Risky Ventures With Your Tax Dollars

Have you heard about the investor who just got “smoked” (in baseball parlance) by Boston Red Sox legend Curt Schilling?

The former baseball ace has been attempting to establish his video game company 38 Studios for the past several years. The firm managed to launch its first game Kingdoms of Amalur: Reckoning a few months ago, but last week it bounced a check to its own financial supporter.

Start-up video game companies are exceptionally risky ventures, of course. Even firms that have seen immense success, such as Atari during the 1970s and early 1980s, have later plunged into financial distress. And many analysts believe that the current group of up-and-coming video game and virtual reality host companies, including Second Life and Zynga, face financially uncertain futures.

So which investor rolled the dice and gambled its funds on Curt Shilling? And which parties will be left “holding the bag” if Shilling’s firm fails to climb its way out of its fiscal hole?

The Knowledge District

Believe it or not, the investor is the State of Rhode Island. Thus, undoubtedly, the taxpayers of the Ocean State will be expected to absorb the loss if the tiny start-up firm and its line-up of video games fail to vanquish Microsoft’s Xbox, Nintendo’s Wii, Sony’s PlayStation, and other market competitors.

The state’s investment decision actually originated with Brown University’s decision to build its new medical school complex on an attractive redevelopment site that is conveniently located in close proximity to Interstate 95, the downtown Providence business area, the University campus, and the existing medical center district. Had the state simply provided Brown with redevelopment funds, its investment might have drawn criticism for being a giveaway of land by an economically depressed state to a relatively affluent local organization.

So instead of redeveloping a single parcel with Brown, the state of Rhode Island and the city of Providence decided to position its economic development initiative in much broader (and, undoubtedly, more expensive) terms.  Accordingly, then-Governor Don Carcieri announced that the Ocean State would support the development of an entire Knowledge District on the redevelopment site, a District that would embrace both medical and video game technology firms.

No other major firm has (yet) announced its intention to move to the Knowledge District. Meanwhile, the Mayor of Providence continues to struggle with the city’s fiscal problems by persuading Brown University to increase the taxes and other payments that it contributes to the government.

From Nanotechnology to The Racino

Before we condemn the state of Rhode Island for wasting scarce funds on ill conceived ventures during a time of immense fiscal austerity, it may be appropriate to remind ourselves that the state has plenty of company. After all, many of its neighbors in the region are also supporting equally risky ventures.

Governor Danell Malloy of Connecticut, for instance, has spent $291 million to entice a single organization named Jackson Labs to move from Maine to the Nutmeg State in order to develop a nanotechnology district. Meanwhile, Governor Andrew Cuomo of New York has proposed to allow Genting of Malaysia to build a $4 billion convention center on the site of a racetrack / casino (known, quite literally, as a “racino”) in southeastern Queens.

And which northeastern political leader has made the biggest bet of all? It might be Governor Chris Christie of New Jersey, who has agreed to support the completion of the failed Xanadu complex. Originally conceived as the largest indoor amusement park and shopping mall in the United States, the partially completed hulk of a building now looms in a forlorn manner over the northern swamplands of the New Jersey Turnpike.

The original developers had already burned through $1.9 billion when Governor Christie committed additional state funds. New Jersey taxpayers now stand to lose an additional $200 million, beyond the $1 billion they have already sunk into the project.

Successes and Failures

No one can deny that certain massive redevelopment projects have enriched their communities. Baltimore’s Inner Harbor project, for instance, gave new life to the Charm City. And Boston’s Big Dig project has converted an ugly overhead highway into an emerald necklace of parkland.

On the other hand, though, the California city of Stockton continues to threaten to become the largest city in the United States to enter bankruptcy court, a financial condition caused in large part by overspending on a waterfront sports arena and entertainment district. And Camden, New Jersey continues to be one of the nation’s poorest cities, with scarce resources dedicated to accommodating and supporting the privately owned, for profit Adventure Aquarium.

But at least Camden and Stockton, though flirting with insolvency and bankruptcy, can still offer their citizens access to some attractive waterfront attractions! Residents of Connecticut, New York, and New Jersey have yet to reap the benefits of their governors’ respective investment ventures. And as for Rhode Island, although the Kingdoms of Amalur do exist in virtual reality, the Knowledge District very much remains a work in progress