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Tuesday, May 2, 2017

Toward Undercurrents: On Regional Leaders, the Media and the Rotten Deal they Cherry-picked Facts to Propagate

Posted By on Tue, May 2, 2017 at 3:29 PM

COURTESY: CLEVELAND CAVALIERS
  • Courtesy: Cleveland Cavaliers
During the riveting April 21st edition of WCPN's Reporter's Roundtable, Cleveland.com Editor Chris Quinn remarked upon Cuyahoga County Executive Armond Budish's State of the County address.

"What was striking about the speech was that [Budish] took a real hard line, as firm as you ever hear from him, on the critics of the proposed Q deal," Quinn said.

"He basically called a lot of the information out there 'alt-facts.' There's been an undercurrent that somehow the Cavs aren't paying for half of this, which they are. And he also talked about the idea that you would take the money that would go into this and spend it elsewhere as being wholly improper because the money largely comes from the Q taxes and from the hotel bed tax which has to go to tourism... The firmness of his statement was a bit of a shock."

Indeed it was.

But Budish's crusade against 'alt-facts' has failed to deter the coalition of citizen groups purportedly propagating them. That coalition, comprised of the Greater Cleveland Congregations, Service Employees International Union Local 1199, the Cuyahoga County Progressive Caucus, AFSCME Ohio Council 8, and Amalgamated Transit Union Local 268, is now collecting signatures for a referendum on the deal. The petition must be filed within 30 days of the legislation's passage. (CCPC Political Director Steve Holecko managed to get a bankable quote from Bernie Sanders in a Q&A after the Senator's City Club remarks Monday morning: "I don’t like that idea," Sanders said, speaking of public subsidies for arenas generally. "That smacks to me of corporate welfare. I think billionaires can fund their own endeavors, and when you talk about a city which has blight, which has educational problems, I think what government should be doing is investing in the needs of working people and low-income people.”)

Those are ideas that regional leaders would surely get behind in the abstract, or in other American cities. But in the event, our elected crop has sounded a great deal more like Donald Trump, preaching about jobs and trickle-down economics as they decry fake news and mock or ostracize legitimate dissent.

Depending on whom you ask, the Q Deal referendum may be a crusade on behalf of the working people of Cleveland, or it may be a crusade on behalf of the people's right to participate in how they are governed. It may also be a crusade against the Prevailing Narrative: that the Quicken Loans Arena renovation is a Transformation worthy of millions of public dollars and hundreds of joyous public decibels; that the arena is an economic [auto part] that needs a dramatic exterior upgrade if it's going to "remain competitive"; that Dan Gilbert and the Cavs are bleeding-heart philanthropists committed to the region's welfare. These ideas have all been conveyed to the public, more or less unchallenged, not only by the Cavs and their negotiating team (which ought to be expected) but by the majority of the region's elected leaders and the region's most powerful media organization (which ought to be questioned, if not condemned).

In Sunday's Plain Dealer, Mayor Frank Jackson entered the fray himself. Until recently, he'd been virtually silent on the ongoing deliberations. The speculation by multiple city councilmen was that Jackson considered the issue "politically toxic" and didn't want his name associated with support of the deal during a contentious election season. If that had been the strategy, Jackson has abandoned it. He exulted last Tuesday, as he signed the ordinance into law, that the Q deal was "one of the best deals the city of Cleveland has ever made." It was an astonishing statement, given that the public is under no obligation to pay a single dollar toward the upgrade.

His Sunday opinion piece, framed as an explainer rather than an argument, reaffirmed his over-the-moon support for the deal, and justified it on the strength of public benefits in three spheres: financial, economic and community. (The distinction between "financial" and "economic" is beyond our capacity to discern.)

But the piece was fraught with factual errors and misleading characterizations. The very framing of the piece (Pg. E2 in the Sunday 4/30 edition) was suspect. While Cleveland.com identified the piece as opinion — "Quicken Loans Arena deal is good for Cleveland, its neighborhoods and its people: Frank G. Jackson (Opinion)" — the print edition was less clear: "Mayor explains why The Q Deal is 'a forward-thinking investment," the headline read. It appeared in Forum, the PD's opinion section, so regular readers should have known what to expect, but why not "the Mayor argues that..." or "believes that..." or even "explains why he thinks that..."?

One reason might be: this is not an issue that traditionally needs to be argued around here at all. It's supposed to be self-evident that the sports teams are soulful community partners, and that the (publicly owned!) facilities they inhabit are massive economic [auto parts] in need of occasional public lubing if we want to Keep Cleveland Strong. One can see the epileptic fits into which elected leaders have lately descended, and it's a good bet that they're annoyed because they're not accustomed to having to defend this sort of thing. They often resort to a patronizing posture, (one that the PD framing bolsters): that we would all agree with them if we were only more educated on the issue.

Look at Quinn, paraphrasing Budish, again: "There's been an undercurrent that somehow the Cavs aren't paying for half of this, which they are."

click to enlarge A home-made sign on W. 65th Street in Matt Zone's Ward 15 (Detroit-Shoreway). - SAM ALLARD / SCENE
  • Sam Allard / Scene
  • A home-made sign on W. 65th Street in Matt Zone's Ward 15 (Detroit-Shoreway).
Though deal supporters would like to pretend that this undercurrent is the result of a targeted disinformation campaign, its existence is no doubt much more rudimentary: The deal is confusing.

When readers see, for example, that the project's total cost has been estimated at $282 million, after interest, and that the Cavs are expected to contribute $122 million, they don't see "half." No one does. The fact that a significant portion of the public contribution will go toward creating a reserve fund for facility upgrades down the road hasn't been emphasized in the way that other facts have been emphasized. City Council, for one, had no idea.

Cleveland.com's Rich Exner's breakdown of the projected costs, published back in December, is still the easiest to make heads or tails of, though even that account contains a not insignificant error:

"Currently, Cleveland keeps three percent of the admissions tax on Q tickets and hands over the other five percent to the county to help make payments on existing Gateway loans," Exner wrote, discussing the city contribution. That's true for Cavs games. For other Q events, Cleveland keeps six percent and uses two percent for debt service on the Gateway bonds. This is why, in most years, the amounts going toward the city's general fund and toward debt service are extremely close. In fact, from 1995-2016, 50.4 percent of the Q admissions tax revenue went to the general fund and 49.6 percent went to debt service. That same ratio will continue from 2023-2034, with the money that currently goes toward Gateway bonds going toward the renovation. This is also why the Cavs' lately announced commitment to provide "at least an equal amount" to the general fund that the city provides to the Q project is a truly minor one, and ought to be reported as such.

But back to the Budish-Quinn undercurrent: We know that the Cavs have lied systematically through the public deliberations — they will not, for instance, be "covering shortfalls" on the project as they and elected leaders continue to insist in the face of repeated correction — so it seems worth questioning whether or not they may have lied during the private negotiations. Moreover, we can't know if the Cavs "pay half" unless we also know the project's final costs, which we don't and likely never will. All we've ever seen are estimates furnished by the Cavaliers themselves or by Timothy Offtermatt, the county's paid financial adviser, who was, until recently, the Chairman of Gateway Economic Development Corporation, the Cavs' landlord, and who negotiated the current deal on the Cavs' behalf before he was hired by the county. Further still, the Cavs' contribution will be in the form of "increased rent." It's unclear what amount, from their annual total, will be considered payment on the project and what will be considered regular rental payments. And is rent, such as it is, still going to be collected? Who can say?

Budish's (and/or Quinn's) certainty of the Cavs' contribution, then, exposes a dangerous naivete. The "undercurrent that somehow the Cavs' aren't paying for half of this" is, in another interpretation, a "perfectly natural skepticism that the Cavs might not pay half."

But that sort of skepticism is belittled or ignored by elected leaders and Cleveland.com. Though everyone seems to acknowledge the deal's complexity, those who oppose the deal are said to be promoting false narratives, alt-facts and the like. Those who support the deal presume to know all, and are in a position to teach the opponents of the arrangement's "nuance":

Here's Jackson, Sunday: "Despite the loud and misleading rhetoric coming from opponents, the fact remains that the Q deal is an investment in our city's future and our neighborhoods. It is a good deal for Cleveland, its neighborhoods and its people."

Here's Cleveland.com, in its second editorial (3/11) supporting the deal: "Leave aside the small-minded grousing.... The second-guessing is intended to distract attention from the plain and obvious benefits of a $140 million deal Cuyahoga County struck with the Cavs only after painstaking, monthslong negotiations."

Here's pro-deal councilman Matt Zone, in the preamble to a lengthy Facebook post explaining his support: "There is a lot of nuance to the legislation that was passed related to the Q deal... Read slowly so you understand all the facts."

Here's pro-deal councilman Kerry McCormack, in a newsletter to the Downtown Cleveland Residents Association: "This proposal has generated a lot of passion on both sides of the issue. I understand and appreciate that. It has also generated tons of false information. What I have to do as a council person is weigh whether the proposal in front of us will be a net positive for the City and its revenue streams now and in the future. I support the proposal because the Q Arena pumps millions of dollars of taxes into the City of Cleveland each year, the proposal will create new full-time jobs and 1,000 union construction jobs, and the proposal will extend the Cavs lease until 2034. The proposed continuation will invest money in the facility, it is not a contribution to Dan Gilbert or the franchise. Given that this is a very complicated issue, I wanted to take time to explain where I'm at on it."

In one of the more shocking moments of blind support, Cleveland.com's Karen Farkas quoted Armond Budish saying that he'd managed to negotiate a seven-year lease extension as part of the deal — alleged, throughout the proceedings, to be the chief public benefit. When Farkas later reported, after a conversation with former County Executive Ed FitzGerald, that the lease extension had always been part of the Cavs' offer (calling into question whether negotiations of any kind really happened), Budish responded with a new statement: "We think this is a great deal for the public and we stand by it."

Scene, too, during our reporting these past several months, has been accused of not fully understanding the deal, or of having been deficient in the rigor with which we approached "the facts." Bearing that in mind, I'd like to refute just a few of the more egregious statements in Jackson's Sunday PD piece, and incorporate a discussion on some of the widely cited assumptions about the deal's public merits.

A) Frank Jackson presents the Q Deal as an "investment in neighborhoods."
He does this twice, actually. In his introduction Jackson defines the deal exclusively in those terms: "The project is a forward-thinking investment in Cleveland's neighborhoods, with big results now and in the future." He repeats the point in his conclusion: "The fact remains that the Q deal is an investment in our city's future and our neighborhoods."

But the fact does not remain, because it is incorrect. The city's argument is basically that the Q, as a facility, generates tax revenue, and that some of that revenue is applied to the city's general fund. Some of that general fund money then goes to neighborhood projects. But paying for enhancements at the Q is no more an investment in neighborhoods than it is an investment in anything else the general fund pays for: public safety, say, or administrative salaries, or the lead-based-paint inspection program. It's an investment in a facility.

The city's continual reference to the Q deal as an investment in neighborhoods may be read as a political strategy, a rebuke to mayoral challengers like Jeff Johnson and Zack Reed — two of the deal's opponents on City Council — who argue that more money should be spent in areas outside downtown. Johnson has made that argument the central theme of his campaign.

click to enlarge THE CITY CLUB
  • The City Club
B) Jackson erroneously says the deal will create new permanent jobs:
The preeminent economic benefit, "explains" Jackson, is that "the Q Deal will secure employment for the 2,500 people currently working for the arena. It will also create 700 new permanent jobs and 2,500 temporary jobs."

1) The deal will not create 700 new permanent jobs. If it creates any at all, the number will be much lower, though the Cavs' Len Komoroski stressed that the goal of the enhancement was not to create new jobs, but merely to keep the arena competitive. When the NAACP presented their support to City Council, they, too, said they believed there would be no new permanent jobs. It was the jobs in the surrounding area and the satellite entrepreneurship opportunities that they were eager to celebrate.

2) Jackson uses the 2,500 temporary construction job figure, which is the one I've seen most often as well. (McCormack, in the explanation for his support above, said the deal would generate 1,000 construction jobs — "loud and misleading rhetoric" indeed.)

3) "Secur[ing] employment for the 2,500 current employees" is another way of celebrating the seven-year lease extension. And it indirectly hints at the threat of the Cavs' departure if not for the deal. As is common, leaders conflate the benefits of the upgrade with the benefits of the Q itself. In their line of argument, the deal guarantees the Cavs' presence in Cleveland for seven additional years, so any point about the Q (as an economic [auto part], say, or in comparison to "Richfield,") is fair game.

C) Jackson erroneously says the Cavs will cover shortfalls.
"Similar to obtaining a second home mortgage," Jackson writes, "the Q Deal extends the city's debt for another 10 years. The Cavaliers will guarantee that debt and pay for half of the renovation costs. If the city's admissions tax contribution falls short of projections, the Cavs have committed to covering the shortfall."

The Cavs will not be covering shortfalls. (For absolute clarity: Shortfalls refer to the difference between actual collected admission tax revenue and the projected admission tax revenue. Overruns refer to construction costs in excess of the initial estimate: $140 million.)

As we've tried to make explicit, part of the public contribution will be used to create two reserve funds, one of which will be tapped to cover shortfalls. In the event that that reserve is exhausted, the Cavs will front the costs in the form of "contingent rent" which will be paid back to them the moment the reserve is replenished. (County Council was insistent on clarifying this, but it wasn't evident that anyone on City Council had a clue what Timothy Offtermatt was talking about when Kevin Kelley tried to fact-check during a committee hearing.)

I won't dive deeply into the second mortgage analogy, other than to say that property enhancements are supposed to redound to the advantage of the property owner, readily apparent when a renovated house is sold. But the County has no intention of selling the facility. Dan Gilbert, on the other hand, may indeed sell the Cavs. And with all due respect to Kerry McCormack's analysis, the biggest financial benefit of an enhanced arena is not the marginal increases in tax revenue for the public but the increased value of the franchise for the franchise owner. (The value of teams rise dramatically when new arenas are built or existing arenas are improved.)

One additional analogy, on the subject of overruns. We have no way of confirming this, but it has been speculated by observers that the $140 million projection for the upgrade may be quite high. The original construction of the Q (then the Gund Arena) cost about $100 million, ($160 million, adjusted for inflation). Recent significant arena renovations have cost anywhere from $90-$130 million. The $130 million renovation of the Nassau Coliseum, on Long Island (incidentally, developed by Bruce Ratner and Forest City) represented "a re-created, re-imagined venue that will be state-of-the-art in every way, shape and form."

It's easy for the Cavs to promise to pay for all construction overruns when the project may cost nowhere near as high as initial guesstimates.

Here's the analogy: Say the Cavs and the public were teaming up to buy a new car. Say the Cavs closed their eyes, threw a dart, and estimated that the car would cost $200,000. Say the Cavs promise to pay half of the cost with increased rental payments. The public rejoices that they'll only have to contribute $100,000. The public sells some bonds, hands over the money, and never hears from it again. The car is purchased. The Cavs chuckle and smoke a cigar. Two years later, the Cavs issue a press release saying the car cost $205,000, so they only had to chip in an extra five grand. But they'd promised to cover overruns, so it was no big deal! (Of course, the car may have only cost $40,000, but the public would have no way of knowing.) Meanwhile, the public pays back interest on the $100,000 in bonds it sold and the Cavs merrily pay the public back its portion, quite possibly with the excess funds it received from the public. The Cavs chuckle and smoke another cigar.

D) Jackson omits key pieces of information that would help contextualize community benefits:
Regarding the three "deal-sweeteners" announced on the day of the final City Council vote, Jackson is overflowing with gratitude: "The Cavs have agreed to contribute even more to the city's neighborhood revitalization efforts," he writes. (Italics added.)

As we mentioned above, the commitment by the Cavs to ensure that equal amounts go to the city's general fund and debt service is essentially nothing. Since the arrangement began, slightly more has gone to the general fund, so it's possible the Cavs may have to cough up no additional funds at all. The presentation by Jackson and by other leaders is as if this commitment is a new "matching grant" of some kind. This is false.

"That money goes directly to our neighborhoods," writes Jackson, of these existing general fund dollars. "To do nothing would leave the city with less revenue to provide services."

See above for commentary on the "directly to our neighborhoods" bit. On the other bit, no one knows what would happen if the city were to do nothing. In fact, the opposite — that the city would have more money — is much more likely.

Either A) The Cavs desperately want an All-Star game, so they shrug their shoulders and pay for a larger portion for the upgrade themselves. If that happens, the city would receive all the alleged tax benefits of the enhanced arena without a major contribution. Alternately, B) The upgrade is postponed or canceled and the city receives a slightly smaller amount from tax revenue than it currently receives due to the arena's alleged inability to remain competitive. (But as we've seen, higher tax revenue correlates more closely with the performance of the Cavaliers than with anything else.)

If Councilman Kerry McCormack is serious about his role, to "weigh whether the proposal in front of us will be a net positive for the City and its revenue streams now and in the future," he would do well to consider the following arithmetic: Would the city's annual lost revenue from a slightly less competitive arena be in excess of its annual commitment to the renovation from 2023-2034? 

Jackson also neglects to mention that the Cavs' commitment to donate the proceeds from their playoff watch parties to Habitat for Humanity is merely a designation of a new recipient. For the past two years, the Cavs have donated 100 percent of watch party proceeds to charitable causes. While that can be celebrated, positioning it as a new community benefit is misleading.

E) Jackson omits or misrepresents key pieces of information:
1) Jackson calls the city legislation an "$88 million commitment to the Q Transformation Project." That's the oft-cited figure for the 2023-2034 contribution, which is only an estimate and may be high. But he does not include admissions tax revenue from playoff games between 2017-2023, which is expected to generate $9 million more.

2) Jackson writes that "millions of dollars of admissions tax revenue will be generated from 2023 to 2034 as a result of the Cavs' lease extension." This may just be poor wording, but the current lease expires in 2027. The extension is from 2027 - 2034. This is akin to Armond Budish claiming, in his state of the county address, that the Q deal would keep the Cavs in Cleveland for another 17 years, until 2034. That's true, but the extension is only for seven years.

3) Jackson repeats the oft-cited argument that if you do not attend events at the Q, you do not pay for the upgrade. This is technically true, but also disingenuous, as the eight-percent admissions tax was not passed by voters to fund Gateway projects in perpetuity. Once the existing Gateway Bonds are paid off, the Q admissions tax becomes an unencumbered public revenue stream. As Jeff Johnson has said: "That's our money." (This also impinges upon the "no new taxes" argument, as leaders have extended existing taxes for uses not initially approved by voters.)

Unmentioned in Jackson's piece, though mentioned by nearly everyone else, is that the deal precludes the possibility of having to build a brand new arena. That's a project that could cost $500-$750 million, per the Cavs' estimates, and it's one that elected leaders naturally want to avoid.

But it should be perfectly obvious to them and to everyone else that this upgrade doesn't eliminate that possibility; it merely postpones it. When the day for those deliberations arrive — and it will arrive, no doubt, shortly after the city begins payments for the current renovation — today's supporters will have to concoct new and creative ways to denigrate the opposition.


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