Friday, December 02, 2005

My second poll

Please take the time to vote in my second online poll. The poll will be removed in one week. Each person can only vote once.

I am looking forward to seeing the results of this poll.


Steve R. said...

The City of West Lafayette has used tax money to benefit private enterprise with much success. They funded, through TIF districts, an area of redevelopment that included a hotel, apartments, a movie theater, a bar, restraunts, and a small shopping center. The city supplied appox. $10 million of a $70 million project, so it wasnt completely a publicly funded enterprise, yet tax money was included as a part of the pie. The city money went to purchase the land, sidewalks, landscaping, new roads, to take care of new utility concerns, ect. West Lafayette taking up part of the bill encouraged a booming area of new economic growth that is repaying itself through the new tax revenues. Also, area is being used as a model for public-private partnerships across the country. My point is that private-public partnerships can be made to work with great success. Your poll doesnt really give all the information needed to make in informed vote on the subject. If something like what the city of West Lafayette did is what the city of Ft. Wayne has in mind then I could possibly support it. But if the city is planning on completely financing a project that should be public...then there is not much of a question as to what the answer should be.

LP Mike Sylvester said...

Good comment Steve.

There are SOME instances across Indiana where spending public money to stimulate private investment has worked.

A local CPA, Ron Reinking, an adjunct scholar for the Indiana Policy Review has reviewed the funding for many of these projects in Fort Wayne.

He found the current hotel occupancy rate this year is 49.9%. He found that The Grand Wayne Center (Our newly expanded Convention Center) loses money each year.

I would have posted more information about the hotel; but, the details have not been decided yet, which is diturbing.

They are proposing a downtown hotel and they have not decided how much public money to spend yet...

Steve R. said...

Also, the fact that the proposal only includes a hotel, doesnt seem to make the project a good candidate for public funding because it is not part of a larger plan by the city for economic development within an area.

Debbie said...

Quote from steve r.: "The City of West Lafayette has used tax money to benefit private enterprise with much success."

Steve, the definition of "much success" is of course debatable. Certainly the private businesses that benefitted from the government welfare consider it a success. And the politicians who will claim how well they are working for the citizens, while using other people's money. But if 86% of a project's funds was already there through private sources, then surely the other 14% could be raised from private investors as well.

Another problem with using the results of projects such as these is we cannot see or measure the lost opportunity costs from the funds taxed away from individuals. How would they have spent their money otherwise and what benefits would have occurred to the community or to the individual family? We will never know.

But the business owners who benefit and the politicians who take credit for their wonderful work gets lots of media play.

I am against using coerced funds to help finance private projects.

Mike Kole said...

An important truth about TIF districts is that the money is fronted in full, and then collected over a long period of time from the use of the properties in the TIF district.

While there is the possibility that many can benefit, it tends to break down like this:

The politically connected big business gets a huge, immediate benefit. Big labor is often part of the puzzle.

Small businesses may get an indirect benefit, if they happen to supply goods & services on the project.

Too many other citizens can only get those warm, fuzzy, intangible benefits such as, "gosh our city sure is looking good".

The taxation up front is most certainly real.

Robert Enders said...

Existing hotels in Fort Wayne already have high vacancy rates. A new subsidized hotel would either operate at a loss or drive other hotels out of business.

And it may be the case that in a few years the unskilled labor market will be strained again like it was in 1999. They might not even be able to staff their shiny new $50 million hotel when it gets built!

Plus its just plain wrong for two reasons:
1. They want to pump a lot of money into one hotel, but not do the same for other area hotels. Its unfair to these businesses that already exist.
2. Fort Wayne residents are paying for a hotel that most of us will never or rarely use because we already live here.

There is the intangible matter of civic pride. The stated purpose of the hotel would be to increase the number of available rooms downtown, so to attract more conventions. A few major conventions would have a minor economic benefits that wouldn't immediately make up what they plan on spending, but the idea is to bring some prestige to Fort Wayne, to put us on the map.

I offer a couple of solutions for those who do not feel enough civic pride as it is or simply feel that this town needs to be improved by constructing another expensive building.

1. The slow way is to lower taxes and decrease regulations so that existing businesses can grow and expand, and new business can start up here.

2. The quick way is find a city that is already on the map, move there, and be proud of the fact that you live in that town instead. And leave Fort Wayne alone.

Steve R. said...

First about TIF districts,
unless I am fundamentally flawed in my understanding of them, there is no increase in taxation of citizens for the upfront costs of the developments. That is what makes them a special financing tool for municipalities across the country. The developments within a TIF district would be payed for by a) borrowing money to be paid back by the TIF districs revenue (through bonds) or b) by only spending TIF dollars as they come in.

TIF's do not raise tax rates. What they do is to raise the value of properties within the district. This allows the city to tax at the same rate, yet receive more tax funds. Businesses get the advantage of higher property values. Im not too sure of a way to claim that there is a new upfront taxation.

Steve R. said...

The definition of "much success" certainly is debatable.

When dealing with projects that get into the 10's of millions of dollars, then an extra 14% makes up a significant sum of money for any private investor to have to add to a project. In many cases, that could easily make or break a project.

Also, when dealing with TIF districts, there should be little opportunity cost involved in the final decision. Funds aquired from setting up one of these districts can only be used for public infrastructure or economic development. The funds are aquired through means that does not take away from other local projects, and the funds can not be used for other means. This leaves out the concern of an opportunity cost in the Lafayette situation.

I am not certain of any specifics within the Ft. Wayne proposal, I would just like to put forth the notion that public funds can be put to a successful use within the private sphere. The debate should be about the implementation and structuring of the public funds, because at least from my perspective it could end up producing a successful project if the city approaches it in the right way.

Debbie said...

quote from stever: "When dealing with projects that get into the 10's of millions of dollars, then an extra 14% makes up a significant sum of money for any private investor to have to add to a project. In many cases, that could easily make or break a project."

Steve,that's the beauty of the market. It helps us see whether or not a specific project does indeed have enough worth to justify investor's risk. For example, if they can't raise the other 14%, people have to start thinking of reasons why and of course they can use what investors tell them are the objections. Perhaps it's just because parts of it do not make sense to justify the risk. So then the focus can be on those objections so they can be handled. But when government gets involved it interferes in this whole process of working out what is the most promising final project worthy of taking risk with one's investment dollars.

Government involvement just gets in the way of this natural process.

Steve R. said...

Many times, however, the extra 14% for a project would be for infrastructure costs that one area may already have in place, that another does not. In that situation it would come down to whether or not the city wants "encourage" the company to locate on the property they want or whether the project will be located in a different city. The market would tell the company to locate in another area, but the city may want the jobs and increased tax revenue, other than leaving a lot vacant. It is sometimes best for cities to not leave everything up to pure market it will end in a net loss for the city.

Robert Enders said...

What leads to a net loss for all cities is when companies play them against each other in order to win tax breaks and subsidies.

Remember when Democrats like Steve R. were the ones who stood up to big business?
TIF is the municipal government borrowing money using expected tax revenues as collateral. If the business fails, the city may have to default on the bonds or raise taxes on innocent bystanders to pay them back. Not good.

But let's say I could be convinced that it was a sure thing. The company in question could issue bonds of its own, sell shares of stock, or get a loan from the bank, just as any little guy would have to do if he attempted to start a business of his own.

I will take your word for it that West Lafayette scored a big one. But business is a game of calculated risks. Often its a better idea to let companies risk their own money rather than public funds. And if a elected official could establish to me that he knew what risks to take, I would advise him that he would do the economy more good by resigning from office and starting a business of his own.

Steve R. said...

"What leads to a net loss for all cities is when companies play them against each other in order to win tax breaks and subsidies."

And I would most certainly agree with that statement.

You may be taking my defense of this issue slightly in the wrong way. The only time that I am for public funds being used in a private venture would be for infrastructure costs. Things like the land on which the project will be located, new roads, sidewalks, landscaping, sewer systems, ect. Not in the actual structures of the business-to-be. It just so happens that TIF funds can only be used for these types of projects as well. That is why I felt them relavent to this discussion. There is little risk of a city being forced to default on a bond or raise taxes if it restricts its funding to only the aforementioned types of projects. This is because the city would have little direct interest in the solvency of the business.

I want to repeat my assertion that public funds can be used to aid private ventures if the city approaches the project in the right way. If Ft. Wayne is spending money to directly subsidize the operations of a hotel, then that is obviously the wrong way to use public funds. But my belief is that there can be a right way. I think that people are defining their views too narrowly if they say "any use of public funds in a private venture is wrong." Democrats have a reputation of imposing caveats and having complex arguments on issues. Why not this one?

TheCompleteGeek said...

Who visits Fort Wayne and why? Why on Earth do they need to spend the night? Maybe if the hotel includes a water park it would give me a reason to visit and part with some cash. Until I (and others like me) have a reason to visit, I wouldn't recommend investing in a place for me to stay.

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