Wednesday, May 07, 2008

Buying for Future Revenue and Selling for Immediate Revenue: Human Capital

Let's follow this logic (from the AP):

In a bid to raise hundreds of millions of dollars to fund development in the city's business core and attract private investors, regional business leaders want the state to take over New Orleans' international airport.

Mayor Ray Nagin said he supports the concept but wants to see firm financial details before endorsing any plan. A spokeswoman for Gov. Bobby Jindal said the governor is open to ideas to revive the hurricane-damaged city but wouldn't comment on a proposed takeover.

The price could be at least $500 million raised in a bond sale.

So the city needs to sell off one of it's big revenue generators because our recovery needs an influx of cash right now. We definitely need to give "$500 million" to "fund development in the city's business core." I think that maybe one day someone will fund development in the city's residential core.

Anyways, moving on, we need to reinvent the crescent. Here is the economic argument from the developer:

The cost-benefit analysis is based on the classic "if/then" statement:

"If the public sector makes X investment, then the private sector will make Y investment and the economic benefit of both will be Z."

Using this as a framework, Dr. Jim Richardson, PHD Economist and LSU professor, has concluded that the economic impact of the proposed plan is profound.
And here is the upfront cost:
The Reinventing the Crescent development plan has a total cost of$294 million. The funding strategy includes the following sources:
  • State of Louisiana: $162 million
  • Local Goverment *
    > World Trade Center Development : $24 million

    Other Riverfront Development: $13 million
    Community Development Block Grant (CDBG): $30 million
  • Federal Government
    > Corps of Engineers (Levee Armor): $25 million

    Department of Transportation: $10 million
    Department of Energy : $10 million
  • Non-Profit/Philanthropic: $20 million

* Plus $100 million of City-owned Riverfront property.

That's a pretty big asterisk.

Anyways, let me put this in economic terms. If the recovery needs X amount of immediate dollars obtained via the sale of public assets, we can afford to spend Y of that immediately on a luxury development. The resulting Z would represent the city's loss in public assets plus an assumed Z', a null set representing ZERO dollars spent on the social emergencies plaguing the ordinary people of New Orleans: no hospitals, no police, no schools, no affordable housing.

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