Wednesday, August 27, 2008

City's Moral Compass is Spinning

August 27, 2008, 8:14 a.m.

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The Fallacy of the "Revenue is Needed" Rationale

Looks like it's time to bring out the "revenue is needed" blog entry once again.

Although the decision before the Iowa City Council involves whether to permit or prevent another 180,000 square-foot Wal-Mart in Iowa City, you'll find nothing in this blog entry regarding the case for or against Wal-Mart.

What this blog entry deals with is the Council members' analysis, their decision making process and rationale -- specifically, that at least a couple of them (two, not incidentally, for whom I have great respect and appreciation for their willingness to serve) are willing to articulate that the reason they are willing to do something that clearly has a down side, that was once successfully opposed and is still opposed by a significant number of the citizens of the community, is because, in effect, "revenue is needed."

Councilor Connie Champion said she supports the project because the city needs the tax revenue.

"This is a business decision -- a city business decision," she said.

Councilor Matt Hayek also favored the project for tax revenue reasons.

He said the budget already is tight for this year.

"We need growth in Iowa City. We especially need to expand our commercial tax base," he said.
Chris Rhatigan, "Smoking ban, Wal-Mart pass first hurdles; Proposals need two more votes to be enacted," Iowa City Press-Citizen, August 27, 2008, p. A1. The Gazette's report is comparable. Gregg Hennigan, "I.C. council votes for Wal-Mart; Proposal to expand retailer passes on the first of 3 votes," The Gazette, August 27, 2008, p. B2 ("'My business mind tells me the city needs this tax revenue,' said council member Connie Champion.")

(1) Goodness knows, no one should complain about a government trying to be fiscally responsible. Governments do need to balance the books -- unless it's the federal government, running up what is now over $50 trillion in unfunded future obligations and debt that we have all decided, by default, to just put on our great-grandchildren's credit cards.

(2) But fiscal responsibility can also involve cost cutting and increased efficiencies; refusing to transfer taxpayers' money to for-profit corporations bottom lines with TIFs and other devices; it need not always require higher taxes. In fact, sometimes innovative alternative approaches can simultaneously both (a) cost less, and (b) deliver more. See, for example, the analytical approach described and illustrated in Nicholas Johnson, "Jails: 'Overcrowding' Not the Issue," August 21, 2008.

(3) Nor does it necessarily follow that if worthwhile City projects (for example, proactive efforts that will return to the community in the future far more than they will cost today -- such as transforming flood plains into greenways) do require more money that the City should seize upon the first tax opportunity that comes down the road as the way to fund them. There's more than property taxes on businesses and homeowners. Cities should push for more opportunity to fund through an income tax surcharge. There's revenue from services, special assessments, user fees, and sales taxes. There are grants from federal and state agencies, foundations and corporations. This is not my normal line of work, but I do know enough to know that property taxes paid by Wal-Mart are not the only way to fund the City of Iowa City.

(4) So long as there is a free and open competitive market, there's nothing wrong with a corporation focusing on maximizing profit, whether through efficiencies, or the higher prices earned through better quality goods and services. Profit is, after all, a kind of important element of a "for-profit" corporation's mission. However, I find that kind of thinking very troubling when it comes to a city government; "increasing revenue" is not the mission of any unit of government, especially when the revenue is going to be increased by increasing taxes. The City's mission is, or ought to be, it ought to start with, (a) "what is in the best long-term interest of this community and its citizens?" -- separate and apart from whatever impact the answer to that question may have on the City government's revenue streams. It can then address, (b) what is the fairest, least intrusive, most administratively efficient way to raise the money necessary to accomplish those goals?

For example, urban sprawl, recruiting new businesses, transforming farms into suburban tracts, preferring commercial to residential building, rebuilding in flood plains instead of turning them into flood-preventing recreational greenways -- and making more land available for big box stores opposed by local residents -- might all be seen by some city governments as ways to increase City revenue. But such decisions would be thought by many to be diametrically opposed to the best long-term needs and interests of the community and its residents.

I cannot know for sure, of course, but "We need growth in Iowa City. We especially need to expand our commercial tax base" sounds to me like an analysis driven entirely by a "revenue is needed" approach rather than what is otherwise best for the area. The "growth" may or may not bring added revenue (after the subsidies, TIFs and other enticements are taken into consideration), but it may also involve at a minimum additional costs for the City (e.g., our $100 million water plant, roads, sewers, police and fire protection), as well as zoning variations, aesthetic problems, increased runoff and flooding, the "opportunity cost" of preventing a higher social use for the land, and many other consequences one would not have favored had one not been focusing on "growth" and the "commercial tax base."

(5) However, what troubles me most about this kind of thinking is a moral and ethical question. Because once "we need the revenue" becomes an acceptable rationale for one's decisions, and especially when its use by government officials goes unchallenged by everyone in the community, it can be used to justify virtually any unwise decision -- as it has been in our very community.

I have written about this before, and will simply repeat some of that here this morning.

As I have written before, "Once 'revenue is needed' is the Polestar for a university's financial decisions its moral compass begins to spin as if it was located on the North Pole." Nicholas Johnson, "UI Loves Gambling" in "UI Held Hostage Day 410 - March 7," March 7, 2007.

"Revenue is needed" is why politicians accept the bribes called "campaign contributions;" why "non-commercial" educational radio stations run commercials; why K-12 schools subscribed to "Channel One" and continue to sell sugared soft drinks to their students, knowing they will increase obesity, dental caries, and diabetes; why the UI's athletic program becomes a partner with the organized gambling industry's casino in Riverside; and why universities provide advertising on their buildings, and in naming their colleges, that promotes their corporate "donors."
Nicholas Johnson, "The Good News and the Bad News/The Bad News" in "UI Rips-Off Students Because . . . 'Revenue is Needed,'" September 25, 2007.

Indeed, Willie Sutton robbed banks, not just "because that's where the money is," but because "revenue is needed."

As I explained at the outset, I am not discussing, let alone arguing, in this piece for or against putting another Super-Wal-Mart in our metropolitan area. Those arguments have been, and will be, laid out for the Council to consider. There is a wealth of literature and data on the Internet regarding the issue and how it has been addressed elsewhere, and with what consequences. I would hope that that experience of others would be known to, and brought to bear by, our Council members in the case before them.

There are many valid -- as well as erroneous -- reasons for doing one thing or another with regard to Wal-Mart's proposal. "Revenue is needed" should not be among them.

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Anonymous said...

I have tried several times to bring some reality to this topic without any success.

I would urge Mr. Johnson to run for the IC Council.

Anonymous said...

Since you believe it is a fallacy that cities need to expand tax base, please elaborate on what efficiencies you think cities could wring out that would be beyond the inflationary adjustments. Would the bargaining units be willing to allow their members to pay more of their own health insurance, which goes up by double digit percentages every almost every year? Benefits for many cities employees are directly levied. They do not come from the general $8.10 city levy. Within a few years the tax burden for a retiree on a fixed income would go up by 30-40%.