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Daily Journal

Raleigh Needs Tips From Kitchen Nightmares Host

Apr. 13th, 2012
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This week’s “Daily Journal” guest columnist is Dr. Michael Sanera, John Locke Foundation Director of Research and Local Government Studies.

RALEIGH — As the John Locke Foundation predicted when the doors opened in 2008, Raleigh’s city-subsidized Mint restaurant is closing its doors after a net loss of $400,000.

Here is the short version of this sad story. Some city council members wanted to impress out-of-town guests visiting their taxpayer-subsidized convention center and their $10 million remake of Fayetteville Street. Thus, the need for a white-tablecloth restaurant featuring “low country” cuisine on Fayetteville Street. They took an empty space in a city-owned building and gave the Raleigh Restaurant Group a cool $1 million to convert it into a glamorous restaurant. The first month after it opened in January 2008, the Mint lost $96,000. That’s a whopping $3,100 per day.

When the Mint continued racking up heavy losses, city council members could not admit defeat — or suffer the political repercussions — so they approved a renegotiated rental contract in April 2011 giving the Mint a $1,200-per-month rent reduction. The city defended this move by stating that the rental reduction was for three years on a 10-year contract. Rent increases in years four through 10 would make up for the reduction. That excuse was laughable at the time because no one believed that the Mint would make it past three years. Now, after one year of cut-rate rent, the Mint goes bust.

Interestingly, the Mint’s owners seem to be walking away in order to open their own restaurant called Oro in the nearby PNC Plaza building, leaving Raleigh’s taxpayers holding the bag. Maybe they got tired of city council members dictating the “low country” cuisine menu and the white tablecloths.

Now will the city council admit defeat, get out of the restaurant business, and save taxpayer dollars? Not on you life. The plan is to reopen the restaurant with new owners and a new concept. Perhaps a hot-dog stand would work this time?

City Manager Russell Allen claims on ABC11 television that the taxpayers have not lost anything on this deal. That is true only in the world of public-sector accounting, not in the real world of basic economics. First, you have to compare the city’s claim that the Mint paid $600,000 in rent to what that space could have been rented for without the $1 million in restaurant equipment and renovations.

Let’s say the city had rented the space to a business for retail or office space and the renters paid for their own equipment and furnishings. The rent paid by this business would likely be at or above the $600,000, and the taxpayers still would have the $1 million in their pockets. In addition, the city might even have raised the rent since 2008 rather than reducing it by $1,200 per month as it did for the Mint. In addition, how much is that $1 million of restaurant equipment and furnishings worth now? If sold at auction, the city would be lucky to get back one-third to half of the original purchase price.

To illustrate this point, let’s assume the city had a $1 million to invest and had a choice between a bank on Capital Boulevard that paid 5 percent interest and another bank on Fayetteville Street that paid 1 percent interest. In order to promote downtown business activity, the city council selected the Fayetteville Street bank. After a year, the downtown bank went out of business. At this point, the city manager claimed that the city did not lose any money because the failed bank paid the city 1 percent interest, or $10,000. Unlike the city manager, any reasonable person would conclude that the city lost $40,000 on this decision.

Mr. Allen really needs to sign up for a refresher course in basic economics, and possibly reality, if he is to continue to provide the city council advice on economic matters. I know several qualified N.C. State economics professors who would love to have him in their microeconomics classes, in which freshmen learn about “opportunity cost.”

City council members are getting plenty of help from the press in their effort to sweep this under the rug. The News & Observer and WRAL have failed to mention this story. It seems that their role as boosters of former Mayor Charles Meeker’s downtown boondoggles has gotten in the way of their journalistic responsibilities. Thus, the current mayor and city council are likely to continue to fleece taxpayers by staying in the restaurant business. New owners with a new concept will be found, and the city will give them another sweetheart deal at taxpayer expense. The city manager will continue to try to snow the public and a complicit press with his public-sector accounting.

I have a suggestion. Perhaps city council members could become reality TV stars by inviting Kitchen Nightmares host Gordon Ramsay to teach them how to run a restaurant.