Sunday, June 28, 2015

More on the Ulster County Railroad Dispute

Yesterday, I blogged about the Catskill Mountain Railroad dispute. This is an email that I sent to Senator James Seward:

Dear Senator Seward:

There has been an ongoing dispute between County Executive Mike Hein and the Catskill Mountain Railroad, which leases a railroad right of way that Ulster County bought about thirty years ago.  I have blogged about the dispute at  .  The best way out of the conflict is to introduce open bidding so that the party that can most efficiently use the right of way can acquire it through privatization at optimal gain to the county.  That can be accompanied with a tax credit to businesses local to the track, which have been hurt for a century by the Ashokan Reservoir and New York City’s predatory policies. 

The possible bidders are New York City, the existing railroad, and the railroad’s competitors, one of which has told me that it wishes to acquire the track.  The city has already offered a grant to fund removal of the track and replacement with a trail, but it is far from clear that the $2.5 million offer contemplates losses due to the ensuing depression in tourism.  In 2014, the existing railroad’s first good year, about 40,000 visitors came to the railroad.  This meant a million dollars in revenue. At three percent interest, the present value of lost [railroad] revenue of one million dollars per year into infinity is $33 million, but costs need to be subtracted. [In the email I omitted to mention that there may be as much as a $1 million annual loss-- an additional $33 million present value--to local diners, stores, and restaurants; that would reflect $25  in spending per visitor. The present value of the total loss may be closer to $20 million.]  A more complex estimate would need to determine what the value added to the county is; value added includes local wages and purchases of supplies from local businesses.  A $10 million price is probably closer to the value that the city should pay to remove the track.  The city has long exploited Ulster County through one-sided, manipulative deals, as David Soll’s Empire of Water makes clear.

The conflict has reached the point at which a Republican insurgent candidate, Terry Bernardo, has stepped forward.  The solution set of both sides has heretofore been limited to two artificial poles:  (1) the city and  the Catskill Mountainkeeper’s proposal for a trail, which makes artificial projections about the extent of potential use and is indifferent to the effects on small businesses, and (2)  the existing Catskill Mountain Railroad’s proposal to extend the existing arrangement, possibly through a rail plus trail. The Catskill Mountain Railroad  has failed to live up to its 25-year agreement to rebuild the track and has refused to make its financial statements public.  Its business plan does not contemplate its ability to raise the appropriate level of financing.  To be competitive, the city’s bid would need to add say $10 million to the bid that the CMRR or other railroads make to compensate the region for the loss of tourism.  That amount of money could be used, if the city’s bid is successful, to fund tax credits that will enable existing businesses to expand and develop alternative tourist attractions.

Although this issue is not in your direct domain, Senator Seward, I would like to suggest that you offer to procure expertise at the state level to help the county structure public hearings and a public bidding process that will enable the diverse interests to make competitive bids for the property so that it can be privatized and used for the best benefit of the people of Ulster County.  The competition between secretive lobbyists at the DEP and the Mountainkeepers versus the secretive lobbyists at the CMRR is no way to resolve a public debate.  I am copying the Ulster County Legislature with respect to this idea.


Mitchell Langbert

Saturday, June 27, 2015

An Open Bidding Process Is Needed to Resolve the Catskill Mountain Railroad Debate

I just wrote the following email to Terry Bernardo, who is likely to run for Ulster County executive, and David Donaldson, who is a member of the Ulster County Legislature and who had been contemplating a run.  Bernardo and Donaldson have been motivated to consider running by a debate concerning the Catskill Mountain Railroad.  I was drawn into investigating the question by Mike Marnell, owner of the Lincoln Eagle, who is committed to supporting a renewal of the Catskill Mountain Railroad's lease.  After investigating the problem, I found that the facts do not support Marnell's position, and I have resigned from the Lincoln Eagle (which didn't pay me but for which I had contributed extensive amounts of volunteer labor).

County Executive Mike Hein has proposed replacing the track with a hiking trail. Environmental extremist Kathy Nolan, head of the Robert Kennedy Jr.-backed Mountainkeeper organization, has lobbied for removal of the track.

The Catskill Mountain Railroad might be the best available entity to run a railroad on the county-owned tracks that run from Kingston to Phoenicia,  but I doubt it.  At a minimum, alternatives should be investigated and a bidding process established.

The assumption that the county is limited to two options is misguided. In the black-and-white world of the Lincoln Eagle, the two options are (1) dismantling the tracks to satisfy the extremist views of Kathy Nolan and her Mountainkeeper organization, which has pressured County Executive Mike Hein to remove the tracks and (2) renewing the existing Catskill Mountain Railroad's contract.  
Other options are available and should be investigated.  These include opening a bidding process that will ensure that the county optimizes economic value by selling the land to the most efficient interest. Railroads have minimal environmental impact, and a bid that involves reconstructing and making the track environmentally sound would address any realistic concerns.  The businesses along Route 28 should not be asked to cater to the peccadilloes  of Kennedy and Nolan.  Considerations include both the land value and the attraction of tourism to the region.

There is no reason why the city can't bid on the land, but if there is a cost to the county in terms of lost tourism, the city needs to compensate the county for the lost value.  That money should then be returned to businesses in Kingston and along Route 28 through a tax credit.   In other words, the bidders can include railroads and the city, and an estimate of the economic impact on tourism can be integrated into the bidding process.  The CMRR, the city, outside railroads, environmental groups, and others should be permitted to bid.  A bipartisan panel should be set up to review the valuation on tourist impact.  The CMRR attracted approximately 40,000 visitors in 2014.  The evidence of a tourist impact of a trail would need to be based on impacts of other regional trails such as the Erie Canal park.

Dear Terry and David:

In the past few days I have participated in an interview with County Executive Mike Hein and with a competitor to the Catskill Mountain Railroad.  I have also read the CMRR’s business plan and a response to it by a Ulster County Community College professor who was taking Mike Hein’s side. [Hein has supported replacing the railroad with a hiking trail.]  I have rethought my position on the railroad for several reasons:

1. I was surprised to learn that the CMRR is a private corporation.  As such, it has received a monopolistic, subsidized lease for the rail right of way. 

2. The CMRR sued the county in response to a letter concerning its failure to develop the railroad tracks. Part of the suit involved the county’s demand for disclosure of the railroad’s financial statements.  A judge ruled that the railroad does not need to disclose its financial statements.

3. I have asked Ernie Hunt [the head of the CMRR] to see the railroad’s financial statements, and he has refused my request.

4. Not-for-profit corporation status is better suited than for-profit status for a monopolistic lease, especially when the lessee depends on volunteer labor so that there is risk of fraud.  As well, the county is entitled to know whether there is fraud, excessive salaries, misuse of funds, hoarding of funds, or other abuses.

5. Other railroads in the region are interested in leasing or purchasing the railroad right of way, especially if it includes a right of way to an active line so that they can transform the railroad into one that functions in a way more like a  normal railroad or that can intermodally transfer passengers to and from a commuter line. Executives from other railroads have indicated that an arrangement along those lines is possible.

6. Just because the CMRR received a lease 25 years ago does not mean that it should receive a lease again.

7. I was told that investment capital is available to competitors, owners of another railorad, and they might make a financial offer to the county if the line is extended to an active railroad.

8. The CMRR’s business plan presented to Mike Hein contains no specifics about any search for or offer of private financing.  There is no indication that they have tried to obtain financing or that a private financier would fund their operation given that they rely on volunteer labor.

9. I am concerned about the ethics of a monopolistic corporation (granted a unique lease) that refuses to disclose its financial data to the public. In the post-Enron era, financial transparency is a priority.  Al Higley, Mike Marnell and others vouch for the integrity of the CMRR’s leadership, but that is not enough; many famous people vouched for Enron.

10. There is no reason why the railroad right of way can’t be put up for a competitive bid.  That would seem to resolve the question of what economic use is best for the railroad right of way.  The grant offer from the city should serve as a baseline, and an RFP for competitive bids should be put up as a call option. If any proprietor, including the CMRR, is willing to offer more for the right of way than the city is, then that bid should be taken. The right of way should go to the best offer. Nothing prevents the railroad or any other bidder from working with the city to create a rail plus trail.

11. The right of way should be established to optimize what the bidders are willing to offer. I assume that will mean extending it from Kingston’s rail line into the Catskills.

As a result, I am not confident that the current railroad is the right entity to operate a railroad.  I have been told that the reason that the CMRR refuses to make their financial results public is that they have an us-versus-them mentality.  In other words, they are paranoid rather than crooked.  That is still inappropriate for a for-profit corporation that is receiving a monopolistic contract from the county.  As well, the railroad’s first good year, 2014, generated a million dollars in cash.  What has been done with the cash? Was it used for capital improvements, as the railroad is contractually obligated to do? Was it paid to shareholders or in salaries?  Has it been hoarded? 

Refusal to make financial results public is to me problematic, and I will not support such an entity.  Not-for-profit corporations are required to make their results public.  I will not lift a finger to help an entity that will not tell me how it spends its money. When I give to charity, I use ratings to determine the best charities.  This situation is unsavory.

I will be happy to discuss my concerns with you in person.  At this point, however, I have serious reservations about supporting a secretive corporation that receives public benefits.  The days of Jay Gould and August Belmont are long past.


Mitchell Langbert 

Monday, May 18, 2015

Lost in the Woods

The New York Sun has written an editorial about the New York Times's proposal that the International Monetary Fund, an organization that should have been closed four decades ago, should be strengthened.  The Times' s views have become irrelevant to intelligent thinking about policy, but it is sometimes fun to through darts at the dying paper, much as children tear off a moth's wings. 

The Sun mentions that Arthur Hays Sulzberger, the husband of the Times heiress, Iphigene Ochs Sulzberger,  sacked Henry Hazlitt, who is stil alive to some of my students because I assign his Economics in One Lesson in one of my classes.  The reason for the sacking was a disagreement concerning the IMF and the Bretton Woods monetary agreement. 

Sulzberger's sacking of Hazlitt must have been a point of inflection in the Times's downward trajectory, an earlier one having been Adolph Ochs's 1935 death.  Hazlitt's perspective is radically different from today's Times's social democratic goose-step, so it is hard to conceive that Hazlitt was on the Times's staff as recently as 1946.  

Why did Sulzberger care so much about the Bretton Woods agreement? The post-war period was an inflection point because of the introduction of monetary stimulus that had long-term effects on the stock market and on real estate development. The 1949 Housing Act, which created urban renewal, was passed three years after Hazlitt's sacking.  New York City developers were among the chief recipients of loan money that was used to construct suburbia and Manhattan's office buildings as well as public housing. The Times played a critical role in stimulating urban renewal, as recounted by Robert Caro in The Power Broker. 

 A national central bank-created currency that is used around the world will tend to be inflated as the national bank expands the money supply to meet special interest pressures at home but, because of global demand for the excess currency, does not pay the penalty of decreased imports and higher consumer prices . The amount of dollar currency in circulation around the world is forty percent to sixty percent of the total.  There has been inflation indeed, but the dollar has not devalued at the rate it should have given the rate of money printing. 

An exodus of manufacturing, an overconstruction of real estate, and the 2008 financial meltdown have resulted from importers' not paying the full penalty of a devalued dollar and from developers' not paying the full cost of money.  The system has produced stagnant wages and misallocated resources through subprime construction and excessive specialization in services that can't be exported.  It is unstable in the long term.  

At this point, the abolition of the legal tender law, which will be consistent with recent attacks on holding cash that Joe Salerno described at the Stamford Von Mises Institute event two weeks ago and so might be palatable to America's dictators at the IRS, might be a more realistic step than reintroduction of gold backing. By abolishing the legal tender law private sector monetary alternatives can evolve.  

Saturday, May 9, 2015

Once Again, America Lags by a Year

Margaret Thatcher preceded Ronald Reagan by a year, for she was elected prime minister in 1979, and Reagan was elected president in 1980. The recent election of David Cameron may portend a similar reaction to big government excess and contempt for the Constitution under Barack Obama and the Democrats. 

The United States has been in decline with respect to the economy. Putting aside President Obama's massive subsidization of the super rich through quantitative easing and the subsidies to Wall Street that he has continued from the day he took office through today, the real hourly wage has stagnated:

There are different results if you look at production and nonsupervisory workers rather than all workers, but the message is similar: There has been wage stagnation since 1964, and the Democrats have not changed the trend.  Rather, the trend began with Johnson's escalation of the Vietnam War in 1964 and Nixon's abolition of the gold standard in 1971. The stagnation
in the average worker's wage that has occurred during the Obama administration, during the rule of a party that claims to represent the working class, suggests a failure of economic policy. 

As well, President Obama has precipitated a Constitutional crisis. Through a policy of centralization with respect to health care, the Common Core, and now police, during the past six years President Obama has shredded the Constitution's chief assumption: division of powers. 

Under Nazism Hitler centralized police enforcement in the federal Schutzstaffel or SS. Wikipedia writes, "The Nazi Party monopolized political power in Germany... key government functions such as law enforcement were absorbed by the SS, while many SS organisations became de facto government agencies." 

In 2013 Radley Balko wrote in the Huffington Post that Obama has continued seven federal programs that can be interpreted as steps on the way to federalization of the police. In 2014 CBS News wrote,"President Obama is using an executive order to standardize the way the federal government distributes military-style equipment to state and local law enforcement agencies." Such centralization is among the most extreme breaches of the spirit and substance of the Constitution outside the economic sphere. The Constitution hsa been irrelevant with respect to economics since the days of FDR. 

Given the failure of the Democratic Party to live up to any of its claims, either that it is more libertarian on civil rights issues than the Bush administration was or that it can improve its voters' economic lives, the election of David Cameron may presage a new Reagan.  

The Wall Street Journal  describes Cameron  as less than enthusiastic about globalizing institutions but enthusiastic about decentralizing decision making in Scotland. Most importantly, though, the British seem to have rejected the Labor Party's economic incompetence, with the Conservatives seizing the center. 

Hopefully, Americans will find a center that not only rejects the anti-Constitutional centralizing trend of the Obama years but also reinvents the free market system that once made America the richest country and now, because of its rejection, has made America the eleventh-richest country, a has-been.