Rob Douglas: Monkey see, monkey do

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Rob Douglas

Rob Douglas' column appears Fridays in the Steamboat Today. He can be reached at rdouglas@SteamboatToday.com.

Find more columns by Douglas here.

One of the pernicious trends in American governance today is the prevalence of groupthink when it comes to tackling problems that land on the doorstep of government. Combine groupthink solutions with a lack of metrics to determine if the solutions fix the problems, and you end up with what we currently have — government that wastes ever-larger amounts of tax dollars while the problems continue unabated.

From the way we educate children to America’s never-ending wars against terrorism, poverty, drugs and a host of other societal ills, government officials rarely stop to evaluate whether they are achieving results that justify the continued spending of tax dollars on solutions that often are pursued because “that’s the way everybody else does it.” Instead, they participate in groupthink by uncritically accepting prevailing bureaucratic solutions while ignoring the repeated failure of those so-called solutions.

In other words: Monkey see, monkey do.

One arena of government groupthink that has received far too little attention is the use of taxpayer funds to incentivize corporations to create or maintain operations in the jurisdiction providing the incentive. The corporate executives and government officials who engage in this practice, while often championing themselves as free marketeers, like to camouflage this corporate welfare by calling it “economic development.” In reality, it is a form of crony capitalism that makes a mockery of the genuine free-market principles that made America an economic powerhouse that now is in decline, in no small part, because of crony capitalism masquerading as economic development.

A variation of this insidious practice can be found here, where the Steamboat Springs City Council is on the verge of selling the city’s emergency services building on Yampa Street to a triumvirate of companies — Big Agnes, BAP and Honey Stinger — under the control of Bill Gamber for an amount the city estimates at $900,000 below fair market value and that others estimate could result in a taxpayer-provided benefit to Gamber’s corporations to the tune of several million dollars. The proponents of this giveaway in city government and on the council call it economic development for Yampa Street while also claiming they are solving Gamber’s real estate desires in light of, as the Steamboat Today characterized it, Gamber’s hint “that without the Yampa Street building, his companies’ future in the Yampa Valley is uncertain.”

However, the cat was let out of the bag by Interim City Manager Deb Hinsvark when she candidly told the council, “Only time will determine the benefit to the Yampa Street revitalization and its ultimate benefit to the city.” While Hinsvark meant her words to imply that the deal would be of significant benefit, the reality is that Hinsvark hasn’t a clue whether this deal will truly benefit Steamboat residents.

Coincidentally, The New York Times published a three-part investigative series this week examining the use of local tax dollars to benefit corporations. The series “examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies.”

The series, “As companies seek tax deals, governments pay high price,” found:

“The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.”

That last sentence certainly is true here in Steamboat. The council can consummate a below-market deal for Gamber. But contrary to current groupthink across the country and on our City Council, no one can prove the deal will create a single job — or any other type of economic benefit — that wouldn’t be created absent the financial loss from Steamboat’s coffers.

To reach Rob Douglas, email rdouglas@SteamboatToday.com.

Comments

Scott Wedel 1 year, 10 months ago

I dispute the groupthink part of the argument. The SB school district looks very closely at test scores to evaluate programs. I have also heard Scott Ford when part of the Economic Development Council in public meetings state that seeking to pay to attract business does not work well and instead government should create a supportive environment for companies to grow.

It is true that City of SB in concert with The Chamber have historically believed in picking winners and heavily subsidizing particular businesses such as Ski Corps.

Rob is dead on pointing out the lack of analysis supporting the claim that selling the public services will improve business along Yampa St. Nor is it so obvious that no analysis is needed. City is selling an existing building that is currently occupied. The number of employees in the building now vs new owner is roughly similar. The pay of the current employees appears to be higher than those of the buyer. So it would appear the City is arguing that selling the building would revitalize Yampa St because they believe that public services employees are a black hole for nearby economic activity.

The amazing part to me is how this proposed sale has been able to move forward despite the absence of any credible arguments on why it is a good idea. City claiming it will revitalize Yampa St cannot even answer the question "How does it revitalize Yampa St?" and the City's argument fails even before the lack of data undermines their argument.

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mark hartless 1 year, 10 months ago

We need more government stimilus, Rob, not less. Can't you see that?

All we need to do is remove $900,000 from some people (the taxpayers) and give it to other people (private citizens) and that will surely "fix" the problem.... whatever the problem is...

oh yeah, the "problem" is poor economic activity on Yampa St. High property taxes, intrusive regulations, excessive permit and business fees and a host of other government-imposed obstacles couldn't possibly be the "problem", noooo. The "problem" has to be that taxpayers have a building that needs to be "sold" to a private company... that'll fix the "problem".

If we just scoop more water from one end of the pool and pour it in the other end the water level of the pool will certainly begin to rise. Can't you see that Rob?

And if we all take our money out of our left pocket and quickly shove it into our right pocket our wealth will increase, that's how you create jobs, wealth and prosperity, Rob.

Come on Rob, get with it.

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Scott Wedel 1 year, 10 months ago

The "problem" on Yampa St has nothing to do with taxes or government. The "problem" is the simplest of economics. Lincoln is the most heavily traveled street and thus the prime location. Yampa St is and probably always will be overflow from Lincoln.

So when rents are going up on Lincoln then rents also go up on Yampa and Oak. And then investors build new buildings based upon expecting those rents.

So during the boom there was construction of nice new buildings on Yampa. In the aftermath with downtown having lower rents and increased vacancies the construction activity stopped.

It is pretty sad that SB City government is so inept that they do not recognize the simplest of economic forces and believes they can defy basic economics and change the economics of downtown SB real estate.

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Scott Wedel 1 year, 10 months ago

Mark, So are you suggesting that if city were to adopt policies you liked then it can promote economic activity that defies basic economics?

Seems to me that your argument gets close to saying that government policies can promote economic activity that defies basic economics?

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John St Pierre 1 year, 10 months ago

I would invite everyone to read this study .. it is eye opening..while the scale here is by no means the same the result will be once we start: (it can be found in the recent archives of the St Louis Post Dispatch newspaper)

""A study released last month by the East-West Gateway Council of Governments determined that in the past 20 years more than $5.8 billion in tax dollars has subsidized private development.The study indicated 80 percent of TIF and transportation development district (TDD) spending was for retail development, which creates mostly service-industry jobs. Between 1990 and 2007, 5,400 retail jobs were created at a cost of $370,000 per job, according to the report on development in the St. Louis region. Maggie Hales, East-West Gateway deputy executive director, reported on the study the three-year study covered eight counties in two states. She said that overall, TIFs have a negative effect on communities and there are racial and economic disparities when and where they're used. "The TIF statute was originally designed to alleviate blight," Hales said after the work session. "In areas where there isn't any blight, I don't know as a policy matter it's a good investment of public tax dollars. ""

I believe Govenment needs to stay out of the development business and allow free enterprise to create opportunity.... as soon as the demand for retail space exists a developer will fill it w his own money....

Has the city thought to place a caveat on their sale that if BAP sell's the property for higher than they paid for it... the city (since it severly discounted the property) gets a % of the profits????? After all the city has become a partner!

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Scott Wedel 1 year, 10 months ago

John, BAP cannot flip the property. City does require that they own it for something like 5 years.

And the record for government economic development is generally worse than that study. Because that study presumes the jobs would not have otherwise been created. When, in reality, an area that can support retail stores will have stores whether or not government helped build retail centers.

Underutilized commercial property tends to be valued based upon profitability of development. The vacant lots on Yampa are not being sold for essentially nothing or being transferred for unpaid taxes. They are actually quite valuable. The value is currently more based upon the value due to recent development that is not so far from happening again than the prospects of developing the properties today. So if government throws in $300K for developing the property then it just increases the value of the parcel by that amount and the for sale price is increased by that amount.

Thus, as a general rule, if the properties already have value then redevelopment efforts is just truly wasted money to inflate the values and profits of developable property.

Redevelopment can make a difference when an area is depressed and the land is essentially worthless because the buildings on the lot are worth less than the cost of building. That creates no demand for new construction and even remodeling is often a money losing option. And so the poor condition of existing buildings discourage prospective tenants and local economic activity is further depressed.

Thus, in places like downtown Oak Creek, redevelopment money could be the bridge between construction cost and the resulting value of the completed building. And so government redevelopment money can be the difference that would allow a company like BAP to locate and grow in Oak Creek. And that sort of business activity would tend to help neighboring property values and hasten the day when properties can be profitability built or remodeled.

But since the areas that truly need redevelopment do not have money or political influence, government redevelopment money tends to flow to the already wealthy.

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mark hartless 1 year, 10 months ago

Scott, Surely you are not saying that a reduction of property taxes, license fees, regulations and red tape on businesses located along Yampa St. would not cause an increase in economic activity there? Hmmmmm???

I'm not suggesting that basic economics can be defied at all. To the contrary.

"Basic economics" is a law. It's like gravity. It can not be defied. When you fly in a plane you overcome that law only by the use of considerable energy (ie jet engines burning tremendous amounts of fuel). And that flight is ALWAYS temporary... always! So it is with economics. When governments (or any outside force) manipulates markets it does so only ONLY TEMPORARILY and ONLY by the expenditure of considerable resources (in this case $900,0000) which could be used elsewhere (that is, after all, the basic definition of economics).

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Scott Wedel 1 year, 10 months ago

Mark, If only we could get City County and staff to read this and understand.

I am saying that taxes, regulations and such are not the reason why there are not currently more active development projects on Yampa St. The point is that government is generally more of a tailwind or headwind that has a modest impact on the far more powerful fundamental forces of economics.

When the property is as valuable as along Yampa St (half million or so a lot) then government taxes, regulations and such are not generally big enough to be the determining factor to invest. It will modestly affect the overall cost of the project. So people wanting to start a project today would adjust the acceptable price they'd be willing to pay for a lot. Thus, for valuable properties the effect of government policies is a modest adjustment of the property value.

The reason other properties are not being developed along Yampa St right now is not because of something that SB City government can control. It is because there is a glut of available space in downtown. And so potential developers are waiting for pricing of commercial units and downtown condos to recover.

It is similar to how there are still remodels and construction in high cost places like NY or SF. The added cost is not enough to stop development because the value of the finished product is high enough to absorb those additional costs.

So selling the public services building for at least $900K less than free market value is not economic development that will lead to additional economic development. It a major gift to one company and developers will wait for the overall economics to improve before starting their projects along the street.

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mark hartless 1 year, 10 months ago

First off Scott I find it hysterically ammusing that you, a person I would judge to be fairly analytical and possesed of a reasonable level of intelligence, can't seem to make certain connections. I'll try to help you here... 1. We have an economically illiterate electorate which thinks an economy is something to be "managed" or "ran". They can not grasp the concept that millions and millions of free and independant people making millions and millions of decions every second IS the economy's "manager". There is no need for a "man behind the curtain" pulling the economic levers. In fact, a free economy specifically needs there to NOT be such a man, but that is something the American people simply can't get through their thick skulls. That swings the door open WIDE for: 2. Politicians who are all too happy to continue to humor these dupes by stepping up, chest out, and proclaiming "I'm from the government, I'm here to help run the economy" (and everything else under the sun). As if these clowns know any more about the machinatioins of an economy than those who put them in office. However: 3. Those clowns DO know human nature and how to manipulate it. They know that if they can be seen "in motion," trying to "spurr economic development" or "create jobs" or "manage the economy" they will get credit (kind of like the rooster taking credit for the sunrise but the dupes fall for it every time). This is how they get re-elected. So that's exactly what they do. But they also do something else: 4. While in office making decisions which help nobody and, as you rightly point out, actually put a headwind on economic activity, they also make deals which just happen to help their friends, as well as themselves (Solyndra, Beacon, Big Agnes, et al, etc). Decisions which they can claim "spurr econimic activity" (AKA make the sun come up). "Hurray for me- vote for me". What I can't understand about you, Scott, is why you expect any less (or more) from the local dupes and those who lead them than from the national variety. We just went through an election which, by all accounts, indicated the sheeple want MORE of this economic management from government, not less. All signs point to an electorate which really does think taking water from one end of the pool and pouring it inthe other will raise the water level... they really do think that!!! Why would anyone expect smart management from a group of elected officials that is continually credited with being the source of all good and seldom connected (at least at the voting booth) to any of the economic maladies visited upon this nation? Who are vigorously defended pollitiaclly rather than ever, ever being held accountable for the stupidity, not to mention the outright corruption? Why not expect such a group to continue to "help" the economy? What better place to start than right down here on Yampa St????

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