Taking Responsibility: Matt Drew for City Council

Bull City Rising had an excellent guest column from Chuck Watts on Oct 20th, discussing economic development.  In it, Mr. Watts puts forward the case for development incentives and public-private partnerships.

Unfortunately, there are many things that Mr. Watts leaves out, as is common with discussion on government subsidies.  For example, in the post he says this:

Instead, these synthetic TIFs essentially provide what amounts to a tax reduction, actually a repayment of 80% of the increased taxes paid, for a period of time on the improved property once the new structure has been put into service. In other words, they incent the development by removing a tax burden that would otherwise kill the project. (emphasis is in the original)

I agree with Mr. Watts that the tax burden in our city is too high and can prevent projects from occurring. Of course, this begs a further question:

What about all the other projects that aren’t viable due to taxes?

If tax burden reduction is good, then doesn’t it follow that reducing taxes for all projects, large and small, would be even better? We need more than a few large companies to improve Durham’s economy.   Mr. Watts makes a further strong argument in favor of this, though perhaps unintentionally:

Of course, if the taxing authority had any reasonable belief that the development would happen as quickly and to the same scale without the incentive, then there would be no reason to provide such incentives. Certainly developers would love to avoid being encumbered by the public process, if it was not critical to the success of such a project. (emphasis  mine)

This makes it clear: if you want to do something major in Durham, involvement in the cumbersome government process is critical to your success – and holds back some projects that otherwise would have been viable.

Worse, these incentives aren’t nearly as temporary as is implied.  We’re now incentivizing Burt’s Bees to fill the space that Motricity left in the American Tobacco complex, a space which was already built with large incentives to the Capitol Broadcasting Company.  In effect, we continue to incentivize over and over as companies come and go.  Sometimes, like Dell in Winston-Salem, the companies don’t even wait for the incentives to kick in – they simply leave and move on to the next town.  Winston-Salem is now stuck with millions of dollars sunk into slowly decaying, useless infrastructure surrounding an empty building.  We’re taking the same risks with EMC, as their new data center will also require some infrastructure – and they are just as likely to pull up stakes and move on, exactly like they did when they came here.  In short, we’re paying corporations to locate in Durham, because they wouldn’t otherwise have come on their own.  And thus, of course, they have no reason to stay once the tax breaks run out.   If we’re always giving incentives and then the companies move on to the next town and incentive package when the incentives expire, then the promised payoff Mr. Watts touts rarely actually happens – we’re simply repeatedly giving tax breaks to each corporation as they rotate through.

Mr Watts also implies that most of the corporate subsidies we give are in the form of synthetic TIFs, which at least don’t come directly out of the general fund.  However, Most of the Big Shiny Objects in Durham were actually built mostly or entirely on the taxpayer dime – even when the taxpayers didn’t want to borrow the money.  In 1990, the taxpayers rejected a referendum to borrow money to build the new DBAP.  The City Council went ahead with the bond issue anyway.  We’re still paying that subsidy twenty years later, to the tune of a million dollars a year until the bonds are paid off, and a half a million dollars a year for the forseeable future.

This kind of corporate welfare leads us to the biggest problem with economic development, incentives, and the Big Shiny Object theory of catalytic development.  Where does the City get its money?  From the taxpayers, of course.  When the City spends on incentives and economic development, the money doesn’t just appear out of thin air.  It is redistributing money that would otherwise have belonged to the taxpayers, supporting the businesses, jobs, and ideals that we prefer.   What the City Council believes is that their ideas for that money, their preferences, are better than yours.

What we’ve created over the last few decades is a situation where the City Council chooses the winners and losers when it comes to major economic decisions in Durham.  Withhold a subsidy here, and the project never gets off the ground.  Grant a tax break there, and the project goes forward.  Borrow millions upon millions of dollars to build buildings that continue to require millions in perpetual subsidies, and then tout the jobs that were created by that economic redistribution while ignoring the jobs that disappeared because of it.

Economic redistribution comes at a cost that isn’t always easy to see.  Empty storefronts and boarded up houses are hard to miss, but the businesses that never started, the projects that didn’t go forward, the companies that never came are not immediately obvious.  A city cannot redistribute its way to prosperity, just as you cannot make yourself wealthy by moving money between bank accounts.  If we really want to move Durham forward, the City Council needs to give up that central control, and start working towards a Durham that businesses want to come to; not because they were paid to, but because we’ve created an environment where they can thrive on low taxes and a fair, predictable playing field.