Thursday, October 25, 2007

Fort Wayne and Economic Development

Granting a quarter of a million dollar tax abatement to a McDonalds franchisee illustrates how little our elected officials understand Economic Development. I want to discuss several points:

What is a small business?

First of all I want to talk about small businesses. If the owner of this McDonalds franchise that got the tax abatement owns only one franchise location then they ARE a small business per the SBA as I have previously posted. The SBA has specific rules based on NAICS code, number of employees, etc that define whether you are a small business or not. Per the SBA, the McDonalds franchise in question is a small business if its owner owns only one location.

Please realize that many people who own a McDonalds franchise own several McDonalds franchises. If you own ten McDOnalds franchises then you certainly are not a small business by anyone's definition.

I do not know how many locations this franchise owner has; I would bet that none of the eight City Council members who voted on the issue (All BUT Sam Talarico) know either. I doubt if they even considered asking the question.

There are a lot of definitions for a small business. The SBA definition is often used since those businesses that qualify as a small business per their rules can get beneficial loans at a very low interest rate.

The Department of Labor has a definition for a small business as well. Per the Department of Labor any business with fewer then 50 employees is considered a small business. For example these businesses do not have to comply with the Family Medical Leave Act! Per the Department of Labor a McDonalds franchise owner with one location IS NOT considered a small business.

Sam Talarico questioned whether I knew what a small business was in an earlier comment. I agree with Sam that I tend to relate to my clients rather then the legal definitions. I do this because I am an advocate for my clients and not an attorney. I do this because I feel that truly small businesses have been 100% ignored by our City and that they are vital to our city.

Is this Economic Development or is it Economic Re-arrangement?

Per our City Council and the Fort Wayne Economic Development professionals granting a tax abatement to a McDonalds franchise in Fort Wayne is considered economic development. This blows my mind and illustrates that backwards thinking going on in Fort Wayne government.

Economic Re-arrangement is a term I coined and use when I speak at public events. This tax abatement is a great example of it.

Fort Wayne has a huge number of restaurants. The residents of Fort Wayne and those who visit Fort Wayne spend a fairly predictable amount of money eating out. There are only a few things that will cause Fort Wayne restaurants to do more business:

1. More tourists coming to Fort Wayne and spending their money. I am sure no one thinks a new McDonalds will draw tourists to our City; at least I hope they do not think it will.
2. Wages in the area must increase relative to real inflation. I certainly hope that no one thinks that adding a new McDonalds to the area will cause wages to increase...
3. It is possible that a new restaurant could draw people from Auburn, Kendallville, etc to Fort Wayne; in essence causing those people to not eat out in their home City and to come to Fort Wayne to eat. I certainly hope that no one thinks a new McDonalds will draw people from outlying cities.

If none of the three items listed above occurs; then the project is Ecnomic Re-arrangement and not Economic Development.

This new McDonalds will do one thing and one thing only in my opinion. It will cause people to eat at McDonalds rather then other nearby restaurants. It will shift the consumers from one restaurant to another... It will not create ANYTHING.

This new McDonalds will cause other restaurants to make less profit and possibly lay off employees or close their doors.

This is unfair because the other nearby restaurants are not receiving tax incentives. City Council is interfering in the private market and influencing which restaurants will succeed and which will fail.

Summary

Granting a tax abatement to a McDonalds Franchisee is a perfect example of what is wrong with the direction Fort Wayne is taking. This project will not create high-paying jobs and should not qualify for a tax abatement.

This same City Council banned smoking in bars and restaurants. I wonder when they will consider banning unhealthy fast food establishments?

Please get out and vote November 6th!

I suggest you vote Libertarian and for Democrat and Republican candidates who OPPOSE this tax abatement.

P.S. I will be contacting Karen Goldner to see where she stands on this topic...

Mike Sylvester

9 comments:

Anonymous said...

Economic Re-arrangement SYLVESTER!!!!

Doug H. Sec, Lib Pty AC said...

Mike (et alli),

Right now I am taking a simple Business 101 course at Ivy Tech. While I have aced every test to date I am certainly no expert on business. I am trying to learn what I can and better understand the basic principles of business.

While you are an excellent accountant and very intelligent person I do believe you have overlooked some of the issues of owning a franchise.

#1) NAME Recognition. The McDonalds name alone will bring in money instantly. Not everyone knows Spelunkers Delight Restaurant but everyone knows McDonalds. Heck, I've eaten at McDonalds in countries all over Europe because I knew what to expect.

#2) Tested Performance. The purchaser of a franchise name has had the onerous burden of market studies and wondering whether or not their product will sell. They are almost guaranteed results the second their doors open to the public.

#3) Training Programs. The owner of a franchise receives training from the corporate office so that all employee's reflect favorably on the corporate image.

#4) Advertising. McDonalds spends millions of dollars each year to promote their product. This means that the owner of the franchise is able to focus their attention on other details while still receiving tremendous marketing.

#5) Infrastructure. The purchaser of a franchise doesn't have to worry about who to contact for supplies. There is a supply route and supply center already to go for them.

All of this leads to an investment by the owner of a franchise that is almost certain to flourish. After all, how many fast food stores do you see fail? It does happen but at nowhere near the standard rate of normal small businesses.

Our city government seems to feel that it is perfectly acceptable to give handouts to folks who are already receiving massive handouts (whether tangible or intangible).

Under a Libertarian administration such follies would cease. By lowering taxes all over the entire community and granting abatements to none this would encourage business growth.

Respectfully,

Doug Horner(L)
Candidate for City Council at Large

ROACH said...

As my old friend Tom Ostrognai, former IH Lineworker, and Landlord; was fond of saying:
there's a big difference between McDonalds and Mcdonnell Douglass.
Whiel we're on the topic of tax abatements- I wonder if the clowns downtown could cook me up a residential tax abatement, so I can spiff up the homestead; which I have been neglecting for 2 reasons-
1. my property taxes are already too high, supporting our regal government, and fuedal overlords. Why would I want to improve it so they can reiase my assessment?
2. why pay full price, if you can get an incentive from a local govt whos screwed things up royally, and is willing to give the farm over to anybody ANYBODY who might build something here in Fort Waste.
if I can get a tax abatement, and avoid paying until the economy, and the real estate market will raise my market value through market forces,rather than artificiall schemes cooked up by our elected offals;
then its money well spent.
but full price- in this slumping market; skyrocketing taxes, maybe cant get my return on investment, and keep the govt from spending my money before its earned.
well- how about a tax abatement for residential improvements/investments?

We have already lost 1 whole congressional district 's worth of hoosiers- gone forever, or 20 years at least; to brain drain, and freedom in other states.

Karen Goldner said...

Let me save you the trouble, Mike.

Several years ago City Council established a policy that allows tax abatements for retail/commercial businesses if they are located in targeted central commercial corridors (such as Calhoun Street, State Street, etc.) The purpose of this policy is to encourage businesses to make investments in our older, central business areas. I support that policy.

City Council also has a policy that businesses must pay an average of 150% of federal minimum wage in order to receive an abatement. I also support that policy.

To my knowledge there had not been a conflict between these 2 policies to date - the retail businesses who have received the abatements are all small enough that the average wage (including the manager, etc.) has met the threshold. However, you can see how the 2 policies could easily conflict, and in this instance they do.

As a Redevelopment Commission member, I really struggled with this abatement. The Commission must review requests for tax abatements in TIF districts to make sure that the tax revenue which may be reduced by an abatement is not needed for an economic development plan (bond repayment, infrastruture, etc.) In this case the revenue was not needed to fulfill the Southtown area plan and therefore I voted affirmatively, basically to let City Council make their decision (since they are the elected body that is the appropriate action, IMHO.) I (along with other Commission members), directed staff to request that City Council clarify the seeming inconsistency in the 2 policies. Staff needs to know what the rules are so that they can work with businesses accordingly.

But to answer your question, I believe that there is a loophole here which should be closed. One of the ways to do this is to clarify that the minimum wage standard applies to all abatements, including retail/commercial. I think that helps support small retailers in our central business corridors while also providing some floor to the wages we expect before reducing the property taxes paid by companies for their new investment.

And I must take this opportunity to make sure that everyone understands (which I think readers of this blog do) that a tax abatement simply phases in the new taxes due for an investment in buildings or equipment. The owner continues to pay the taxes that were due before, but the taxes due to new assessed value are phased in over a period of several years (usually 5-10). And if you just buy a building without increasing the assessed value, you don't qualify for an abatement. So the taxes collected do not go down, they simply do not go up as fast as they would without an abatement.

Karen Goldner said...

P.S. Sorry for such a long post.

Anonymous said...

Ms. Goldner,

What I see is two standing orders of meeting both goals. Not picking one from column A or B.

I also find that the group decided to "bump it upstairs with a do pass" if I remember what I heard. If that is true the commission could have come out with one of two other answers.

There is no doubt where Crawford was going Tuesday night and you could tell he was not a happy camper.

Then again what will happen when Taco Bell wants to rip out some old building on East State and toss up a place? They will get the same package?

Some how I don't think so.

Karen Goldner said...

It's not up to the Redevelopment Commission - it is up to City Council. As I mentioned before, the Redevelopment Commission's sole review of tax abatements in TIF districts is to advise City Council whether the money to be abated is needed for projects identified in the redevelopment plan. In this case, there was no such conflict in the use of funds. Redevelopment Commission did express our concerns about the conflicting policy to City Council and did the appropriate thing in allowing the elected body to make the decision.

I agree with you that the wage rate should be followed, but what I am trying to say is that the Council policy sets up a conflict and we pointed that out to Council. What I was suggesting in my previous post is that this should be clarified because it is, apparently, confusing.

Again, the role of the Commission was NOT to grant the abatement, or even to recommend granting the abatement. It was to advise Council on the fiscal implications of the request.

Jeff Pruitt said...

When there is a conflict the council should apply their best judgement as to whether or not the business needs/deserves the abatement. In this case I think nearly everyone but the councilmembers agree that this is a joke...

Anonymous said...

No matter who or they try to defend this action from the time someone dreamed it up was wrong.

Jeff, I agree with you and NO ONE gets a free pass. The is a NO BUCK PASSING ZONE!