Friday, January 25, 2008

Football, Skating and Corporate Welfare

January 25, 2008, 8:15 a.m.


The yellow-gold-brick road of corporate welfare is littered with the wreckage from government gifts to private enterprise. That's because private enterprise and public projects are like speed skating and football. Each works in its own venue, but playing football on ice doesn't work any better than trying to skate on Astroturf.

When, in an op ed column for the Press-Citizen I was identifying a rather long list of categories of reasons why -- notwithstanding the individual benefits of both private enterprise and public projects -- the blending of the two creates mostly disasters for all (excepting, of course, the lucky for-profit corporate beneficiaries), I included the following:

The subsidy-grantors' record’s not great. Public officials are skilled at keeping constituents and contributors happy, getting re-elected, and moving to higher office. They’re less skilled at evaluating taxpayer-funded business proposals – a lot of which go belly up, miss construction deadlines, or new job goals even with our money.
Nicholas Johnson, "Courage, Councillors," Iowa City Press-Citizen, October 3, 2007.

This morning's [Jan. 25] Press-Citizen contains another op ed, by one of those former councilors, that provides yet one more dramatic example of exactly what I was talking about:

That city of 27,000 [Burlington, Iowa] used its power to condemn and to clear 24 acres of residential property known as the Manor neighborhood. The process forced mostly low-income families, many of them elderly, out of their World War II-era homes. The city spent more than $5 million on its plan to replace the old homes with a commercial development they called the Manor Revisited project.

But earlier this month the controversial project exploded in the Burlington officials' faces when the Burlington Hawk Eye reported the city's Minnesota-based developer pulled out of the project.

According to the Hawk Eye, the Minnesota firm "notified the city last week that a 220,000 square-foot shopping complex planned for the 23.7-acre site 'no longer fits within their company goals.'"

According to the same Hawk Eye report, Burlington officials had already spent $5.16 million to acquire the property.
Bob Elliott, "Looking at Hot City Issues," Iowa City Press-Citizen, January 25, 2008, p. A9.

A City government decides to get into the "shopping complex" business -- not to own and operate and profit from it as a way to actually earn and save taxpayers some money -- but as an expenditure of those taxpayers' money, a gift that the City was prepared to watch drop directly to the bottom line profits of a for-profit business. It devastated a 24-acre area, driving residents from their homes, spent over $5 million doing it. And for what? For a corporation that had no real reason to be in Burlington -- except for the bribes -- and no real investment in the community either financially or emotionally, that was then free to turn and walk away (perhaps to another community willing to pay an even bigger bribe).

The yellow-gold-brick road of corporate welfare is littered with the wreckage from government involvement in private enterprise. That's because private enterprise and public projects are like speed skating and football. Each works in its own venue, but playing football on ice doesn't work any better than trying to skate on Astroturf.

Now here's another corporate welfare/subsidy story from last week that is only modestly better, but contains an important lesson all its own:

An international bioproducts development and manufacturing company has been approved for financial assistance from the Iowa Department of Economic Development to expand its Cedar Rapids operation.

Genencor, owned by Danisco A/S of Copenhagen, Denmark, will receive $100,000 from the state’s Community Economic Betterment Account and enterprise zone tax benefits for a $3 million “Center of Excellence” in southwest Cedar Rapids.

The facility, to be built adjacent to Genencor’s bioproducts manufacturing plant at 1000 41st Avem Dr. SW, will be used for final development of enzymes used by the fuel ethanol and corn refining industries.

. . .

[Troy Wilson, vice president of grain processing, said,] “This project supports our mission to continue to provide the most advanced enzyme applications technologies to make grain processing production more efficient and effective.” . . .

Wilson said Cedar Rapids was selected because of its geographic location in the center of the country and its proximity to the fuel ethanol and corn sweetener manufacturing sector.

. . .

The company employs about 1,500 worldwide and generates about $3.7 billion in annual revenue, with 20 percent produced by the Cedar Rapids plant, according to Tjerk deRuiter, chief executive officer of Genencor.
George C. Ford, "Genencor gets state help for C.R. expansion; Facility to be used for enzyme development in grain processing," The Gazette, January 18, 2008, p. B8.

What can we learn from this story?

1. One of the many evils of government use of the "tax breaks" weaponry in its corporate welfare arsenal, is that it can totally obfuscate the amount of money involved. We can understand the $100,000 in cash from the "Community Economic Betterment Account." But was that the lion's share of the corporate giveaway payment or only chump change compared with the "enterprise zone tax benefits"? We'll never know, because the government won't tell us and therefore the media can't.

2. And just how needy is this welfare mother? It "generates $3.7 billion in annual revenue." That's "billion" with a "B."

3. But it was that $100,000 and "tax benefits" that swung the deal, right? Wrong. "Wilson said Cedar Rapids was selected because of its geographic location in the center of the country and its proximity to the fuel ethanol and corn sweetener manufacturing sector." This is most often the case. Businesses choose locations for reasons other than government bribery. In this case "the center of the country" (presumably for reasons of transportation speed and cost), and the accessibility to the raw materials it needs (ditto). (In another case last year, a business spokesperson dismissed the role of bribery, noting that the reason it had picked one of Iowa's Mississippi River towns was because it needed access to River barge transportation.)

4. The good news? However wasteful and unnecessary this government largess with taxpayers' money may have been, it is precisely for that reason that at least the recipient is likely to stay -- unlike the for-profit beneficiary of Burlington taxpayers' money, attracted only by the bribe, who is already long gone.

# # #

1 comment:

John Barleykorn said...

Some projects don't work out. Yet, no one can deny the impact of the the Coral Ridge Mall and the renovation of Sycamore Mall. Both used TIF, and both have been excellent projects. What funding has been lost to cities because of those projects? While difficult to quantify, those projects certainly spurred growth and bolstered property value in their respective areas, both of which led to increased revenues for local governments in the area.

Economic Development is a competitive business. If you don't have some incentives to offer, someone else will.