MSM Falls Down on Costco Story

Here’s one more element of the Costco story for MPW readers to mull over: the issue has exposed the limitations of the local mainstream media (MSM) in reporting on the internal workings of government.

Consider how this story developed.

Westfield Wheaton has been in negotiation with Costco to move into the space vacated by Hecht’s in 2005 for quite some time. Recently, Westfield approached the county seeking a subsidy to support the cost of construction necessary to prepare the mall for tenancy by Costco. Westfield, of course, had acquired another subsidy for its Macy’s tenant just a few years before. The Executive Branch supplied the following rationale for the new subsidy to the County Council:

From the initial development of Westfield’s financing pro forma, the company has sought the County’s financial assistance to attract Costco to Wheaton. Based on prevailing market conditions, the rate of return Westfield projects from a $28 million investment (of the $58 million project costs, Costco will reimburse $30 million) is insufficient for Westfield’s corporate management to approve the Wheaton project over other competing Westfield projects around the country. Westfield has estimated the financial gap at $4 million plus.

Note the fact that the administration did not identify the rate of return expected by Westfield, the rate of return typical in the retail real estate industry for such projects or the exact reason for the “$4 million plus” needed for the project in contrast to some other amount. No private investor would ever invest millions in any project on the basis of such scanty information.

Accordingly, the County Council reacted with skepticism when the administration presented its case for the subsidy in closed session on January 12. Immediately after the session, administration officials scrambled into action, contacting community members that they believed would be supportive. Some of them began calling and emailing the council within hours. This occurred despite the fact that the issue was supposed to remain secret through the commitment of both branches of government. These contacts alarmed some in the council building because it was an obvious breach of closed session rules by the administration. This proved to be the downfall of the administration’s strategy as MANY hands reached for their cellphones. If they can leak, so can we. Soon enough, the leaks turned into a water sprinkler.

MPW broke the story on January 15 and our initial post remained the only account on the subject for over 48 hours. The first MSM article that contained original reporting on the matter appeared in the Examiner on January 17, which quoted Marchone’s owner Filippo Leo as saying that “we will not survive” if Costco arrived. NBC 4 went up on January 18. The Gazette first reported on the issue late on January 18, almost four days after the story broke. By then, the story had spread as far as India. And in an epic disgrace for the Washington Post, the newspaper has not only failed to report on the Costco story at all, it instead chose to re-write a County Council press release about a new bill on development oversight introduced by Council Member Duchy Trachtenberg.

When the MSM has reported on the Costco issue at all, its coverage has tended to be spare and formulaic. The last Gazette article was typical, offering a bare bones description of the project followed by standard pro and con views. The Washington Business Journal was even worse, quoting only project promoter and Director of Economic Development Steve Silverman. No one delved into the data, the process or the politics of the issue.

In the meantime, events swiftly left the MSM behind. On Sunday, January 17 - a day before the Gazette’s first article - Silverman began the defense of the subsidy on this blog. The next day, Just Up the Pike author Dan Reed – an employee of Council Member George Leventhal – also defended the project and linked to the Gazette article quoting Leventhal’s similar defense without disclosing his employment relationship. That attracted baleful notice in the council building. More importantly, some Council Members struggled with the subsidy in the face of the county’s $608 million budget deficit. “Well, for me it is very hard to justify spending $4 million while we are in the process of budget cuts,” said one. “This is a moral issue for me,” said another. “I don’t want to look my constituents in the eye, cut their services and give away $4 million to a giant retailer.”

As a result of these tensions, a secret straw vote of the County Council scheduled for Tuesday, January 19 was postponed. But the administration did not stop lobbying for the project. In a closed meeting with small businesses in Wheaton that same night, a Westfield representative pleaded poverty in making the case for the subsidy. One attendee at the meeting wrote, “To that end Jim Agliata from Westfield stated that it had been four years since Hechts left the mall and that millions in lost revenue have made the situation for the mall precarious if not dire.” That statement ignores the fact that Wheaton is the second-most profitable mall of the 55 malls owned by Westfield in the U.S. Its modest sales per square foot is more than offset by its relatively low property value, which minimizes its property taxes. Westfield’s aggressive assessment appeal strategy further minimizes its tax liability. And since the assessment of Westfield’s main parcel has just dropped by almost 11%, Westfield’s property taxes will fall even more. Neither the administration (which knows better) nor the MSM have questioned Westfield’s characterization of its finances. Nor have they discussed Westfield’s hypocrisy in seeking a subsidy for itself while opposing tax breaks for its tenants.

On Wednesday, January 20, Council President Nancy Floreen arranged for the nine council Chiefs of Staff to be lectured about “leaks” by a council attorney. This provoked much amusement in the council building, as well as – of course – multiple leaks. With due respect to the Council President, she is missing the point on two counts. First, the “leaks” began with the Executive Branch, which operated in bad faith with the council by launching a selective community lobbying campaign just hours after the supposedly secret closed session. And second, what government officials call “leaks” we call “public information.” This process should never have been closed to begin with.

At the moment, the administration is having problems rounding up majority support for the subsidy on the council. Economic Development Director Steve Silverman, displaying the competitiveness that served him so well in his years on the County Council, is still trying to push the deal through. (We hope he applies the same energy to landing Northrop Grumman.) Anything could happen. The subsidy could be reduced, eliminated or restructured. Or Westfield and Costco could decide to go ahead with the move with no public money, just as Best Buy did successfully in 2006. Costco told the Wheaton small businesses that they have 62,000 members in Central Montgomery County. Are they really going to walk away from those members over a measly $4 million? And in the future, both the Executive Branch and the County Council will be sure to be more cautious about discussing matters like this in secret.

You will read none of the above in the MSM. Its performance on this issue has proved to be just as dismal as its coverage of the 2009 District 4 special election. Make no mistake - the local MSM contains several fine reporters who break stories and turn out good work on a daily basis. But the Costco story reveals several general truths about most members of the local MSM press corps. Very few of them have any investigative research skills. They shy away from financial data. They do not aggressively hunt scoops. They do not have large source networks, especially outside the narrow ranks of government officials. They do not continuously try to expand, develop and diversify their source networks. They do not write with history or perspective. They dispense with creativity in favor of formula. They are complacent with being late, or in not covering issues at all.

And they wonder why we won’t pay for newspapers.