economics

The going price of being home to an NFL team just went up

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The Minnesota Vikings just revealed the drawings for their $925 million stadium in downtown Minneapolis. The stadium is set to open in 2016, built on the ruins of the Metrodome. Barring any unforeseen holdups, this will be the Vikings’ last season in the Metrodome—they’ll play two years at UM’s TCF Bank Stadium during construction. Expect a Super Bowl to be coming to Minnesota in the near future.

K bigpic

The public in Minnesota is responsible for $500 million of the cost. You read that right, they taxpayers are shelling out a half-billion dollars so a billionaire can charge them a massive sum to go into a stadium and watch the game.

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The worst part of it is that in 30 years, the then owners of the Minnesota Vikings will be back looking for another new stadium. Then what? A billion or two dollars from the public purse.

I am big NFL fan but this is crazy. The NFL is the most profitable enterprise in North America. Each franchise is worth around a $1 billion but the public keeps buying them stadiums that charge ticket prices that they can’t afford. When does it stop?

That and I think I have seen this stadium design before.

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Oh right, here it is.

Sandcrawler

Queen’s Park, we have a problem

May 3rd, 2013

by Jordon Cooper.

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Ontario’s debt problem just got a whole lot larger

Few people talk about debt. It isn’t sexy, and it certainly won’t win votes. In a little over two decades, from 1990-1991 to today, Ontario’s debt-to-GDP ratio has tripled. If you believe the government’s projections in Thursday’s budget, between 2009-2010 and 2017-2018, the province will have added about $90-billion in debt. The total debt will be about $280-billion.

It doesn’t matter, under these circumstances, which party forms the next government. The debt will still be there, large and growing, and very vulnerable to a hike in interest rates. Ontario, like other governments, can pile up more debt and get financing at low rates. When, inevitably, those rates rise, the burden of financing the debt will jump.

Thursday’s budget, in this sense, was like the recent federal one. The media and opposition parties in Ottawa focused on all the changes. Fair enough, but the biggest, silent increase in the federal budget was money for seniors’ pensions. That didn’t get a whisper of attention, because the costs go up quietly.

So, too, the post-budget coverage and debate in Ontario swirled about new spending in some programs while restraint is exercised in others; whether the Liberals met the NDP’s bargaining positions to get the budget passed and so remain in office; and whether the deficit will be going slightly up or down. But beneath the radar screen will be the buildup of debt, and the very real question about whether the province can manage it.

Ontario could finance its debt more easily if economic growth and accompanying government revenues grew at least as fast as debt-servicing costs. But economic growth is going to be about half the increase in costs of servicing the debt.

As the budget itself notes, Ontario’s productivity lags behind that of the United States, as does business investment. The province’s cost competitiveness has eroded. What the budget didn’t mention is that energy costs are soaring. Programs also are rising for such items as seniors’ drugs (up 5.4 per cent) and public-sector pensions (most public-sector employees have defined benefit plans, whereas private-sector employees don’t). Then there are provincial arbitrators who pay no attention to a government’s ability to pay, thereby driving up costs (see police, for example) by looking only at other settlements.

Premier Kathleen Wynne’s government was in the tightest of spots, not a place from which to talk about difficult stuff such as the buildup of debt. Her Liberal government finds itself between Conservatives, who hound it with demands for an election, and New Democrats, who play an annual game of political extortion with their list of demands.

It’s a terrible way to run a legislature, let alone a government, but that’s the way the opposition parties wish to play their hands. So the Liberals seek what they call a “balanced approach” between Conservatives who want bigger cuts in public spending and New Democrats who instinctively want to spend lots more, with the money coming from the business sector and the better off.

With the size of the Ontario economy, when it either goes spiralling into a recession or the painful cuts are made, it is going to impact us all.

The Weeklies

Apr 29th, 2013

by Jordon Cooper.

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In the Denver suburbs, as in much of the U.S., the Great Recession turned formerly stable families into the new homeless—and left many living in budget hotels.

At any given time, roughly 20 to 40 guests are staying long term. Since they pay by the week, they call themselves “weeklies.” To score the cheap rates, $210 for individuals and slightly more for families, they must pay in advance. Residents sign a form that lists the activities that could get them kicked out (mostly involving drugs) and warns that they won’t get reimbursed if they leave early, no exceptions. Some families stay only for a few weeks, some for months, giving the hotel the feeling of a dormitory. A rotating cast of front-desk clerks sells candy and rations towels and washcloths. Though some of the clerks are kind and helpful, the guests think of them as enforcers, and the clerks tend to treat the weeklies less as customers than as undergraduates stealing toilet paper and sneaking in hot plates.

With its 121 rooms, cleaning service, and keycards, the place is not a fleabag. But it is also not the kind of hotel where the coffee pots and hair dryers reliably work or the comforters match the drapes. A traveler stopping here to avoid bad weather might notice the difference: a clerk who takes a little too long to offer grudging help, an absence of name tags for the staff, an empty spot on the placard that is supposed to provide the manager’s name, a stained lobby carpet, a guest or two with a slightly illicit aura.

Hotels have always served people who need an off-the-record place to live—sex workers, drug dealers—and the Ramada has its share of people who are hiding out. (Bounty hunters come to the hotel so often that the weeklies know their names and say hi.) But in the aftermath of the Great Recession, the Ramada’s clientele shifted away from such regulars to include suburban families who had been used to staying in hotels only on vacations. Many of the families still had incomes. Some had long been struggling members of the working class, fighting to stay better than broke; others had fallen suddenly out of the middle class.

Across the country, suburban poverty rose by more than half in the first decade of the new century. Families now find themselves navigating landscapes that were built around wealth: single-family houses that are sold, not rented; too few apartment buildings; and government agencies hidden at the far edge of the suburban ring, more responsive to trash-pickup complaints than rising hunger rates.

I think this article actually made me experience and emotion and cry. Read the entire story and it will break your heart.

Can Spain be saved?

Apr 28th, 2013

by Jordon Cooper.

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Spain is done. This is bad.

Spain is in a great depression, and it is one of the most terrifying things I have ever seen.

Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It’s almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years.

Here is why it is so bad

Spain is in a great depression, and it is one of the most terrifying things I have ever seen.

Five years after its housing boom turned to bust, Spanish unemployment hit a record high of 27.2 percent in the first quarter of 2013. It’s almost too horrible to comprehend, but 19.5 percent of the total workforce has not had a job in the past six months; 15.3 percent have not in the past year; and 9.2 percent have not in the past two years.

In other words, unemployment is a trap people fall into, but can’t fall out of. Indeed, the rate of new unemployment has stabilized at a terrible, but not quite-as-terrible, level, as you can see with the flat blue, red, and green lines. But the steadily rising purple line shows us that the rate of job-finding for the jobless has collapsed.

That is what a permanent underclass looks like.

What happened?

Why has Spain’s jobs depression been so great? After all, its GDP is “only” 4.1 percent below its 2007 level, compared to 5.8 percent below for Portugal, 7 percent below for Italy, and 20 percent below for Greece. But despite this better (negative) growth, unemployment is higher in Spain than the others. In other words, Spanish unemployment isn’t just about inadequate demand. Part of it is structural.

Spain’s labor market problems fall into two big buckets: too much regulation, and not enough education. It’s almost impossible for companies to get rid of older workers, which creates a horribly bifurcated labor market. There are permanent workers who can’t be fired, and temporary ones who can — and are. Indeed, as Clive Crook points out, about a third of Spain’s workforce are temporary workers who enjoy few protections and fewer opportunities. Companies go through these younger workers without bothering to invest much in their human capital, because why would they? These temporary workers will be let go at the first sign of economic trouble. Young people get stuck in a never-ending cycle of under-and-unemployment since firms are always hesitant to hire permanent workers who will always be on their books.

But it gets worse. The housing bust hasn’t just cast a shadow over household and bank balance sheets; it’s cast one over young people’s educations too. At its peak, building made up a whopping 19 percent of Spain’s economy, which, as Tobias Buck of the Financial Times points out, lured many young men into dropping out of school for well-paying construction gigs. But now that building has gone into hibernation, all of those young men are left with no work and no education to fall back on. And, again, even if they can find temporary jobs, it’s not as if the companies will spend money to develop their skills.

Going underground (and belly up)

Apr 27th, 2013

by Jordon Cooper.

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From the Economist

NOT many global cities of nearly 9m people lack an underground line, but until the end of last year the eastern city of Hangzhou was one of them. Now city slickers and rural migrants squeeze together inside shiny new carriages, checking their smartphones and reading free newspapers like commuters the world over. There is standing-room only in the rush hour and, with tickets at less than a dollar, the metro is revolutionising the way people travel across town.

Two other Chinese cities—Suzhou and Kunming—have also opened their first underground lines in the past year, and the north-eastern city of Harbin is preparing to open one too. Four more cities have just added a new line to their existing systems. At least seven others have begun building their first lines.

If all the metros approved by central officials are built, 38 cities will have at least one line by the end of the decade, with more than 6,200km (3,850 miles) of track (London has nearly 400km.) As with many infrastructure projects in China, including the high-speed rail network above ground, questions abound about the wisdom and potential wastefulness of such ambitions. Many of the underground systems are needed, but some are being built in cities that are too small to justify the exorbitant expense. By some estimates the total bill could approach $1 trillion, not including the cost of operation.

Zhao Jian of Beijing Jiaotong University reckons that metros in fewer than 20 of the 38 designated cities make sense. He says that perhaps ten of those could be replaced with cheaper light rail, which runs above ground. The minimum core urban population that can qualify a city for an underground system is 3m people, but even a place that big may find the operating costs crippling. Mr Zhao says the systems in Harbin and Kunming are unnecessary.

Shi Nan of the Academy of Urban Planning and Design in Beijing says it is obvious that “we cannot count on private cars” to get around the big cities. But the metro projects mostly rely on government subsidies, and operating them will be a “bottomless pit”, says Mr Zhao. He says city officials tend to pursue grand projects that may not even make money because they will not be around to bear the burden. The performance of local officials is evaluated on how much they increase local GDP, not on whether projects they build are needed. Today’s leaders get credit for spending money. Tomorrow’s must foot the bill.

Even megacities long overdue for more underground tracks—like Beijing, Shanghai and Guangzhou—are building and operating them at a cost that worries planners. Operating the metro lines of Beijing, now up to 442km of track, has cost about $1.6 billion over the past two years, but passengers pay just 30 cents a ride. The metro has helped to alleviate traffic and pollution, yet Beijing remains one of the world’s most jammed and polluted cities; it needs more investment in public transport of all sorts.

I have read a bunch of stuff lately on the debt that China is incurring at all levels of government. Some have said it could be the next economy to go bad. After reading more and more about infrastructure projects like this, I am starting to agree.

Sources: Marlins owner Jeffrey Loria personally mandated pitching lineup change

Apr 27th, 2013

by Jordon Cooper.

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Jeffrey Loria continues to solidify his position as the worst owner in professional sports. As Jeff Passan writes

Miami Marlins owner Jeffrey Loria personally mandated the lineup card change that flip-flopped starting pitchers Jose Fernandez and Ricky Nolasco in a doubleheader Tuesday and left Marlins players furious with his continued meddling, three sources with knowledge of the situation told Yahoo! Sports.

Loria insisted Fernandez, the team’s prized 20-year-old rookie, pitch in the first half of the doubleheader at frigid Target Field instead of the scheduled Nolasco because the day game was expected to be warmer. The temperature at Fernandez’s first pitch (38 degrees) was actually colder than at the beginning of Nolasco’s start (42 degrees).

Rookie manager Mike Redmond delivered the news to Nolasco about 2½ hours before the first game against the Minnesota Twins, and it did not go over well with him or his teammates. Standard protocol for doubleheaders is that veterans choose which game they want to pitch. Not only did Loria ignore that and further alienate Nolasco, the Marlins’ highest-paid player who has previously requested a trade, he sabotaged Redmond less than 20 games into his managerial career.

By overstepping boundaries no other owner in baseball would dare, Loria presented Redmond with a Catch-22: listen to the man who signs his paycheck and risk drawing the players’ ire, or refuse to kowtow to Loria’s requests and find himself at the mercy of the owner’s short fuse.

So there was no short term payoff and a long term cost but Loria did it anyway.

Following an offseason in which they shed more than $100 million in payroll during an epic fire sale, the Marlins are 5-17, the worst record in baseball. Their beautiful new stadium sits practically empty on a nightly basis, even as the team gives away tickets. Neither free seats nor a public-relations barrage meant to spin Loria and Marlins president David Samson in a positive light seems to be working.

The arrival of Fernandez tried to maximize goodwill. For a low-revenue team such as the Marlins, prioritizing service-time consideration instead is of the utmost importance. Loria ignored that, preferring the splash the young Fernandez could make upon a sterling debut.

And indeed he has started well – too well, arguably, to send him to the minor leagues, which means Fernandez will be a free agent after six seasons. Had the Marlins stashed him in the minor leagues for the season’s first 11 days – a time during which Fernandez made only one start – he would not have been eligible for free agency until 2019.

No players enjoy hitting the open market more than the Marlins’, some of whom refer to free agency as parole. The only true way to build a winner, absent another misguided spending spree, is by changing that perception – by making Miami the sort of franchise for which players want to play.

The latest incident from Loria is simply another reminder: That will never happen as long as he runs the team. After more than a decade as an owner, Loria remains naïve to the real goings-on of a clubhouse – of how an incident such as this doesn’t just affect Nolasco but filters down to his teammates and even the purported beneficiary, Fernandez.

Is Tesla about to revolutionanalize car making?

Apr 20th, 2013

by Jordon Cooper.

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Whether they succeed or fail, they are changing the way cars are made

Whether Tesla ultimately succeeds or fails, it offers some important lessons. As Mr Passin points out, if a small company like his can produce a new car so quickly and frugally, surely carmaking giants can become leaner too. Another lesson is that when surplus factories are closed, they can sometimes reopen. (Surplus workers too are sometimes recycled: Qoros, China’s new carmaker, hired a lot of skilled people from European manufacturers during the downturn.)

Saskatoon House Price increase vs. Income Increases

Apr 17th, 2013

by Jordon Cooper.

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This chart says it all. I have seen it in a series of City of Saskatoon presentations but you can read it in this report by the City of Saskatoon. The bottom line is the key. Incomes are flat. House prices are soaring. The boom isn’t being shared by all. There is more context in the 2012 Saskatoon Housing Business Plan (and an updated chart)

You can compare our household income growth to other cities here (we do quite well) but the problem is that relative to our housing costs, we are not doing well at all. Take a look at the StatsCan

Column: Heavy Prices Paid for Low Taxes

Apr 15th, 2013

by Jordon Cooper.

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My column in today’s The StarPhoenix

If you happened to have watched the discussions during last week’s city council meeting about snow removal and business taxes in Saskatoon, you would have left with a clear impression: The city is having a hard time paying for basic services.

Lost in the rhetoric over how hard city crews work and how bad was the winter is a simple fact. Council voted against residential snow removal last fall, which created this mess in the first place. Even last week there were news stories about impassable streets.

The reason that councillors voted against residential snow removal was to keep property taxes as low as possible. As the city has proudly proclaimed for years, Saskatoon has the lowest property taxes in Canada among cities of a similar size.

That’s great if you hate taxes. But it’s bad news if you have to pay for things. With taxes this low, you will always have problems with paying for essential services.

If we are going to be the city of the lowest taxes, we will be the city of no snow removal, constant potholes and inferior public transit, because all of those services cost money. We have to cut costs somewhere, and we have cut them on snow removal and on road repair.

We underfund our road maintenance by more than $12 million a year, and that is just to keep our streets at their current levels. To actually repair and upgrade them would cost much more. Instead of paving roads, we patch them, which allows for moisture penetration. With the freeze-thaw cycle that faces Saskatoon regularly, our streets will continue to fail.

To its credit, council has increased spending on road repair, so by 2020 we will have almost reached the levels needed to keep our streets at 2012 levels. By that time the city will need even more money for road repairs, even if the streets are gravel.

Of course we can raise taxes. However, the problem is that once you go on and on about how low your taxes are, it’s really difficult to back away from that. We can talk all we want about wanting to be a world-class city, but you never judge a government by what it says so much as where it spends its money. In Saskatoon’s case, it’s not enough even to maintain our essential services.

There are two ways to deal with this.

One is to cut back more services and get out of a lot of what the city does, such as affordable housing, building parks and funding art galleries. The focus will be solely on roads, snow removal, emergency services and utilities such as garbage pickup.

This approach provides a great value for those that don’t need social services or amenities. They get lower taxes with no noticeable impact on their life in the city. It’s a blueprint that a lot of American cities have adopted. The problem is that no one wants to live or work in those cities once the boom is over.

The other option is to do what Edmonton’s city council just did. It adopted a report titled, The Way We Prosper, which made it clear that the old way using low taxes to attract business isn’t working.

Competitive taxes are important, but they are only a piece of the puzzle. Issues such as building a livable city and integrating Edmonton’s economic development agencies in a better way were listed as higher priorities.

Cities grow because of external market forces. More important than low taxes are the commodity prices that are driving our economy. If these prices bottom out, there is little that low tax rates will do to keep or attract businesses.

On the flip side, companies and people aren’t coming to Saskatoon because of low taxes on properties and businesses. They are coming because Saskatoon is a gateway to a whole lot of prosperity.

For all of Saskatoon’s aspirations of becoming a world-class city, we aren’t even raising enough money to maintain the city we have. Pat Hyde, manager of the city’s public works branch, announced last week that this will be the worst year ever for potholes.

When you don’t bring in enough money to maintain and clear streets, it’s going to be this bad for a lot of years.

There is a reason why our taxes are so low compared to other cities. Those cities know they can’t maintain their assets and provide services at the tax rates the city is charging.

This paper has called for an alternative to property taxes to fund civic services. Until that happens, we need to start charging more unless we want to see a further deterioration in the state of Saskatoon’s infrastructure. It’s a bill that needs to be paid sometime. As much as we hate it, it will require the payment of higher taxes.

© Copyright (c) The StarPhoenix

The Germans are losing patience

Apr 14th, 2013

by Jordon Cooper.

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From the Economist

The Germans are not yet openly angry. That would be out of character in a people who have, since the second world war, been eager to atone for the past and be good European partners. In one recent poll, 34% of Germans even said they empathised with the wrath of the southern Europeans. But the mood is shifting. The southerners may see Germany as forcing excessive austerity on them and showing insufficient solidarity, but Germans have a different view.

First, they feel they have already shown solidarity. Almost a quarter of a century after the fall of the Berlin Wall they still pay a solidarity tax to eastern Germany. Some also transfer taxes to weaker German states such as Bremen. Many conclude that, once in place, solidarity ceases being voluntary and instead becomes a yoke. They also bear much of the risk of euro bail-outs, even though a study released this week by the European Central Bank showed that the average German household has less wealth than the average Spanish, Italian and Cypriot one (though this is partly because German households tend to contain fewer adults and are more likely to be in rented accommodation).

Second, they argue that Germany recognised a decade ago that it was not competitive and undertook painful reforms that are now paying off. The crisis countries should follow suit. And third, Germans think the euro crisis was largely caused by rule-breaking (even by Germany itself), which must not be repeated. As one diplomat puts it, “solidarity is important, but it should follow rules. It is not just ad hoc giving.”

Who pays for SREDA?

Apr 13th, 2013

by Jordon Cooper.

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The mayor is off on a trade mission to China. SREDA points out that they are paying for the mayor’s portion of the trip which is true.

SREDA and the Mayor’s press release fail to point out that the major portion of SREDA’s funding comes from…. wait for it… the City of Saskatoon. It includes three members of city council on its board of directors as a result.

To be honest, I don’t care of the city pays for Mayor Atchison’s trip to China or not. He’s a good salesperson and networker and will do a good job in representing the City of Saskatoon and it’s business interests but it bugs me that we play these games instead of coming out and just saying what is going on. Taxpayers are paying for part of the trip.

Of course in the process of answering Jennifer Quesnel’s questions about the trip, SREDA CEO said this. Someone needs to let SREDA know that as a partially taxpayer funded organization, people are going to care how that money is spent.

200 countries, 200 years, 4 minutes

Apr 11th, 2013

by Jordon Cooper.

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Top Conservative Fundraising Firm Lays Off Staff

Apr 8th, 2013

by Jordon Cooper.

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This is interesting

The company behind the Conservative Party’s powerful fundraising and voter-identification machine has been laying off staff and borrowing millions of dollars at high interest rates as it faces an “extremely challenging” cash crunch.

The Toronto-based iMarketing Solutions Group Inc. (iMSGI) last week issued layoff notices to an unspecified number of telephone workers in its call centres across the country.

The company posted a net loss of $3.9 million in the quarter ended last September, citing a downturn in its U.S. business and a “significant decrease” in its Canadian political fundraising and direct voter-contact work.

Under the name Responsive Marketing Group (RMG), the company performed the Conservatives’ voter-contact operations during the last election and was also hired to make calls for the campaigns of 90 Conservative candidates. RMG continues to work as the party’s telemarketing fundraiser.

The Tories have excelled at fundraising through the dexterous use of databases of known and likely supporters willing to make small donations when contacted by phone by RMG.

RMG has provided similar services to the Ontario Progressive Conservatives, the Wildrose Party in Alberta, the Saskatchewan Party and the B.C. Liberal Party.

But iMSGI is now cutting back on cold-calling to raise money for its roster of mostly conservative political clients, instead focussing on higher-yield calls to likely donors, according to a letter obtained by the Ottawa Citizen.

The letter from iMSGI’s human resources director Stephanie Hornby to laid off staff members said that “circumstances relating to economic pressures has resulted in iMarketing Solutions Group Inc. (iMSGI) to (sic) make the decision to temporarily cease new donor acquisition calling and focus resources on retention calling and high value house-calling.”

Calls soliciting new donors are less profitable for call centres than “retention” calls to people who have given money in the past.

“The nature of our business often necessitates ramping work up and down based on business requirements,” Chief Executive Officer Andrew Langhorne said in an email on Friday.

While some of Twitter are gloating over a Conservative firm’s demise, I am assuming they had to ramp up and expand to deal with the federal and provincial elections in the last two years and now are in an electoral down cycle with far less business coming in from Canada and the rather quiet American election cycle. To be honest, fundraising for the B.C. Liberal Party doesn’t seem like a lot of fun right now.

It does give you an idea of how political fundraising works and how hard it is to sustain it. Some might find it interesting that the Saskatchewan Party hires outside the province fundraisers. So much for a “Made in Saskatchewan” solution for the party.

New Apple HQ to cost a cool $5 billion

Apr 6th, 2013

by Jordon Cooper.

1 comment

From Business Week

Jobs displayed several renderings of a headquarters intended to accommodate more than 12,000 employees in a single, circular building. “It’s a little like a spaceship,” he said of the massive, four-story ring, which, at 2.8 million square feet, would be two-thirds the size of the Pentagon and set among 176 acres of trees where today there are mostly asphalt parking lots. “We have a shot,” he said, “at building the best office building in the world. I really do think that architecture students will come here to see it.”

Jobs died four months later, before the final plans could be submitted to Cupertino city planners, but he had made it clear that this corporate Shangri-La would be expensive. Apple would add 6,000 trees and hide nearly all the roads and parking spaces underground. There would be plenty of cafeterias, including one that could handle lunch for 3,000 employees. Jobs highlighted the main building’s curved exterior walls. The plans call for unprecedented 40-foot, floor-to-ceiling panes of concave glass from Germany. Before the Cupertino council, Jobs noted, “there isn’t a straight piece of glass on the whole building … and as you know if you build things, this isn’t the cheapest way to build them.”

He had that right. Since 2011, the budget for Apple’s Campus 2 has ballooned from less than $3 billion to nearly $5 billion, according to five people close to the project who were not authorized to speak on the record. If their consensus estimate is accurate, Apple’s expansion would eclipse the $3.9 billion being spent on the new World Trade Center complex in New York, and the new office space would run more than $1,500 per square foot—three times the cost of many top-of-the-line downtown corporate towers.

Before his death, Jobs had hoped to break ground in 2012 and to move in by the end of 2015. Apple will start tearing down the 26 buildings on the site in June, according to another person familiar with the plan. At the company’s annual meeting on Feb. 27, Chief Executive Officer Tim Cook said the move-in date has been pushed back to 2016. Apple declined to comment for this article.

One reason for the new timetable, say three people who have spoken to Apple personnel about the project, is that the company has been working with lead architect Foster + Partners to cut $1 billion from the budget before proceeding. Jobs and Apple first hired Norman Foster’s firm, renowned for the rebuilt Reichstag in Berlin and Hearst Tower in New York, in 2010. Apple has named a general contractor—a joint venture of DPR Construction, in Redwood City, Calif., and prefabrication specialists Skanska USA Building in New York—but has not finalized agreements with the scores of subcontractors needed to complete the job. Some contractors will be submitting bids by May. There’s so much dirt to be removed, excavating the site will take six months and require a continuous, 24-hour convoy of trucks, says a former Apple manager who heard a presentation from Foster’s firm.

Cost overruns are to be expected on large construction projects, and the scale of this one has evolved—from an initial plan to accommodate 6,000 employees, to offices for 12,000 or even 13,000 in one place. Meanwhile, $1 billion is still less than 1 percent of Apple’s $137 billion in cash reserves. Yet the multibillion-dollar budget for Campus 2 could add fuel to the debate about what Apple’s doing with all its money. Investors didn’t squawk much when Apple was dominating the smartphone and tablet market, but shares have fallen 38 percent since September amid rising competition from Samsung Electronics and concerns about Apple’s product pipeline. Now shareholders are calling for a big dividend, stock buyback, or, in the case of Greenlight Capital’s David Einhorn, the issuance of a new class of preferred shares. Apple has hinted it might oblige in some way, but critics are sure to question whether curved glass is the best use of funds. “It would take some convincing for me to understand why $5 billion is the right number for a project like this,” says Keith Goddard, the chief executive of Tulsa-based Capital Advisors, which owns 30,537 shares of Apple. “This is rubbing salt in the wound, to spend at a level that most anyone would say is extravagant, at a time when they’re being so stingy on dividends.” If the stock continues to underperform, Goddard predicts, “this headquarters would perpetuate the negative story.”

Learning to love big oil

Mar 19th, 2013

by Jordon Cooper.

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Don’t criticize me for posting this, I am from Alberta after all.

The drivers of the trucks are here for the same reason I am: the boom in drilling for oil and natural gas. The vast, dry lands south of Vernal hold about half of the state’s active rigs and present a veritable smorgasbord of opportunities for energy extraction: shale aplenty, fracking for both oil and natural gas, and even the state’s very own poised-to-open tar sands. Uintah County has been Utah’s main oil producer for more than 70 years. As far back as 1918, National Geographic extolled the area’s potential: “Campers and hunters in building fires against pieces of the rock had been surprised to find that they ignited, that they contain oil.” In other words, what is happening here is no nouveau drilling dalliance, no young sweetheart in first flush, freshly wooed, like the Bakken Field in North Dakota, but an on-again, off-again affair that has been going on for decades.

It is that affair that interests me, with all the salacious details of how Big Oil sidles up to a town, flirts with it, and wins it over. Not to mention what happens if — or, more accurately, when — the wooer decides to ditch the wooed.

In Vernal, population 9,000, evidence of earlier wooing abounds. A quick ride around town reveals Big Oil’s equivalent of a dozen roses or a box of candy. There are shiny new schools and municipal buildings and ballparks. The Western Park Convention Center, covering 32 acres, is one of the largest buildings of its kind in the West. Not every town hosts a golf tournament called Petroleum Days or throws a music festival — like last summer’s weekend-long Country Explosion — co-sponsored by a maker of centrifuges and mud/gas separators. Then there’s the Uintah Basin Applied Technology College, a beautiful sandstone building with the streamlined look of a brand-new upscale airport.

On my first visit to Vernal, in the heat of July, I peeked in on a class called Well Control, where a movie was being shown that, unlike the grainy safety films of my youth, had the production values of a Spielberg movie. There were models of oil derricks in the lobby, with the name Anadarko, the giant Texas oil company that is one of the area’s main employers, prominently displayed. In this case, Anadarko’s particular bouquet was a $1.5 million gift for construction and faculty endowment.

It was a short drive over to the rec center, a looming spectacle of oaken beams and concrete and great sheets of glass that revealed within Olympic-size pools and running tracks and climbing walls and squash courts. It looked as if Frank Lloyd Wright and Frank Shorter had gotten together to build their dream house. This building points to one of the less obvious ways the town has been wooed. While Anadarko alone paid $14 million in county property taxes last year, the total income for Vernal and Uintah County from oil and gas far exceeds this number, as a result of sales tax, production taxes, mining royalties, and lease payments on federal land. In other words, the building is not a gift outright but the metaphoric equivalent of Big Oil saying, “Here, honey, go buy yourself something nice.”

It starts out well

“When I first came here in the seventies, it was a beautiful place,” Herm said. “A lazy Main Street lined with cottonwoods. The old booms had faded, and the two top businesses in town were agriculture and tourism. People came to see the dinosaur quarry at the park. People came to float on the river.”

He held out his large hands, palms up. “And what are we left with now?”

Certainly not tourism. A tourist would be hard pressed to find a hotel room in Vernal. In fact, while oil jobs and the services that support them have been rising, the numbers of people employed in agriculture and recreation have fallen dramatically.

And then there were the busts. Herm remembers the last one. Storage lockers of people’s possessions being auctioned off. Houses foreclosed. He is not against drilling, he told me, but what is lacking is perspective and long-term thinking. The problem is exemplified by the archetypal Vernal high school student who drops out, lured by the chance to make money working in the oil fields, and buys a house, a big truck, some ATVs.

“What happens if that job goes away?” Herm asked. “He is left with no education, many debts.” In fact, at the public meeting where Herm questioned the oil orthodoxy, a boy just like that stood up and said, “If we don’t keep drilling, how will I pay for everything?”

Herm wasn’t trying to drive oil out of town. He was merely suggesting that Vernal proceed with some restraint and consider investing in the future. For that he was greeted with fury, even death threats.

Over the past 40 years Herm had seen Big Oil bring its gifts, and its gifts were shiny. But he had also seen oil and chemicals foaming and floating down the Green River. He had seen rising crime, prostitution, spousal abuse, and a culture defined by the twentysomething males who come to work the oil fields. (Utah has a higher incidence of rape than the national average, and Vernal has a much higher rate than the state as a whole.) Air quality has dramatically worsened; last winter’s ozone levels in the county rivaled those of Los Angeles.

All this has made Herm a little less giddy than most about Vernal’s prospects.

“I’ve been through it before,” he said. “They come into your neighborhood. They change your neighborhood. Then they move away. And we’re left to pick up the pieces and pay the bills.”

The party does always end but it’s going to be going on for a while, even in towns like Vernal. Yet even in Alberta, the party may not end, it may be occasionally interrupted.