The pursuit of growth

Now we find our bi-partisan delegation of state legislators writing the governor to urge him to support running sewer and water out to the Brainerd Regional Airport. A project that came out of nowhere has somehow become our highest regional priority. How did this occur and why are we suddenly willing to spend all our local clout on it?

Since we could not find any reference to this project – not even a passing mention -- in any master plan or other long range document the city has made available on their website, we asked the city staff where the project came from. The answer: a document called the Northeast Brainerd Sanitary Sewer and Water Master Plan.

The first thing to note about this document, and the thing we are going to focus on today, is the date it was prepared: February 2006. This is the peak of the housing bubble and the rush of local governments to cash in on new growth. Our collective delusion that this bubble represented real, sustainable growth would be revealed a short two years later. That delusion is embodied in this pre-crash report.

“Growth and expansion of the residential, commercial and public services industries of Northeast Brainerd, Brainerd-Crow Wing County Regional Airport and Crow Wing County as a whole have prompted the initiation of this study and master plan.” (page 1)

Of course, in retrospect we can ask: what growth? While there has been some marginal expansion and some reuse of buildings that had been abandoned (the former Pamida, the former JC Penny’s, the former Montgomery Wards, the former Sears), it would be a far stretch to say that NE Brainerd, particularly between the East Brainerd Mall and the airport, has seen robust growth. This is a case of assuming that a rising tide will raise all boats, but that never actually happened.

But this plan follows an earlier model that, in 2006, Brainerd officials thought was working.

“In 2001, the city of Brainerd completed a similar master plan for sanitary sewer and water utility expansion north of the city proper, including CSAH 20 (Riverside Drive) and the Mississippi river uplands on the northern edges of the city.” (page 1)

New "growth" in annexed land to north of the city. Lots of optimism but little results. Are we really going to try this again?The financial disaster that the Riverside Drive gambling project would become was not yet fully exposed in 2006, a time when there was still confidence that all that public liability could generate Baxter-style growth opportunities. Today, as a result of the Riverside Drive project, we have miles of pipe in the ground that we have no plan, and no realistic expectation, to make productive use of it.

Does this cause us to pause and reevaluate our assumptions on doing this again, only in an area that has shown even less growth potential? Of course not. We need the growth and we have no other ideas on how to create it except to expand horizontally.

In 2006, we believed:

“Land that is currently zoned commercial and light industrial, the Highway 210 corridor, will be developed and will likely include both service and retail sectors. Infill of existing suburban residential lots will occur, and planned residential developments will be considered for vacant acreage that currently is buffered from highway corridor development.” (page 1)

We can clearly see now that these beliefs were unfounded. We thought we knew what we were doing. We didn’t. You could say it was forces beyond our ability to control or predict, but that only makes the point. The Riverside Drive project then and now this utility expansion project are simply huge gambles, one that the current generation is not paying for (assessments and state/fed transportation dollars paid for Riverside Drive and the state will pay for the airport project) but which the next generation of Brainerd residents will be forced to maintain.

The Northeast Brainerd Sanitary Sewer and Water Master Plan – the basis for the project that has now become our top regional priority – is a plan for growth and expansion written at the height of the housing bubble. It has not been updated for the new economy. The assumptions of future growth have not been rigorously analyzed based on what we now know. This project is simply the result of a system operating on autopilot.


To summarize where we are at so far in this series about the airport utility project:

  • There are options for solving the problems at the airport that would be vastly cheaper. (Fire Marshal Demands?)
  • The project is being done to create growth opportunities.
  • Growth projections were done at the height of the housing boom and have not been updated since the dramatic change in market conditions.

In the next post, we’ll look at the overly optimistic growth assumptions for this project and show how, even if the growth somehow actually took place as predicted, the project is still a bad investment for Brainerd.


Traditional Neighborhoods

A little break from airport talk to look at the familiar choices facing one West Virginia city.


The Fire Marshal Demands?

We're reasonably informed people, especially when it comes to what is going on with the city of Brainerd. We regularly read the local news. We've read all the city’s plans that are posted on their website. We occasionally browse meeting minutes and agendas. We talk to people around town. While it is not impossible that we would be unaware of a major $7.1 million utility project being pushed by the city, it wouldn’t seem likely.

Yet, the first time we heard of the upcoming airport utility project was an article in the Brainerd Daily Dispatch. The article wasn’t about a public meeting to discuss the city’s capital needs. It wasn’t about multiple city priorities where this was part of the discussion. It wasn’t even a staff member identifying a perceived need.

The article was about the imminent funding of the project by the legislature.

“You’ve got to be kidding me.”

That was how County Commission Rachel Reabe Nystrom reacted to the news, demonstrating that we weren't the only one with some shock at how this obscure need has now apparently become the area’s top spending priority.

In a future post we’ll focus on public input (or, more specifically, the absence of any real public input), but today we are going to look at the reason given for the project. As per the Dispatch article:

The impetus for the bill was a state fire marshal demand that the airport improve its water capacity by April 2016. Currently the airport’s sprinkler system is connected to a well that depends on electricity.

This seemed a little crazy. There are lots of options for meeting state fire marshal requirements for fire protection, options that would cost only a fraction of the cost of this project. It seemed so crazy, in fact, that we contacted the state fire marshal to ask for clarification. Here is what their spokesperson indicated:

There was a plan review for a new sprinkler installation system when the Brainerd Regional Airport improved and expanded its terminal building in 2011.

As an assembly occupancy, the new terminal size required fire sprinkler protection. There was no municipal water available at the site, but there were plans for the city of Brainerd to provide municipal water in its long range plans.

The State Fire Marshal Division allowed airport officials to temporarily connect the fire sprinkler system to an on-site well and tank arrangement until the municipal water became available and, as standard operating procedure, put a sunset provision on it. April 2016 was the target date for them to have municipal water or provide a separate system of fire pump and stored water in accordance with NFPA standards.

I have included a copy of the permit/plan review. As you will note in item No. 1 below, a private on-site water supply is an option.

Please let me know if you have any other questions.


Jen Longaecker

Attached to this post is the inspection report prepared by the fire marshal. As Ms. Longaecker indicated, item #1 clearly indicates that this project, as being put forth, is not being required by the state.

A permanent municipal water supply (at least 12in DIP) must be provided to this building by 4/26/2016 or a private on-site water supply must be provided. The permanent water supply shall be proven to be adequate for the system at the time it is installed.

In short, there are other options, including an on-site system, which would cost a lot less money. A LOT less money.

In our next post, we will start to look at the reasons why city officials and others are advocating for the more expensive approach.

Fire Marshal Request


The Airport Project, Intro

Very soon the 2014 legislative session will convene in St. Paul. This is an even year which means the primary focus of the session will be the bonding bill, an authorization for the state to borrow hundreds of millions of dollars for capital projects around the state. This year it is anticipated that Brainerd will get a direct windfall in the bonding bill in the form of around $7.1 million for running sewer and water to the Brainerd Regional Airport.

Is this a good project for Brainerd? Some would argue that it is free money so, sure. Others would say that any investment of this size will create construction jobs and the potential for future growth, so it has to be good. A bipartisan group of local state representatives, our local government officials, representatives of the Chamber of Commerce, the Brainerd Lakes Area Economic Development Corporation and Region 5 all support the project. Why would anyone who is serious think it was a bad idea?

Over the next few posts we’re going to look in depth at this project, how it came to be, what the assumptions behind it are and why it is bad for the future of Brainerd. Among other things, we’re going to show:

  • It is not needed.
  • It is not a local priority.
  • It is low return on the state’s investment.
  • It will create enormous long term financial burdens for the city.
  • It is based on a pre-housing-correction model that has not worked locally, even before the housing correction.
  • There are no realistic reasons to think the project will create significant jobs, growth or prosperity.
  • The decision to prioritize this project does not reflect the priorities of residents or business owners.

And most importantly, there are so many other things the city could do with $7.1 million that actually would make residents and businesses better off, it would be a shame to continue down this path without asking ourselves an overdue question:

Can’t we do better?

Yes, and in fact, we must do better. Just this past weekend, the Star Tribune reported how the flow of people in the Twin Cities metro has reversed with more people now moving to the urban core while suburban development wanes. This same dynamic is happening around the country and is trying to happen here in the Brainerd Lakes Area, yet we’re not seeing the results.

If this region is going to prosper, if we’re going to avoid slipping back into the stagnation, boom/bust and low wages of a tourism/retail–based economy, we have to start doing things differently. We have to act on – not just talk about – the city council’s priorities of neighborhood investments and stable financial planning. And the first step for that is redirecting our efforts away from these old economy, build-it-and-they-will-come, gambling projects and into sound, neighborhood investments.

Stay tuned.


Making Money

Today in the Brainerd Daily Dispatch there was report of a very interesting exchange at last night's council meeting. It started with a logical question about the city's debt, a topic we've written about here before.

Matthew Seymour of Brainerd wanted to know more details on the city’s debt and how the city planned to handle the increased debt.

“This is a huge part of the budget and I’m more worried about the debt (than the increase in 2014 taxes),” said Seymour.

Us too. Debt makes us very fragile and while the state seems flush with cash for the moment, that huge percentage of our budget that relies on St. Paul's ongoing generosity should make all Brainerd residents and business owners nervous.

Here was the response.

[Brainerd finance director Connie] Hillman said part of the reason why the debt is higher is because the city has not sold all of its industrial park properties. Once the properties start to sell the city will make money, she said.

City Administrator Theresa Goble said the city also hasn’t received all the money through its Beaver Dam Road and Riverside Drive improvement projects. Goble said once more people are hooked up to city services that the money will come in.

Let's first examine this notion that the city is going to ever "make money" once these properties sell. How does anyone know? Seriously, nobody has ever done the math to see if these properties will generate more revenue over the long term than they create in costs for the city. This math has never been done. There is no target number for sale price, land valuation or fee revenue that has been done. We have no clue if we will ever make money because nobody has ever figured out what that would take.

When the city finance director says "make money" that really means "cash flow," which is a far, far cry from being financially solvent over the long term. Is the tax base of these properties going to be sufficient to cover the cost of maintaining and servicing them over the long term? Nobody knows, but there is good reason to believe that, even if the lots sell, it won't even be close.

And that "if" is a BIG if. The city used borrowed money to gamble on new growth in the industrial park. There are currently 21 lots sitting empty with infrastructure in place just waiting. "Shovel ready," as they say in the business. City taxpayers are covering that gambling debt until there is some cash flow revenue from the sale of those lots.

Empty developments with full utilities off of Beaver Dam Road. Even if they build out, the tax base will never be there to maintain all of this.The same thing has happened with the Beaver Dam Road and Riverside Drive expansions. We have acres and acres of vacant property where the city, again with the use of public debt, is the gambling partner on speculative development. I think city officials would argue that these looked like sound investments until the housing market downturn but, unfortunately, even if these developments had built out as hoped, there was no wealth to be had for the city. We're not doing the math.

These are bad decisions we can't undo and so it does us little good to rehash them unless we can use the experience to draw some lessons. Here are two.

First, we shouldn't be considering another multi-million dollar expansion of the sewer and water systems out to the airport, even if the bulk of the cost for the initial installation is going to be covered by state debt, not local debt. We've shown that we are not very good at gambling on future growth (the reality is that no city is -- some are just luckier than others). If we've learned anything, it should be to shun these so-called "transformative" investments.

Second, there are other alternatives to the big gambling project and we should be pursuing those vigorously. In October, we released a report called Neighborhoods First that showed how we can implement the city council's stated priority of neighborhood investment by using an incremental approach. We outlined eight low risk, high return projects in the Northeast neighborhood that the city can do today. We also offered to train the staff and city officials (at no cost to the city) on how to incorporate this approach into their annual capital improvements and budgeting process.

We need to be honest with ourselves and acknowledge that our approach is not working, that we aren't ever going to "make money" in our current approach. We need a new mindset, one that plays to the city's strengths. We can improve the lives and fortunes of our residents and business owners and create real wealth and prosperity within this community, but only when we stop gambling and start investing incrementally in our core neighborhoods.