. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
Unprecedented: Two Consecutive "Hats Off" Awards to Press-Citizen
Yesterday's Press-Citizen editorial earned it a "Hats Off" journalism award -- in this case "civic journalism" in the best tradition of putting the interests of readers/taxpayers ahead of the interests of government subsidized businesses. Editorial, "Center to Open Without Public Assistance," Iowa City Press-Citizen, September 15, 2008, p. A9. See Nicholas Johnson, "Taxpayer Rescue," September 15, 2008.
I don't know if anyone's put lipstick on the Sheraton, but it's sure had its snout in the trough more than once. It (and its predecessors) squatted down over Dubuque Street, promising to at least keep a walkway open. Now it wants to seize more of that City property for its own -- without paying taxpayers a dime -- while asking us to pick up at least half the cost of the remodeling necessary to complete this land grab.
Since neither the City nor the University is prepared to do anything meaningful to cut back on the downtown drunkenness, with all of the attendant consequences that predictably flow from our surfeit of bars and illegal sales to underage patrons, the hotel has also reasonably requested that it be permitted to close off the walkway after 11:00 p.m.
The common sense resolution? Permit the post-11:00 p.m. closure. Deny the narrowing of the walkway and the movement of taxpayers' money to the hotel's bottom line. That's what the Press-Citizen is proposing. Will the City Council have the courage to take this course? Watch this space and see.
Financial Crisis: How We Got Here, Where We're Going
And there are significant lessons here for this year's presidential election, and regulation generally.
As I've often conceded, when it comes to servicing their major campaign contributors (big corporations and the wealthiest 1/2 of 1%) George Wallace was right: "there's not a dime's worth of difference" between Democrats and Republicans.
Having said that, the Republicans are both more comfortable, and skilled, at doing so. Democrats never have been very good at "Republican light."
President Reagan summed up the ideology: "government is not the solution; government is the problem." An unregulated market is the consumer's best friend. "Deregulation" and "re-regulation" are heralded as the rising tide that will lift all boats. "Get the government off our backs" -- unless it's about to put money in our pockets -- they say.
Well, in my view the consequences of unrestrained and unregulated greed and selfishness have left in their wake in our economy and society what Hurricane Ike left in its wake in Galveston.
This financial collapse is just one example. The collapse of coal mines on miners is another. The growing disparity between the wages of workers and those of CEOs is another. The examples are endless. Just look around.
I don't think either McCain-Palin or Obama-Biden are inclined or able to return our country to sanity with regard to business' excesses. I just think the Democrats will be marginally better, and that the margin is well worth our voting for.
As Story and Andrews report:
"During the Depression, Congress separated commercial banks, which take deposits and make loans, from investment banks, which underwrite and trade securities. The investment banks were allowed to do business with less oversight, while commercial banks operated with tighter supervision.
"But after Congress repealed those Depression-era laws in 1999, commercial banks began muscling in on Wall Street’s turf. As the new competition whittled down profit margins, investment banks used more of their capital to trade securities and also began developing financial derivatives to fuel profits."
On a lighter note . . .
. . . if you haven't yet seen the September 13 NBC "Saturday Night Live" routine that's all over the Internet, take five minutes to watch:
[Credit: Tina Fey and Amy Poehler, NBC "Saturday Night Live" Source: http://entertainment.msn.com] With a whole lot of common sense, courage and a sense of humor we'll get through all this.
Growing Iowa's Economy Without Corporate Welfare: Bob Patton & David Miles
Iowa City's pride, Bob Patton, has put pen to paper to portray, as no mere words can do, Sheraton's request for Iowa City taxpayers' money.
Bob Patton, "Share and Sheraton Alike,"Iowa City Press-Citizen, April 26, 2008, p. A12; posted April 25, 2008, 3:14 p.m. (Elephant with "Sheraton" on its rear is carrying a sign reading, "This white elephant is now under new ownership." A street cleaner with "RBD LLC" (the new owner) on his sleeve and "TIF Request" on his wheeled container -- presumably cleaning up after the elephant -- is handing a street broom to an unnamed woman labeled "City of Iowa City.")
I guess the City Council is concerned that if it didn't bribe RBD LLC with enough taxpayers' cash RBD might just move the Sheraton to Chicago or somewhere.
And what's this "new parking agreement" deal? All we get from the Press-Citizen's report is that the demands "included asking for a new parking agreement in the Dubuque Street Parking Ramp, taking out the public access point through the center of the hotel and tax incentives to make repairs." Kathryn Fiegen, "Sheraton's case presented to city; Economic committee asks for more information on TIF,"Iowa City Press-Citizen, April 23, 2008. It's RBD's and the City's responsibility, not the Press-Citizen's, but what are the details? Will Iowa City's taxpayers be paying not only the Sheraton's property taxes, but the parking fees for its employees and guests as well? Aren't citizens entitled to know that?
As for the "public access point through the center of the hotel," that was embodied in the physical structure of the building as well as the contractual agreements surrounding the removal of Dubuque Street (one presumes). One of the best proposals I've seen -- on the assumption that anything needs be done -- is in a comment on the Press-Citizen's editorial,
I think the best option with the Sheraton walkway would be to tear out the doors on either side [of the walkway, north and south] and make it an outside covered breezeway. Drunks would have little incentive to congregate there and it would still provide access between the hotel and the restaurant/bar and the public wouldn't feel put-off when passing through.
Nor is this the only giveaway in Iowa City these days. Although the Sheraton robbery has overshadowed the story, the City is also in the process of selling off public land near the local airport -- with no obvious benefits to local residents. Kathryn Fiegen, "City in Talks to Sell Land Near the Airport; Nearby Business Worried About Looks,"Iowa City Press-Citizen, April 18, 2008, p. A1 ("Jay Honeck, who owns the nearby Alexis Park Inn & Suites, told the council Monday he thought the rezoning to make the land suitable for heavy commercial use would be a "catastrophe." He said the proposed facility could make the area even more unattractive with exposed storage areas and heavy equipment everywhere. . . . Honeck told the council he didn't think the city was monitoring the condition of its south entrance. "I want them to be held to the same high standards we are when it comes to handling their property," he said. "Just look at the city-owned land next to us -- are they following their own rules?").
In my op ed column, Nicholas Johnson, "Courage, Councilors,"Iowa City Press-Citizen, October 3, 2007, p. A12, I itemized a number of categories of reasons why corporate subsidy, including TIFs and other forms of tax breaks, simply don't make practical sense -- regardless of what you think of the hypocrisy of the get-the-government-off-my-back crowd's asking for them. One of the 11 categories was,
Alternative approaches do work. Businesses look for more than taxpayers’ bribes; things like an educated and skilled workforce, transportation and communication infrastructure, and quality of life – schools, parks, theaters, neighborhoods, restaurants and natural settings. Those investments will both attract business and benefit the public.
So I was especially pleased to hear Iowa's pride in its new Board of Regents' President, David Miles, express a comparable view yesterday in Iowa City:
"We need to make the case that there is a very real public good for Iowa, the nation and the world to have an educated citizenry," [Iowa Board of Regents President David] Miles said. The way to attract businesses to the state is not through tax credits, but through having educated workers, he said.
And note that Miles is not some "ivory tower Liberal." (I don't know whether he drinks lattes.) He's a business person -- in addition to his Board of Regents responsibilities he is the managing director of the Miles Group (investment business) and the former CEO of Countryside Renewable Energy (consolidating ethanol plants). So he knows what he's talking about when he says "the way to attract businesses to the state is not through tax credits."
I'd be inclined to give a lot more weight to his opinions on the subject than those of an Iowa legislator or city council member.
But wait, there's more.
We can't gamble our way to riches. I've often expressed here my skepticism regarding the wisdom of Iowa's legalization and promotion of gambling as a component of economic development. Recently there was a little confirmation in the report on 2007 gambling revenues: "Overall, revenue increases at the state's 17 racetracks and casinos fell 1 percent to 3 percent last year. . . . Some [casino managers] . . . said they planned to build more hotels and restaurants, or improve entertainment." Associated Press, "Gaming Revenues in Iowa Grow Little in 2007,"The Gazette, April 19, 2008, p. B7.
"Build it and they will come" really works -- in the movies. There were many missing links in the chain of reasoning regarding the proposed indoor rain forest project. See Nicholas Johnson, Earthpark (2001-2007). Among them was the myopic focus on the costs of construction (for which not one dime was raised) to the exclusion of the challenge of creating and maintaining a cash flow adequate to keep it going. It's a common oversight when a community permits local booster enthusiasm to blind citizens' ability to see the need for basic business plans.
Now that perspective has been picked up by another author in another context -- the proposed Coralville venue:
Many communities build a performing arts center and then grow frustrated when it can't pay for itself. These centers can improve the quality of life, they can attract new businesses, they can provide both art and entertainment, but they can't turn a profit. . . . Like the race for new stadiums, communities often fail to factor the long-term costs required to make these projects successful. . . . If the people of Johnson Country want Coralville's proposed center to succeed, they will need to support it -- not just through its build, but also in every year of its operation.
And taxpayers continue to fund for-profit businesses.
HUSCO International was awarded incentives to renovate, expand and equip an existing building in Maquoketa in an action by the Iowa Department of Economic Development board in Des Moines. . . .
The incentives included $800,000 from the Economic Development Set-Aside program and Enterprise Zone benefits.
The IDED board separately approved incentives for plants to produce wind turbine components, decorative metal containers, structural steel assemblies, ethanol and seed corn. They include:
-- Tax benefits and direct incentives to Trinity Structural Towers to convert a 300,000square-foot manufacturing building in Newton for assembly of wind turbine towers. Trinity is expected to qualify for $649,100 in state tax credits for the project under the High Quality Jobs Creation program, in addition to a $630,000 forgivable loan from the Physical Infrastructure Assistance Program. . . .
-- Tax benefits and direct incentives to Independent Can Co. for building and equipping a $5 million plant in Fort Madison to expand production of decorative metal containers. The IDED board approved $100,000 from the Community Economic Betterment Account program, tax benefits to expand in an Enterprise Zone, and the Targeted Jobs Withholding Tax Credit. . . .
-- Tax benefits and direct incentives to Pioneer Hi-Bred, a DuPont subsidiary, for multiple projects. They include a $4 million investment in a warehouse expansion and a new dryer at the Durant seed plant. The project is expected to create one job . . ..
-- Tax benefits and direct incentives to Golden Grain Energy in Mason City for a facility to produce biodiesel from corn oil byproducts of ethanol production. . . .
Does this kind of corporate welfare pay? The answer is, at best, not clear:
One of the incentives used by Iowa . . . is the Research Activities Credit. . . . designed to offset some . . . research and development [expenses] . . ..
Even if the research tax credit amounts to more than a company’s state income tax liability, the state pays back — “refunds” — the difference. And the tax credit may be doubled (supplemental credit) if the business meets standards for high-quality job creation.
That seems like a generous incentive. . . .
Trouble is, we don’t know the true impact.
The Iowa Department of Revenue can tell you the total research tax credits awarded. From 2000 through 2005, there was an average of $29.7 million in annual claims. Most of it, $27.2 million per year, was paid out in “refunds.” However, by law, the specific amount each company receives is confidential . . .. Also, there appears to be no requirement to document whether the research tax credit actually works — as any public subsidy policy should.
The Department of Revenue . . . recently attempted to study the impact of the research tax credit in Iowa.
The analysis found no conclusive evidence that it increased research expenditures, research-related employment or patent activity.
[T]he Iowa Fiscal Partnership . . . noted this week that 85 percent of the tax credits went to just 10 companies in 2005. . . . Rockwell Collins of Cedar Rapids could be receiving an annual research tax credit of $8 million, the most of any company in the state, while its income tax liability may be less than that amount. . . .
[T]he program’s lack of transparency is troubling. So is the dearth of information verifying whether this subsidy is justified at present levels. The Legislature should review and consider changes that are more accountable to taxpayers.
Nor, of course, is this disparity in government's response to the needs of the poor and of the wealthy limited to cities and states -- as we've recently seen with the disparate response by the Congress and Federal Reserve to the plight of the Wall Street financial community on the one hand and that of homeowners being foreclosed against on the other . . .
If you are unable to read the text, there are two panels, "The Prodigal Son" and "The Not-So-Prodigal Son." The Prodigal Son is saying, "Father! I got filthy rich in risky loans and then the real estate market tanked." The father replies, "My son has returned! I'll kill the fatted calf and bail you out!" "The Not-So-Prodigal Son" is saying, "Father! I defaulted on one of those risky loans and lost my house!" To which the father replies, "Life's unfair, Kid. Deal with it."
Who's Best Bush? And, Raising Taxes to Increase Corporate Profits
Best Bush? Who is most likely to give the American people "four more years" of President George W. Bush? Professor Tung Yin's analysis may surprise you.
Sheraton's Scandalous Subsidy. Most Iowa City residents' response to the City Council's enthusiasm for handing over taxpayers' money to the Sheraton is either uproarious laughter or "I'm mad as hell, and I'm not going to take this anymore!" -- including virtually all of the authors of the 26 comments currently residing on the local newspaper's Web site. But the idea apparently passed the Press-Citizen's laugh test. I guess the editors know a class of "residents" who refuse to give the paper their responses in writing, because they editorialize this morning, "Don't Close Sheraton Walkway, but Do Discuss Possible Tax Incentives."
Tung Yin asks in yesterday's blog entry. "Who's the real '4 more years of George Bush'?" April 24, 2008. Here are some substantial excerpts from his analysis -- although you really need to go to his site to also see the videos that drive his point home.
He begins,
I hear the constant refrain from the Clinton and Obama campaigns that John McCain can't be allowed to win, because that will be just 4 more years of the Bush Administration. It's not an implausible argument, given that McCain has started to repudiate some of his past views on taxes, for example.
However . . . this is focusing purely on political issues. Now, I'm not downplaying the importance of issues, since for many people, such things as Supreme Court appointments, tax policy, Iraq, and so on are key points. But I can't escape feeling that on a procedural level, the candidate who would represent 4 more years of the Bush Administration is . . . "
Whom to you suppose he has in mind? Care to guess?
Hillary Clinton.
How can I say that? Let me explain.
Obviously, I don't mean that Clinton, if President, would duplicate Bush's policies. Rather, what I mean is that she strikes me as most likely to replicate the Bush Administration's approach to dealing with the opposition and the public: a malleable understanding of truth and reality; and questionable judgment about and excessive devotion to blindly loyal subordinates.
Malleable understanding of truth and reality
As far as I can tell, nothing ever matters except what the Clinton campaign says at this very moment; certainly, not anything that was said in the past by any member of the Clinton campaign. The best example of this is the "3 am ad" that Clinton ran against Obama in the days leading up to the primaries in Texas and Ohio. The ad asked voters to consider whether the person in White House would be up to answering the phone at 3 am to deal with a national security crisis.
The suggestion here is that Obama is not ready, and the country would suffer if he were the President. Yet, in 2004, Bill Clinton, when campaigning on behalf of John Kerry, told a crowd that if one candidate was selling fear (i.e., Bush) and one was selling hope (i.e., Kerry), you better vote for the one selling hope(!).
Is this at all consistent? Of course not, because all that matters is the present, and in the present, Clinton needed to sell fear.
There are so many other examples of this kind of malleable, "reality is what we say it is" attitude, including:
She admits here that she said some things she knew not to be true. Why? If she's willing to lie about something this trivial, what else would she lie about that matters to her? What is especially galling about the Bosnia sniper lie is that it was so brazen -- as if to say that the public is a bunch of dupes who wouldn't possibly find out the truth.
Another example of Clinton's reality: Florida and Michigan. . . .
Questionable judgment about and excessive devotion to blindly loyal subordinates
One of the key complaints that I've heard about the Bush Administration is that it made mistakes in appointing people like former Defense Secretary Donald Rumsfeld, former Attorney General John Ashcroft, and of course, Vice President Dick Cheney. It compounded those mistakes by not listening to "good" appointments, like former Secretary of State Colin Powell and the generals who advised the President not to invade Iraq, at least not without committing 500,000 troops. . . .
Then there's her former campaign director, Mark Penn, who was able to keep his day job as the CEO of his lobbying firm, Burston-Marsteller. Of course, he was fired when it became known that, while Clinton was opposing a free trade deal with Colombia, Penn was representing Colombia in that same deal. Why didn't Clinton think that it was a problem to have Penn continuing to work as a lobbyist while running her campaign? Heck, even Dick Cheney resigned as the CEO of Halliburton!
Is this an example of what her "35 years of experience" has led her to conclude is an acceptable arrangement without a conflict of interest?!?
Of course, she didn't even fire Penn -- he remains on her campaign as an advisor!
Speaking of questionable judgment about subordinates, I have to end with this observation. We have a mess in Iraq in part because Bush did not listen to the generals who warned him about invading. Lesson: military commanders might know what they are talking about.
Redux:
Hillary Clinton declared Thursday she will begin withdrawing troops from Iraq within 60 days of becoming president, regardless of what her military advisers say about the situation on the ground at the time.
True, invading and withdrawing are different. But the bald-faced willingness to dismiss what military commanders have to say evinces a similar attitude of disrespect toward the professionals and a ruthless desire to advance one's own agenda regardless of the facts. . . .
[T]here would obviously be differences between Hillary Clinton and John McCain on a range of issues. But that is focusing on what the President does, and ignoring how the President will do it. Both are important, and when it comes to replicating how the Bush Administration is perceived to do things, I see the danger as coming from Hillary Clinton more than John McCain.
(Tung Yin's posting contains, as well as more text, videos supporting the statements to which he refers.)
In effect, what Professor Yin is telling us is that there are two considerations here. (1) One, for Obama supporters, is whether they are willing to forgive Bill and Hillary Clinton, and their staff members and supporters, for the tactics and character they've displayed during the campaign in the event Senator Clinton were, in the end, to get the nomination. Would they vote for Clinton in the general election anyway, "come together as Democrats," and "let bygones be bygones." Or, would they be so "bitter" (to use Senator Obama's ill-fated word) that they would be willing to "punish" her (and many would say, "themselves") by staying home, or voting for Senator McCain (or some other candidate)?
But, (2), there is now another and much more significant issue. If Professor Yin is right, all voters -- Democrats (whether supporters of Clinton or Obama), Republicans and Independents alike -- need to at least think about (whether it affects their ultimate vote or not) the qualities of character attributed by him to Senator Clinton, and the weight they as voters would assign to them, in evaluating who they wish to vote for in November. This is not a matter of retribution or anger, or judgment about what tactics are, or are not, acceptable and to be expected in a campaign. This is not about the effect of her "high negatives" on her ability to win an election. This is a judgment to be made as to the qualities of character one wishes to have in a president -- in light of what we've all learned about their relevance from 8 years of George Bush.
And, of course, you won't want to miss State29, "Just Say No to Corporate Welfare," April 25, 2008 (sample: "They could reduce the price to $29 a night and you couldn't get me to stay there").
Ms. Fiegen's story reveals some other interesting facts:
Columbus, Ohio-based RBD LLC announced this month that it bought the 234-room Sheraton for $9.5 million, the property's third owner since 1999. The company has said it wants to invest $11 million to replace everything in the hotel from the carpets to the roof. . . .
"The cost to fix the hotel is far greater than what it's worth as it stands," Geshay said [Thom Geshay, senior vice president of business development for Davidson Hotel Company [which] operates the Sheraton].
According to 2007 assessor data, the property is worth $6.7 million. At its height, the Sheraton was worth $12.1 million. Geshay said it hovers a little above a 60 percent occupancy rate, with the average room rate at $109 a night.
Note the following:
o We're negotiating with the operator, not the owner.
o There have been three owners of the hotel in the last 9 years. And just why is it we think "RBD LLC" -- whatever the hell that is -- is going to last any longer? And do we propose to underwrite the next owner's refurbishing as well?
o The owner planned to put $20.5 million into this project when it bought it -- $9.5 for the building and $11 million to refurbish -- notwithstanding its 60% occupancy rate. That was the marketplace decision of this multi-billion-dollar corporation: that it could make money from a $20.5 million investment in a hotel in downtown Iowa City. It doesn't care about "Iowa City" -- downtown or otherwise. Had it thought it could make a better return on a $20.5 million investment in $900/ounce gold it would have done that. It's thought this Sheraton purchase through and concluded it's a "go," a prospective profitable return equal to, or better than, whatever it can get on its $20.5 million in pocket change if invested elsewhere. It's not like we're attracting a new business that, but for our bribe, would never build the new plant, hotel, or other business.
o Given that the property -- once worth $12.1 million, and for which it's paid $9.5 million -- is assessed at $6.7 million, isn't the company already receiving a significant break from taxpayers?
In "Courage, Councilors" I list 11 categories of reasons (each of which could have numerous examples) why TIFs and other corporate subsidies don't make sense for taxpayers.
Notwithstanding our Mayor's belief that those who oppose TIFs "are simply philosophically opposed to city’s providing financial support to corporations," I don't consider myself either an ideologue or a philosopher. I like to think of myself as a pragmatist: What works? Where's the data? "What do you mean, and how do you know?" "How would we know if we had ever been 'successful'?"
Indeed, a major reason for my persistence on these issues is that, so far as I know, none of the TIF-and-corporate-subsidy advocates has ever addressed those 11 categories I identify in "Courage, Councilors" -- any one of which should be enough to dissuade them from corporate welfare. They cite instances in which TIF-benefited businesses have not gone bankrupt or otherwise run off with taxpayers' money before providing any return. They say, "Well, but everybody's doing it." It's not that they've made no effort to defend their giveaways. It's just that they have not, yet, ever taken on the task of disproving what seem to me to be 11 serious flaws in their approach.
Whatever they may think, the fact is that I am open to persuasion and often change my mind. I have to. I live in the midst of law professors. In faculty seminars, offices, hallways, over lunch, and the reading we do there is a constant challenging of data, assumptions and analyses regarding a wide range of legal and public policy issues and proposals. (Yesterday it was the impact of "sentencing guidelines" on federal judges sentencing of criminals.) I love the process much more than any preconceived notions I may bring to school any given morning, and often end up changing my position by the time I leave for home -- as was the case yesterday.
So somebody, anybody, tell me what's wrong with my "Courage, Councilors" analysis. I'll listen. I'll react. I'll test and push both your analysis, and mine. I may well change my mind.
So how can I be so repulsed by a tax break for the Sheraton and potentially attracted to a loan program? Because of differences I find significant-to-decisive:
o The Sheraton subsidy involves local taxpayers' money going to a for-profit business (as distinguished from an appropriate governmental function, or even a City-owned business). The loan program utilizes a federal grant administered by the City, but not local taxpayers' money.
o Loans are paid back; grants and tax forgiveness are not.
o The loan program goes to new, start-up businesses owned by local residents. This TIF would go to a substantial, well-funded, pre-existing out-of-state business for a pre-existing building and business in Iowa City.
o The primary beneficiaries of the gift to the Sheraton are the owners of the Sheraton; the secondary beneficiaries are the downtown merchants who will benefit from selling stuff to the folks who stay at the Sheraton. Few Iowa City residents and taxpayers will ever stay at the hotel or otherwise benefit directly from this corporate welfare. The primary beneficiaries from the loan program will be the loan recipients. The secondary beneficiaries will be the Iowa City residents and taxpayers who use and benefit from these new businesses.
In "Courage, Councilors" I made clear that I see no problem with alternative ways for a community's residents to encourage business.
Alternative approaches do work. Businesses look for more than taxpayers’ bribes; things like an educated and skilled workforce, transportation and communication infrastructure, and quality of life – schools, parks, theaters, neighborhoods, restaurants and natural settings. Those investments will both attract business and benefit the public. [Note, not incidentally, that notwithstanding the Mayor's belief that some people "are simply philosophically opposed to city’s providing financial support to corporations," many of the kind of City expenditures mentioned here would not be at all controversial, even though one of the consequences would be "providing financial support to corporations" -- along with everyone else.]
Try “seed funds.” There’s nothing to keep the business community from creating group venture capital efforts called community seed funds – as it has. Those are investments of private money, not gifts of public money.
The potential problems with government loan funds are at least that (a) they are unfairly competing with the banks and credit unions that are in the same business, and (b) they create at least the potential risk that taxpayers (whether local or federal) will be left holding the bag. "Seed funds" and venture capitalists, because they use private funds, avoid those problems.
A global model that has been quite successful is what are called "micro-loans." Often even $200 can make an enormous difference to a third-world entrepreneur -- when available at reasonable loan rates. That is what the organization Kiva makes possible -- in part because of payback rates to Kiva from its borrowers that are far in excess of those our own banks have been getting from Americans recently. I encouraged readers to consider loaning $25 or $50 to such worthy entrepreneurs last December. Nicholas Johnson, "Kiva: The Gift You Give, Keep and Give Again," December 26, 2007 ("The Charitable Gift That Literally Keeps on Giving . . . and Costs You Nothing").
With Kiva, as with venture capitalists, an advantage is that economic development is kept entirely separate from government. Such efforts are run by private citizens, using their own money. This makes for smarter decisions than when government officials are giving away someone else's money. It helps hold down the costs of government -- and the taxes paid by citizens.
I would be troubled not at all if the downtown merchants who stand to benefit from a Sheraton upgrade (if, indeed, they think they would), and the members of the City Council and Press-Citizen editors who think it's a really swift idea, would take up a collection and make a loan, or gift, to Sheraton. That's their choice -- and their money.
It's just that no one has ever asked the rest of us if we'd like to support this for-profit enterprise with our money, and I, for one, were I asked, would decline the opportunity.
"As many of you know, the new owners of the Sheraton have approached the economic development committee to talk about support for their efforts to revitalize the property. I have heard from many of you already and I know that many are simply philosophically opposed to city’s providing financial support to corporations.
"I’d be interested in hearing from you about how we should approach our dropping market share in visitors in downtown Iowa City, which I would contend is linked to the poor condition of the hotel. As you may have read in the downtown market study, visitors are significant to the retail businesses in our downtown. I see a City interest here in capturing more of the conference and visitor market. I know from my work on the Iowa City/Coralville Convention and Visitors Bureau board that we are bringing fewer conferences to downtown Iowa City. I am interested in your thoughts about how we should approach this challenge."
Regenia Bailey, "Economic Development and the Sheraton downtown," Update From Regenia Bailey (e-mail list), April 23, 2008.
How insulting! "[M]any are simply philosophically opposed to city’s providing financial support to corporations," indeed! How dismissive! How presumptuous that the only possible position of right-thinking citizens and officials is to assume that there is, of course, "a City interest here in capturing more of the conference and visitor market" -- or any other market. A "city" interest, yes; but a "City" (i.e., a governmental) interest? No.
Having made her assumptions, she moves immediately to "how we should approach this challenge" -- that is, what would be the best way for City government to get involved, the most effective way to turn taxpayers' money over to for-profit businesses.
Since she says she is "interested in your thoughts," here are mine:
I don't see the "challenge" as one of how we can get more taxpayer money transferred to for-profit enterprises, or how the City can best go about improving their "markets." No, the "challenge," in my view, is how we can get elected officials to concentrate on doing well those things that are within the appropriate role of government -- when it is so much more fun and prestigious for them to be able to play "business" with our money and their corporate playmates.
You want to know how best to expand "markets"? Leave the "challenge" to the free market -- individual local businesses, the Downtown Merchants Association, the Chamber of Commerce, the Iowa City/Coralville Convention and Visitors Bureau (on whose board you've served).
As for the philosophical opposition, it is you, Madam Mayor, who ought to be philosophically opposed, not I. The philosophical opposition, the ideological opposition, ought to come from those who champion the virtues of business, competition, and the free private enterprise system; those who want to "cut taxes" for the rich and then the programs for the poor; those who want to "privatize" everything from schools to prisons. Those are the folks who ought to rise up in righteous ideological indignation and philosophical opposition at the first whisper of "corporate welfare."
My objections are far more practical than philosophical.
In my open letter to the Iowa City City Council the last time a whiff of a TIF was in the air, I listed 11 categories of reasons (each of which could contain many examples) why corporate welfare in general, and TIFs in particular, simply don't make practical, good business, sense -- both anywhere at any time, and especially in Iowa City, Iowa. Nicholas Johnson, "Courage, Councilors,"Iowa City Press-Citizen, October 3, 2007, p. A12.
Those categories included such things as opportunity costs, numerous past failures of various kinds, inability to verify "need," lack of transparency, officials' poor business judgment, better alternatives -- read the column if you're interested in more.
Ironically -- because I never anticipated a proposal as totally bonkers and corrupt as the Sheraton proposal to come along so quickly -- I've just concluded an 8-part series about the role of money and lobbyists in politics and government generally (which, if you're interested in this stuff, you might also enjoy taking a look at). See Nicholas Johnson, "Golden Rules & Revolutions: A Series - VIII," April 19, 2008 (the last in the series, but with links to the prior seven).
Looks like I'm going to have to get back into the subject, for this scandalous Sheraton proposal is only one of many current corporate welfare disasters -- as recent reports are documenting.
But for today, as a concession to the limits on the time you have to read and I have to write, I'm going to let a local business person speak for me.
One of my categories of concern about corporate welfare in that Press-Citizen column, but that I did not itemize above, read as follows:
"Corporate welfare tilts the playing field. It’s fundamentally unfair to ask businesses to compete against a favored few funded by government. It upsets a smoothly working free market to no one’s benefit – except the lucky recipient."
It's always been a mystery to me why more members of the business community don't speak up about this -- especially when their own business is dealt a blow as a result of the corporate welfare that keeps dropping to their competitors' bottom line.
As of this morning [April 24] that story had 23 posted comments from readers -- virtually all very negative (regarding the proposal, not Ms. Fiegen's story).
State29, with his usual insight, has contributed a blog entry of his own to the dialog which you will want to read. State29, "Er, Then Why Did You Buy It?" April 23, 2008. It is that blog entry which brought the following comment to my attention.
Indeed, State29 raises an issue that deserves much more media attention. Why did the new corporation buy this property? Sadly, I can only see two possibilities.
(1) The principals are really dumb business people (unlikely, given their very successful multi-billion-dollar operation), who bought a property they knew would lose money without taxpayers' contributions, without getting an assurance from the City in advance that the money would be forthcoming -- in which case they have assumed potential liability in a shareholders' suit.
Or, (2) They did get prior assurances from the pro-TIF wing of the City Council that TIFs and other benefits could be delivered, before those applications had run through channels -- in which case Iowa City voters have equally serious complaints about their City Council.
Here, then, is the take of a real, honest-to-God, successful and unsubsidized business person on the subject of corporate welfare:
_______________
Please, not again!
Posted by: jjhoneck on Wed Apr 23, 2008 6:23 pm
In 2002 my wife and I bought the old Alexis Park Inn next to Iowa City's airport. It was in bad shape, with a checkered reputation, but we knew a diamond in the rough when we saw it.
Since then we have spent these last six years remodeling and refining our service, until we now have the top-rated hotel in Iowa City. We have seen double-digit increases in both revenue and occupancy throughout that period -- a result few would have predicted.
The lesson? Offer a great lodging experience at a fair price, and you will prosper.
During those six years we never applied for nor accepted government assistance. We did not incur any debt, choosing to fund the renovations with the cash flow from the business. This is MUCH harder to do, and takes much longer -- but, in the end, it's the only way to assure success in a business with razor-thin margins.
Also during those six years we have sat idly by as our own Gummint became our #1 competitor in the market. You probably don't know it, but since 2002 YOU, the taxpayer, have funded the addition of over 500 hotel rooms to this already saturated hotel market, including:
- The Marriott, built with $60+ million in taxpayer dollars - The Riverside Casino, built by an unholy alliance of gummint and organized crime - The Hotel Vetro, built with yet another TIF
Despite this, we have prospered, while the Sheraton has declined. Why?
The Sheraton is a bloated, top-heavy chain that provides little value for what it charges. Most of the rate they charge goes to national advertising campaigns, with little devoted to the local property.
And what IS spent locally is spent in the wrong ways. When the original Sheraton franchisee bought the property (which was then a ramshackle Holiday Inn) their main focus was on remodeling the lobby, gobbing marble and brass everywhere. The end result was that Sheraton guests paid $179/night for a tiny Holiday Inn room, and a really nice lobby. In addition, sleep was optional, because for that absurd rate they were forced to listen to the ped mall cacophony all night long.
In contrast, our smallest suite is bigger than their largest suite, costs just $70 bucks a night -- and includes a delivered breakfast in the morning.
There is no mystery behind their failure. If you don't provide good value for the dollar, you will fail. It's "Economics 101".
Now we're supposed to believe that the Sheraton's new owners need corporate welfare to survive? The purchase price has already been adjusted dramatically downward to take into account the diminished value of this property. There is NO WAY they (or any other private business, for that matter) should receive city aid.
I suggest that the Sheraton owners follow our example. Roll up their sleeves, get to work, one floor at a time, one room at a time, and fix up their OWN business. Who knows, in 5 or 6 years they might have a nice place down there.
