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Point Austin: Grackle Eaten Here

There's a bitter taste accompanying any Formula One deal – good or bad

By Michael King, Fri., June 17, 2011

A few weeks ago, I promised my boss Nick Bar­baro that I would cheerfully eat crow if what I had written (see "Point Austin: Race-Off," May 6) about Austin's pending Formula One deal – essentially, that as I understood it, the deal would not qualify as a city subsidy of the Grand Prix race – was proven wrong. The test was to be whether, in the following weeks, F1 attorney (and Barbaro's bête noire) Richard Suttle would come to City Council and request $4 million to help support the first 2012 event (and potentially also contract for similar support for 10 years).

Well, last week Suttle came before the coun­cil, but he didn't request the $4 million; indeed, he offered the city $4 million – to be raised from private sources (i.e., a "Local Organizing Committee") – that would become a revolving fund, reimbursed annually from the incremental city taxes raised from the event itself. But there's a catch, of course – with Suttle there's always a catch, Nick would say. The real money at issue is the $25 million state contribution to the Major Events Trust Fund, for which F1 only becomes eligible at the instigation of an official local sponsor – in this case, the city of Aus­tin. Comp­troller Susan Combs has long since earmarked $25 million for the franchise fee payable to English F1 owner Bernie Ecclestone, but in legal fact, the process can't even begin until a local entity – e.g., the city of Austin – makes the request.

Where does that leave me? I don't think I'm bound to eat crow, but for Nick's sake, it's arguable I should be a little peckish for oh, grackle, or maybe mockingbird. Because as this F1 deal is taking shape – and most especially in light of the still ongoing public disaster at the Capitol – what looks like a potentially great deal for Austin increasingly looks like a bad deal for Texas.

Put simply: If the current political leaders of Texas adamantly refuse to invest in education or in health care for Texans, what possible business do they have investing in sporting events like road racing – no matter how much money those events might recoup for local businesses and taxing entities?

Race to Nowhere

I'm hardly the first person to have second thoughts on this deal. State Sen. Kirk Watson, who sponsored the 2009 bill that added F1 to the Major Events Trust Fund, recently voted to strip the funding (the vote failed). On the Senate floor, he praised the F1 project as a "great opportunity" for Central Texas, but – pointing specifically to the more than $25 million in budget cuts anticipated for Austin ISD – he continued, "I'm really troubled that we should be prioritizing funding to an annual sporting event, no matter how exciting it might be and how much it might do, when we're not funding basic necessities."

For me, there's the rub, and it's a considerable one.

I haven't yet been convinced either by the glowing economic predictions of the event supporters ("free money!") or by the glowering portents of disaster ("no hotel rooms!") from the opponents. Despite all the histrionics, this is not a morality play; this is a business deal, and like every business deal, it holds advantages and disadvantages for the city. If council can get the financial guarantees it requested last week, it likely makes purely economic sense. The backers are already sinking $250 million (representing hundreds of jobs) into the facility, and if the event performs like this year's Super Bowl for the Metroplex, the return in taxes alone will more than cover the trust fund set-aside, as it did there – and that's before the millions in economic activity generated by the event itself and then (more importantly in the long run) the subsequent southeast development. If the event doesn't perform, the $4 million ante is the local organizing committee's problem.

It sticks in my craw that the comptroller promised what she couldn't deliver and provided a sloppy generic revenue estimate that was rightly torn apart by opponents at last week's council session. If the actual economic study – and the contractual guarantees of no liability for Austin – are not sufficiently convincing, the city can and should walk away and let Combs figure out how to make good on her sweet talk.

Photo Finish

I spoke with Assistant City Manager Sue Edwards about the proposed arrangements and asked her repeatedly if there's some way the city is going to be on the hook for anticipated or unanticipated costs for F1. She said she believes the anticipated $4 million return will be enough to cover any of the city's eligible event expenses, but she also went considerably beyond that in describing the city's posture in negotiating its contracts with F1 and the state. "What we've said is: If there are eligible expenses more than what we can get covered [by the fund]," Edwards said, "then Formula One has to cover those."

While the specific form of that guarantee is still being discussed, Edwards reiterated: "We could say, 'Formula One, you cover any eligible expenses that we don't get reimbursed the first year.' There's a number of ways we could do that. But what we have said is: Any way that we do it, we're going to be held harmless."

So whatever council finally decides, it appears to be doing its level best to confirm Mayor Lee Leffingwell's assurances that no up-front city money will be put into a project that represents potentially major economic (and other) returns for Austin, and that the city will be guaranteed against loss. That's not to say the city should do the deal. As Watson said, under the state's current financial priorities and decision-making, it's difficult to justify even good economic development investments if the consequent return is not going to be reinvested in the state's basic necessities, like education and health care or even infrastructure.

The state's legislative actions have made the F1 deal much less palatable for Austin, and pending negotiations and more information, it's not yet clear that the city's participation makes sense. But whatever the final decision, the caricatures we've been offered so far by supporters or opponents will not be much help in making it. Unlike those caricatures, it's become a really tough call, and council should perform a complete and thorough due diligence on the tangible and intangible consequences of entering the game, before it decides to make a play or fold its cards.

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