Whiting column: Institutional responsibility in the public realm
The desirability of institutional personal responsibility is an issue of fairness and equity. It is not only doing what’s right, but doing one’s fair share, whether an entrepreneurship, corporation, government entity or other organization.
Full disclosure would be an example of this responsibility. Often governments seek budgetary, bond or mill levy approval for a public amenity. The emphasis is on the immediate cost of the project, which is a short-term figure. Typically, the interest cost is not mentioned nor are the operating and maintenance costs. These long-term costs can be very large, affecting the budget for an extended period of time.
Large stadiums are one example. Coors Field was built in 1992 for $422 million, paid by a sales tax. The interest cost was $122 million, increasing the period of the sales tax by 25 percent.
The new Mile Hi Stadium cost $400 million, plus $130 million in interest. Operating costs generate a negative cash flow, necessitating high fees to concessionaires, which translates to expensive hot dogs for us. In addition, Mile Hi spends $22 million in maintenance costs and requires $10 million annually to cover needed capital improvements.
The higher lease rates required to cover operating and maintenance costs mean higher ticket prices and necessitate the sale of naming rights to Invesco, Sports Authority and other names which do nothing to promote Colorado. Wouldn’t it be logical to have the name be Colorado Ski Country Stadium at Mile Hi using the TV exposure to market Colorado?
The same lack of disclosure occurs in most public facility decisions, whether it be for a recreation center, fairgrounds, art/performance center or other public amenity. Beyond initial cost, few generate income sufficient to cover the operating and maintenance costs, let alone capital improvements. This negative cash flow must subsequently be covered in government’s future budgets.
This is not to say we shouldn’t have these facilities, but we need to remember that if it would make money private business would have already built it. If the public decides the amenity has economic value to the community and meets a need of the public, then it should be built as long as we are aware of and are willing to pay the long-term costs. The problem lies in the voting public is usually not made aware of these long-term costs. We all make better decisions when we know all the facts.
Institutional responsibility should be a characteristic of nonprofits. Like governmental entities, they operate with public money. They may not impose a mandatory tax, but they do seek our voluntary donations. They should assume the same responsibility to use our hard-earned money in an efficient and judicious manner.
We may consider them responsible by their nonprofit nature, but a 2014 Wall Street Journal survey found 2,700 executives of nonprofits were paid over $1 million. Even the average of $155,000 could be considered excessive when compared to the salaries of those from whom they are seeking donations. It isn’t being institutionally responsible when a nonprofit seeks a $20 donation from someone making $50,000 and then pays their people a multiple of that figure.
This concept is exacerbated when one considers the nonprofit doesn’t pay income, sales or property taxes. The tax revenue they are not generating must be replaced through higher taxes on everyone else; the same people from whom they are seeking donations. The nonprofit receives the same police, fire, educational and infrastructure services as those who pay taxes. There are over 2 million registered nonprofits, so the total taxes they are avoiding is significant.
Paying taxes would reduce, in the short term, the funds they have to spend on their mission, but it also might be motivation for them to operate more efficiently.
A few other common sense principles should be nonprofit responsibility:
1. Any purchases should be made locally. Even if the price is slightly larger, it is more than recovered through the economic and consumptive multiplier effect.
2. Don’t duplicate one another. Often it seems they are multiple nonprofits meeting the same need and serving the same people. Efficiency would dictate they combine.
3. Don’t compete with local business. Generating income through sales of products, services or events that are being provided by a local business is biting the hand that feeds you.
Additionally, we need to remember that each time a nonprofit buys a building or property, it is taken off the tax rolls. The same is true of any governmental purchase. With each occurrence, each of us must assume a larger share of the required tax revenues.
Obviously, many nonprofits are run efficiently, pay their people fairly, provide a valuable service and follow the above three principles. It is up to us to do our research, facilitating an informed decision regarding our charitable donations and enabling us to hold them accountable for their use of our money.
We, as taxpayers and consumers, should remind our institutions they have a personal responsibility.
Bryan Whiting feels most of our issues are best solved by personal responsibility and an understanding of non-partisan economics rather than by government intervention. He recently retired after 40 years of teaching marketing, entrepreneurship and economics. Comments and column suggestions to: email@example.com.
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