Monday, June 11, 2007
Whenever the private arena can provide a service, it is better that public entities try not to compete with them. Provo is finding this out the hard way with its ill-conceived iProvo project. Yet it refuses to give up, only destined to make the problem worse.
It sounded really cool. Most projects usually do sound that way. For their compensation, everyone told Provo that it would be a home run. iProvo would be a slam dunk. A soft ball that they could hit out of the park.
About the time I got interested in running for Santaquin City Council several years ago, the extant city council voted to go into the natural gas business, thus directly competing with Questar, who was already a gas provider in town. By the time I got on the City Council, our city manager and our contract engineering firm painted a rosy picture, giving us a break-even point of 110 homes. Every amount of revenue generated by the 111th gas customer and so on was just money in our pockets. When Questar found out that we promised to sell gas to our customers for 10% less than Questar rates, they laughed and asked us to promise them that come heck or high water we would stick to that rate. Heck and high water hit pretty fast. It turns out that the engineers had just assumed that Operation and Maintenance costs could be charged to the water and sewer departments. To make a long story short, a few years later, we sold our operations back to Questar for a substantial loss. We got a new city manager and a new engineer during the process, and they were the ones that pointed out the problems.
Government will invariably waste money when compared with a private entity. Failures are much more likely when the project undergone is large rather than incremental. With failure #1 compounded by failure #2, iProvo is destined for failure.
iProvo has already encumbered about $70 million dollars in the project. Their break even points have changed significantly over several iterations, but the new ones are still presented with as rosy a picture as the first ones were. They are borrowing from enterprise funds like mad, and are not even able to pay some of those debts back. iProvo Manager Kevin Garlick should be fired for essentially lying to the Provo City Council.
Sometimes, it's important to just cut bait. Provo will never break even with its ill-conceived behemoth project. The problems are many in a case like this. First of all, governmental entities cannot declare bankruptcy when their projects fail. So there is the perverse incentive to get a bigger hammer in hopes that the same square peg can be finally pounded into the same round hole. Secondly, the investors didn't get to choose to invest. Every Provo taxpayer will be on the hook for his or her share of the iProvo debacle. This looming specter is a huge disincentive for people (and probably businesses) to move to Provo in the future out of fear that they might instantaneously inherit a higher tax burden to pay for Lewis Billings' and Kevin Garlick's albatross.
Private entities can do for much less what iProvo is trying to provide to Provo residents. Come to think of it, they already are. What was Provo thinking?