10/08/2018

Facing Red Wing’s Reality

clip_image002What is often called “optimism” is often delusion. In the case of the city of Red Wing, Minnesota the city’s historic planning for spontaneous, prosperous and strong growth has been a city delusion almost since the city’s founding. The Prairie Island Nuclear Plant went online in 1973. As you can see by the city’s population history, the city’s population jumped by about 30% between 1970 and 1980; mostly fueled by the power plant employees’ inflated salaries. The two reactors are slated to go off-line in 2033 and 2034, since Xcel has no plans to renew the 60 year licenses. The Treasure Island Resort and Casino opened in 1983, which provided another smaller spurt in the city’s population. Since 2000, the town’s population has been, essentially, flat at about 16,000 people and the city only added about 1,000 people between 1990 and 2000.

However, the city’s optimism has been fueled by drunken sailor optimism since the city’s inception in the 1850’s. In 1995, the city built a 222 acre high school complex capable of housing a lot more than the current 1,000 8th-12th grade students. Current demographics and population growth trends indicate that considerably less of the facility will be needed or used in the next few years. The city just finished “investing” $3M in the Sheldon Theater, a show place that has no more chance of providing taxpayers a return on their investment than Donald Trump has at competently reading a teleprompter. This past year (2017), the city council voted to add a 2nd fire station to the west side of town, where it is desperately hoped the city’s growth might happen due to the miniscule commuter advantage to the Twin Cities. Over the past two decades, there have been several attempts to encourage some population growth on the west side of town with minimal results. You would think that a growth plan would assume and encourage some kind of mass transit to the Cities, like rail, but the city and Goodhue County both assume similar or increased car traffic in spite of obvious trends away from single-passenger vehicle commuting. When the Prairie Island power plant begins to shut down, it is reasonable to expect that a population roll-back similar to the 1970’s growth will occur and the city will be stuck with several expensive, oversized facilities and a drastically reduced tax base.

New Picture (1)In an effort to reel-in as much property tax as possible, this tiny town has incorporated 41.19 square miles of the Mississippi River valley. As Google Maps aptly illustrates, very little of the City of Red Wing is “city.” About 6.6% of the city is water and at an average of 475 inhabitants per square mile practically a ghost town. If the city were as dense as the Twin Cities, one of the least dense cities in the nation, we’d be at around 1,800 people per square mile and would need only about 9 square miles of that 41.19 square mile city; which means at least 32 square miles is largely unoccupied but still requires the city services and resources.

All of that acquired territory was gathered when a small portion of that real estate (Prairie Island) brought large tax revenues. Fairly regularly, Xcel and the NRC do a little song and dance around the illegally stored spent fuel cask inventory and nuclear facility relicensing. Some part of that dance routine occurs every seven years, with the latest one in 2015. Xcel does an ROI analysis at each approval, inspection, or maintenance interval with political, economic, and risk assessments at each turn. Renewables are becoming a large part of the company’s income with considerably less downside at risk. It shouldn’t be a surprise to hear that Xcel decides to begin to decommission Prairie Island rather than invest the millions necessary for the next refueling. The company has clearly stated that it “has no intention” of asking for another NRC license extension in 2033. Somewhere between now and 2033, 40-70% of Red Wing’s property tax base will vanish and with it a fair number of the highest paid residents in the area. Unless there is some miracle replacement for that revenue, property taxes will either skyrocket or Red Wing’s city services will take a huge hit along with the higher-than-typical city and county employee salaries.

Red Wing PopulationAt the risk of being accused of being alarmist, I think Prairie Island’s closing is going to be an unrecoverable hit to the city of Red Wing. Based on the city’s sudden growth when the power plant was first installed, this chart is my estimate of what will happen to the population of Red Wing, Minnesota; depending on when Xcel decides to start shutting the plant down. This estimate only considers the effect on the city if just Prairie Island closes. (If you have Excel, you can play with my data on this spreadsheet.) Odds are, as the city’s tax base gets kicked in the ass by the largest property taxpayer the city will first try to shift the burden to other local industries. If that happens, more than just this one critical employer could vacate the premises. If that happens, those nasty looking downturns beginning around 2022, 2029, or 2033 will look a lot worse. If Xcel is followed out the door by BIC, Red Wing Shoes, or any of the other major employers the city could even be forced into bankruptcy.

Atlantic City PopulationThanks in part to our current Bankruptcy King/President, we have a model of this kind of community catastrophe. In 1930, Atlantic City had a population of 66,000 citizens. In 1976, the voters legalized gambling. By 1990, the city had lost 28,000 citizens and after a brief faux-boom the city’s casinos (including Trump’s) began to close their doors, declare bankruptcy, and default on owed property taxes. Residents were left holding the bag and many of them were forced out of their homes by the city’s attempt to avoid defaulting on local government pensions, reducing costs, and downsizing the bureaucracy. If you don’t think Atlantic City tax-ratethis could happen to Red Wing and you are a local resident, you will keep your eyes tightly closed and wish for a miracle. If you are a realist, you have to be worried about the county and city’s extravagant spending habits and exorbitant civil service wages (and the resulting pension expenses).

What kind of “miracle” could prevent this small town exodus and economic downturn? I can’t think of an industry that could replace Xcel and Prairie Island, but it’s not hard to imagine a combination of Red Wing’s strong infrastructure, mass transportation, and internet entrepreneur-ship that could at least stem the tide. Red Wing has affordable 21st Century internet service, which is unusual for Minnesota and the upper Midwest. There is still a train station and AMTRAK service to Red Wing, although it is too unpredictable, slow, and infrequent to be considered much more than a placeholder until (and if) real infrastructure improvements happen.

The real miracle would be a sudden burst of realistic thinking by the City Council, school board, and local residents. The current thinking is “spend it while we have it,” but that’s not what’s happening. The city government is spending a whole lot of money it doesn’t have as most of that spending is financed with bonds and debt and there is little-to-no municipal or county savings for the rainy days that are sure to be coming. It’s easy to imagine that if Red Wing began to build up a reserve of cash for the future, current residents would whine that if the city can afford reserve funds it can afford to reduce taxes. Americans, especially faux-conservatives, are really lousy when it comes to acting fiscally conservative. We are the most timid nation on the planet when it comes to science, rational thinking, education, foreign relations, and pretty much anything that might take more than a sentence to explain, but we are fearless when it comes to long term debt. I can’t decide if its because many Americans either think their gods will save them or if they just don’t care about their offspring; or both. Whatever the cause, it’s not a good trait over the long haul.

3 comments:

  1. Anonymous10/12/2018

    Seems like the kind of speculation that could make you unpopular with the city's promoters.

    ReplyDelete
  2. Anonymous10/18/2018

    What do you think of the cities plan to build low income housing and senior housing next to Mayo?

    ReplyDelete
    Replies
    1. There is too much of a "we need to spend it while we have it" attitude in the Red Wing city government. They know that Prairie Island's property tax contribution will decline to zero by 2033 and desperately want to keep building empires while that cash lasts. When that money stops, the city's infrastructure will be unsustainable.

      Delete