Local incentives to selected businesses: A cycle that should be broken
Date published: 3/24/2008
OUTSIDE BUSINESSES usually do not locate in a place because of the bright smiles of the burghers and the rosy cheeks of their children. Nor do local governments avidly court businesses because they're hot to trot after anything that wears an "Inc." or an "LLC" after its name.
Both parties seek financial gain, which is why Fredericksburg has offered or aims to offer incentive packages--sales-tax rebates and such--to Kalahari water park, fancy Wegmans grocery store, Capital Ale House microbrewery/restaurant, and, for expansion purposes, downtown's Kybecca wine shop. The city hopes that these enterprises, at a time of flattening municipal income, will stimulate much of the taxable spending that Fredericksburg needs to operate.
Alas, it isn't only the felicity of the English language that "incenting" violates. It also runs roughshod over sound democratic and free-market principles. For example:
Private businesses should rise or fall on their own merits, neither hindered nor helped by government.
Tax policy should not be twisted to the benefit of some companies and the relative detriment of others--i.e., those passed over for government-bestowed goodies. These "losers" are sometimes, outrageously, compelled to provide tax support to their very competitors.
Entrepreneurial suc-cess is impossible for entrepreneurs themselves to forecast--remember the Edsel?--much less governments.
Such principles are now greasy spots in the road outside City Council chambers, and it's about time that body said "enough." But let's also recognize that the council's foray into incentives, the sort of expedition that has backfired in some communities, is in ours palliated by circumstance, prudence, and strategic coherence.
Mayor Tom Tomzak notes that the city is facing $90 million in mandated capital improvements, not to mention pressure on municipal-labor costs from Northern Virginia, at a time when the retail Mecca of Central Park is challenged by the counties' newer retail Medinas. Ginning up revenue is essential, and if that isn't done through business activity it will be done through property taxes. If Kalahari revenue projections--$64 million over 20 years--are right, rebating 48 cents of every tax dollar collected is practically palatable even if philosophically tref. City incentives also are pegged to performance benchmarks: If a chosen outfit fails to keep the cash registers ringing like Quasimodo's bells, its rebates go away.
Moreover, says Dr. Tomzak, the object of all this pump-priming is "to put feet on the street" downtown. It's hard to see how unsubsidized watering holes could cheer the presence of a Capital Ale House in their midst--unless Fredericksburg aspires to become a pub-crawl destination--but the mayor hopes that the microbrewery and the expanded Kybecca will encourage sidewalk life and longer store hours by nearby shops. There seems little danger that the rebate-blessed businesses will ruin downtown's character: Two of them wouldn't be there, and the other two would be "chains" with very few links, none farther than Richmond.
Econ 101(posted by
GetAKlue
, Mar. 24, 2008 5:41 pm)
Paul,
Sound democratic and free-market principle for the city means attracting businesses that can produce enough revenue to relieve the citizens of property taxes. The city’s decreased revenue is a result of the customer choosing to spend their dollars elsewhere. How do you attract more customers in a declining market? How do you attract those service when they are being courted by others? Prior to the incentives, Wegmans, Kalahari, Capital Ale and the Kybecca expansions weren’t even on the table.
Neither Kalahari nor Wegmans is "entrepreneurial"(posted by
realitystory
, Mar. 24, 2008 11:17 am)
You seem both confused and indignant. Where did you
get this "rule" about how private businesses should
operate? Tomzak's "pump-priming" success has been
repeated over and over all across America even though you
focus, predictably, on the states where failures occur. It's
always a half full glass around here. It's NOT hard to
understand support at all, it works, and it should be
obvious. Typical Fredericksburg, find a failing example,
perpetuate fear, manufacture outrage and get passed up,
yet again.
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