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City also giving up revenue on BLD complex
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Editor, Manteca Bulletin,

This is in regards to your June 7 column, “Manteca needs BLD-style solution for library needs”.

I take no sides as to whether using RDA funds to build BLD was a good idea or not. However, I do take issue with your continued assertion that the $17 million in operational cost “saved” by the city is somehow free money.  It is not.  It has a real cost to the city.

In accounting you can’t just pick and choose certain revenues and costs to report.  You must account for everything, but pick and choose is exactly what you do by arguing the city is saving $17 million in operational cost without reporting the other side.  The other side being unrealized revenue.

For the sake of example, let’s suppose you decide to rent your house.  You have one of two options: 1) rent it yourself, or 2) pay a property manager to rent the place for you.  Let’s say your house can be rented for $1,000 per month and incurs $750 in general operational cost each month (maintenance, taxes, insurance, etc.). If you rent it yourself  your net will be $250 after reducing revenue by operational cost.  Now if you use a property manager you will be no better off, in fact after the property manager charges you a fee (let’s say 10% of the gross) for the privilege of paying your operational cost you will be worse off than if you had rented it out yourself.  Using a property manager you will net only $150 a month.

Sure, if you use a property manager you will no longer be paying that $750 monthly in operational cost up front, but you will be paying it none-the-less.  There is a real cost  to “avoiding” that $750 in operational cost and it is $100 per month in fees to the property manager.   That $750 in operational cost that you are “saving” is not free money as you want to claim.

Likewise, BLD (which is nothing but a property manager) isn’t paying that $17 million out of the kindness of its own heart, it is paying that $17 million because for the Manteca operation BLD’s revenue obviously exceeds cost of operation.  I say “obviously” because BLD certainly isn’t paying that $17 million in operational cost if its revenue is going to be less than $17 million, just like no property manager would be willing to pay $750 in operational cost if your house could only be rented for $500.  The difference between revenue and cost is profit and whatever that profit may be (above and beyond what the city receives from profit sharing) that is what it is costing the city to “save” $17 million.  So, by leasing out operations of BLD the city isn’t saving any money at all, rather it is foregoing revenue.

It is not a hard concept to understand, yet repeatedly you claim the city is somehow saving money, when it isn’t.  If you are going to claim the city is saving $17 million in operational cost, then in order to accurately report the true savings or costs to the city, if not for the purpose of journalistic integrity, you need to consider the city’s unrealized revenue. 

Robert Plante
June 7, 2010