The following article by Dave Trabert, president of the Flint Hills Center for Public Policy, was printed in yesterday’s Wichita Eagle.
Trabert makes the case for broad-based policies that will benefit all companies, not just those who happen to qualify for government economic development programs.
A specific example of a small business struggling but not qualifying for assistance was presented by Steve Compton, owner of the Eaton Steakhouse in Wichita. In February he spoke to the Wichita City Council and explained the difficulties his business is facing. He asked the council to consider small businesses just as much as large businesses and corporations when deciding who will receive economic assistance. My post At Wichita City Council, why are some doors open, and others closed? holds Mr. Compton’s remarks. The post In Wichita, let’s have economic development for all holds further information about this.
At nearly every Wichita city council meeting, the city dishes out economic development favors. Many are in the form of industrial revenue bonds, which allow companies to buy property without paying property tax for some term of years, and in some cases, they can avoid paying sales tax on the purchase. These favors seek to narrow the tax base at the same time politicians like Mayor Carl Brewer promote broadening the tax base. For those companies who can’t qualify for these economic development programs — not to mention residents — their taxes are higher than they would be.
Public Effort Should Benefit All Taxpayers, Not a Select Few
Flint Hills Center for Public Policy
A recent Wichita Eagle commentary by Doug Stanley, vice chairman of the Greater Wichita Economic Development Coalition, made the case for government to invest taxpayer money in developing “shovel-ready” sites to attract a wide range of new employers, especially large industrial and manufacturing companies. He says consultants who work with large employers on site selection give preference to communities that have made the upfront investment to save them time and obviously, a lot of money.
The logic is that communities want jobs, so some companies and their site consultants use that carrot to entice local and state governments to absorb a portion of their upfront risk. It’s easy to understand what’s in it for the company receiving a taxpayer-funded inducement to build, and these deals certainly give elected officials a chance to show taxpayers that they’re working to create jobs. Some jobs are created if one of these deals gets done and that’s a good thing, but “buying” those jobs is not the best use of taxpayer money.
First of all, it’s a roll of the dice as to whether spending money on shovel-ready sites will actually result in job creation, and even when it does, it’s not unheard of for some recipients of taxpayer money to close or leave town. Sometimes they even threaten to leave if they don’t get more money for new projects. It’s not unlike betting money in Las Vegas; you might win once in a while but the House is the only winner in the long run. Come to think of it, though, the bettor always wins in this case. If they place a bet on a site and eventually land some jobs, they get the credit; if they lose, well, it wasn’t their money … it belonged to taxpayers.
The real conundrum, though, is why government and economic development entities place risky bets that only really pay off for a select few instead of going after a sure thing where everyone wins. A new employer coming to town with a few hundred or even a thousand jobs gets a lot of headlines and large employers are certainly important, but they pale in comparison to the jobs provided by small business. According to Dun & Bradstreet data analyzed at YourEconomy.org, 73.5% of Kansans employed in 2007 worked for businesses that employed fewer than 100 people.
Instead of picking winners and losers, government should be doing things that benefit all taxpayers and employers of all sizes. Find ways to operate more efficiently and reduce property, sales and income taxes. Eliminate a lot of the bureaucratic red tape in the licensing and permitting process. Creating a stable, pro taxpayer environment is the best kind of economic development; instead of costing taxpayers money, it puts money in their pockets.
There’s no doubt that governments and economic development agencies feel pressure to compete with communities that offer inducements to potential employers, but they should be creating strategies that benefit all taxpayers instead of a select few.