Tuesday, January 26, 2010

The 2010 Trade In

The city of Toledo's CSI (Citizen's Special Investigation) Task Force met last night for the first time to discuss ways to fix the projected $44 million city budget deficit. A number of things were discussed in order to close this monumental gap ($9 million of which appears to have been carried over from the "balanced budget" of the previous year), including a proposal to put some city owned properties up for sale. 

While I agree with the philosophy that municipalities have no place in the business of business and even less with being a landlord and property owner (other than municipal buildings of course), I am forced to question the timing of this thinking. 

First, putting real estate up any market in the US right now seems counter intuitive, as prices are down across the board. Putting property up for sale in the current Toledo market seems almost counter-intelligent, as the market here is horrible and there is little private money available finance commercial real estate purchases. It is doubtful that the city would be able to recover what they originally paid for such properties, let alone make a profit. 

Second, selling assets to pay for recurring debt is something that most financial advisers will tell you to avoid. Imagine for example that you own a car and would like to trade it in for another. You go to the dealer and negotiate a price, but when it comes time to sign you lease rather than purchase, using your existing car as a down payment to reduce the debt incurred. 

In the short term, you will sign a lease based on a smaller financed amount and have less debt; but in the long term you will have given up a fixed asset and when the lease is over you will have nothing to show for it. So too with this potential asset sale. 

True, selling The Docks, the parking garages, and some of the parkland will close the massive gap between revenue and expenditure that the city is looking at. Next year however, the gap will return, and the assets will be gone forever. While thinking outside of the box is to be applauded by the Mayor and this commission, no real "balanced budget" will be achieved until the city begins to operate like the taxpayers who fund it and they begin to spend only the money that they can expect to have coming in.

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