Over 1500 years after the Roman Empire collapsed under the weight of its burdensome welfare state, the late Romans' idea of state-subsidized entertainment—or "bread and circuses" as one contemporary historian derisively called it—endures in twenty-first century America.
Across Michigan, state and local governments can be found operating (or subsidizing) everything from art galleries, museums, and symphony orchestras to waterslide parks, tennis courts, and sports stadiums.
But if government officials insist on spending scarce resources to build commercial projects for entertainment and profit, they should at least seek the aid of private-sector contractors to manage the projects at lower cost to taxpayers.
Some argue that government should not concern itself with the entertainment of its citizens, believing it is fundamentally unfair to tax one person to subsidize the leisure of another.
Some officials are doing just that with SMG, a private, for-profit facilities management group based in Philadelphia. The group, which has offices in 25 states and five foreign countries, manages 68 buildings worldwide (23 more than their nearest competitor) including arenas, convention centers, theatres, and stadiums. Two of those facilities are in Grand Rapids, and each provides a good example of successful private-sector operation of publicly owned properties.
The Grand Center
The Grand Center is a 20-year-old convention center and banquet hall built by the city of Grand Rapids and subsidized by taxpayers for most of its existence. One year, losses totaled $800,000. Finally, in 1994, the city's part-time mayor, John Logie, made the decision to contract out the Grand Center's management to SMG. Almost immediately, the company turned the Grand Center around, moving it from 1996 losses of $150,600 to an "operating excess" surplus of $126,000 in just 12 months. These net revenues were the first in the Grand Center's history.
The Grand Center was neither the first nor the last government-sponsored facility to be helped by SMG's management. The Centroplex in Baton Rouge, Louisiana; the Peoria Civic Center in Illinois; and Pepsi Arena in Albany, New York, all have seen their cash flows go from negative to positive within 12 months of SMG taking over management of the facilities.
Van Andel Arena
The Van Andel Arena, which opened its doors to the public in the fall of 1996, is virtually in a class by itself. It is formally owned by Grand Rapids's Downtown Development Authority (DDA), but is being run now by SMG, under contract with the DDA. DDAs are state creations that allow local governments to "construct, rehabilitate, equip, improve, maintain, or operate any building within the downtown for public or private use." They are only allowed, however, in areas that have suffered a decline in the number of businesses in the city.
In the early 1990s two members of the Van Andel family, Jay and Betty Van Andel, paid $1 million for a feasibility study for building the arena. Jay Van Andel is co-founder of Amway and a highly regarded Grand Rapids philanthropist. When the study revealed that a downtown sports and entertainment facility would be viable, they donated an additional $10 million to get the project moving. Another $10 million was raised privately with contributions from other sources, and the rest of the $75-million price tag was financed by floating bonds that are paid for from arena ticket sales.
The city, to its credit, has avoided directly subsidizing the arena with tax dollars, making it a rare bird among city-owned recreational facilities. Indeed, in 1995 only 6 of 27 publicly owned arenas of a size similar to the Van Andel Arena could claim that they made more money than it cost to operate them.
Mayor John Logie reports that in the first year of management under SMG the arena made $1 million in profits, the second year $1.5 million and the third year $2.2 million. In addition, Amusement Business Magazine named the Van Andel Arena America's number-one arena for its size (seating 10,000-15,000) based on gross ticket sales for 1998 and 1999. This is likely due to SMG and its management team, which took over operations at Van Andel Arena nine months before it opened its doors.
Some argue that government should not concern itself with the entertainment of its citizens, believing it is fundamentally unfair to tax one person to subsidize the leisure of another. But since so many public officials have gone ahead and done so, they would do well to look at examples like SMG and its operation of Van Andel Arena, which, unlike similar arenas around the country, has not required direct tax subsidies.
Success stories like the Grand Center and Van Andel arena show that private management can be a good answer to the mismanagement and lost revenue that plague so many public facilities.
Anna Stephens is a winter research intern with the Mackinac Center for Public Policy.
Michael LaFaive is managing editor of Michigan Privatization Report.