COAST wanted to know -- what is financial proforma of the project?
For big government advocates let us explain, in a rather simplistic way, how the free market would look at a project like this:
- First, one would calculate the expenses of operating such an enterprise, including lighting, heating, air conditioning, and staff for setup, tear down, clean up, and scheduling and administering the project.
- Then, that number would be subtracted from the expected gross revenue from the project.
- That net income would then be compared to the amount of capital investment to develop a ROI (return on investment) calculation.
If that ROI compares favorably to other investments, and recognizes the inherent risks of the failure of the investment, it may be considered a risk worth taking; if it compares unfavorably, then the developer, lenders and investors likely will take a pass.
But in order to make an educated decision about the investment, you need to know these numbers: projected expenses, projected gross income, and the cost of the capital investment.
We asked City officials to show us the estimates of these numbers and the overall proforma of the project. To our utter shock and amazement there are none. None at all. The City has no earthly idea of the revenue that will be generated from the project. They have no idea what it will cost to heat, cool, light and operate the atrium project. They have no idea, therefore, of what their net operating income from the project will be, and thus, compared to the capital expenditure what the ROI will be.
This is such basic business 101, we are speechless.
Well, sort of.
Usually the M.O. of the City is to make up some fantasy projections, supplement them with a "multiplier" study from the University of Cincinnati, and predict some fantastic economic development arising from the boondoggle expenditure.
Here, they didn't even bother. It's the same bad, horrible investments. They just skipped a few steps in this instance.