Opinion: Carolina Beat

With Raleigh Times Loan, City Council Keeps Playing With Its Food

With its 7-1 vote to lend $50,000 to owners of the Raleigh Times restaurant, the Raleigh City Council appears eager to throw good money after bad. The vote came weeks after another downtown eatery, the city-subsidized Mint restaurant, closed its doors. Over four years of operation, the Mint experienced a net loss of $400,000.

The Mint’s story was sad, and avoidable, but in approving the Raleigh Times loan, the council appears determined to repeat it.

Some council members wanted to impress out-of-town guests visiting their taxpayer-subsidized convention center and their billion-dollar remake of Fayetteville Street. So they decided Raleigh needed a white-tablecloth restaurant on Fayetteville Street featuring “low country” cuisine. They took an empty space in a city-owned building and gave the Raleigh Restaurant Group a cool million dollars to convert it into a glamorous dining establishment. The first month after opening in January 2008, the Mint lost $96,000. That’s a whopping $3,100 a day.

While the Mint continued racking up heavy losses, city council members could not admit defeat, so they renegotiated the rental contract in April 2011, giving the Mint a $1,200 monthly reduction in rent. 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 three years. Now, after one year of cut-rate rent, the Mint has gone bust.

Will the city council admit defeat, get out of the restaurant business, and save taxpayer dollars? Not on your 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 told ABC11-WTVD that the taxpayers have not lost anything on this deal. That is true only in the fantasy 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 demanded in rent without the $1 million in restaurant equipment and renovations. Let’s say the city had rented the location to a business for retail or office space and the renters paid for their own equipment and furnishings. The rent paid by this business likely would be $600,000 or more, and taxpayers could have kept the $1 million in their pockets.

In addition, the city might have been able to raise 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 half to one third of the original purchase price.

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 economics professors at N.C. State University who would love to have him in their microeconomics class where freshmen learn about “opportunity cost.”

Unlike the Mint, the Raleigh Times has not been a failure. Far from it. The loan from the city will help underwrite an expansion of the eatery, which has outgrown its current space. No word yet on whether the Times will have to adjust its menu to satisfy the palates of council members.

Using public funds to help the successful Raleigh Times is no less foolhardy than using them to prop up the Mint. Whether they’re subsidizing failure (the Mint) or success (the Raleigh Times), Raleigh politicians are using tax dollars to substitute their preferences for those of local diners. They need to stop playing with their food.

Michael Sanera is director of research and local government studies at the John Locke Foundation.