residents. There's no more justification for subsidizing them than there would be for a city-funded Western Swing band. (Actually, the latter would be far more likely to bring in outside tourist dollars.)

There's something else ironic about Martinson's fussing about corporate welfare. The amounts in question are three orders of magnitude smaller than what we're spending on the new arena - around 100 grand compared to $200 million. Talk about straining at a gnat and swallowing a camel!

Ordinarily, a private business has to pay for a place to conduct business. You might buy or lease an existing building, or you might build something new, but the cost of a place is part of the cost of doing business. If you're leasing, your rent is paying for the landlord's cost of building and maintaining the place.

But in all the financial projections for the new arena, the cost of construction is left out of the picture. If we exceed all reasonable expectations, we may cover the costs of operation, but there's no expectation that taxpayers should recover the funds we spent to build a place for sports teams and musical acts to make money. If anything is corporate welfare, that surely is.

Taxpayers don't build movie theaters or dance halls, and there's no reason we should be funding a location for entertainment options that compete with those private businesses.