Beginning in Part 31: A Different Light, I began the process of laying out a better way:
"What Greensboro needs most of all is a local jobs program that focuses on the long term unemployed, builds small, locally owned businesses and supports existing locally owned small businesses-- an infrastructure designed to jump start the local economy from the bottom up instead of from the top down."
Today I intend to continue building on that but before I do I'd like to share a few more thoughts as sent to me by Economist William Heasley who assures me he has been reading this series with great interest:
"(1) economic impact studies are pure guesses [opinions]. There is absolutely no way to predict the outcome of free people, making free decisions, in a free market, in an infinite series. F.A. Hayek stated the best that possibly can be ascertained are trends and patterns and those trends and patterns will quickly change,"
This was confirmed to me just last week by the Economic Development Department of the City of Greensboro. I'll be nice and not name names unless someone from the City challenges me.
"(1a) economic impact studies, in order to be complete [given they are dubious] would have to provide the counter factual case. What counter factual case? If the tax money appropriated (economic incentive) had been left with the taxpayer, what “economic impact” would have occurred? Stated alternatively, had say $2 million been left in the taxpayer’s hands, and they had taken such funds and consumed, saved and invested such funds, what would be the economic impact?"
How often are we shown multiple economic impact studies prior to building or funding the same project? The answer: just about never.
"(1b) in the counter factual economic impact case, are funds spend, saved and invested more wisely by each individual -or- is a third party (politicos through the mechanism of government) the more wiser spender? Maybe Milton Friedman’s four ways money is spent provides insight:"
Friedman’s four ways money is spent can be found in Part 33: How We Spend Money.
"(2) when politicos are called out regarding economic incentives they will give the standard answer that goes something like this: I hate them but they are a necessary evil because if we don’t offer the money someone else will and we will lose XYZ,
(2a) if one thinks about the above argument for a moment one might ponder the section of the argument: “if we don’t offer the money someone else will and we will lose XYZ”. Hence politico A in locale X and politico B in locale Z both have economic incentives (taxpayer money) on hand. The sums of taxpayer money and the allocation thereof equates into political power. Both A and B know that by bestowing money upon a recipient or recipient class they can build political constituency (the now dependent class votes for the politico that bestowed the money and/or keeps the money flowing). In public choice theory the phenomena is known as: a political constituency building exercise with other people’s money,"
I'd like to point out that the City of Greensboro was unable to provide any evidence that "increasing Greensboro's tax base actually benefits the community overall."
"(2b) both A and B know that economic incentive represent political power translating into political constituency building exercises with other people’s money. Given the power and constituency building, one has to return to this argument: I hate them but they are a necessary evil because if we don’t offer the money someone else will and we will lose XYZ. Since both A and B make the same argument when confronted, does the argument, once examined, really boil down to: If you do it, then I can do, then we all can do it. How so?
(2c) if A blames B for having to deploy economic incentives and B blames A for having to deploy economic incentives, is it a “blame game” or an argument for perpetuation? Stated another way, A and B clearly know the power and constituency building that economic incentives allow A and B. They have no interest is ending such power and constituency building. To perpetuate one merely blames the other in an insidious fashion that returns to: If you do it, then I can do, then we all can do it."
So by handing out incentives our local politicians are creating an entire class of voters who are indebted to politicians who are in turn indebted to the very same voters who are indebted to the politicians... Methinks Bill has found the source of the problem.
"Suppose for a moment all economic incentives are removed, voided out as it were. Then all taxpayer money used to fund or finance economic incentives are returned to the taxpayer. For instance Jones gains $50 and Heasley gains $50 as taxes fall in proportion to economic incentives once deployed. $50 for each of us and so on it goes through all taxpayers at $50 a head. If 100,000 tax payers each has an additional $50 how would they deploy such funds? What about the aggregate impact [100,000 x $50]? Would each of these 100,000 taxpayers spend their money to create maximum utility [satisfaction]? Would each taxpayer spend such funds based on their particular time and particular circumstance?
Now consider the 100,000 are coerced into giving each of their $50 back to politicos to fund economic incentives. Does a hand full of people spend the money in such a way that maximizes Billy Jones’ utility and the other 99,999 taxpayer’s utility, now minus their respective $50? The answer is that a small minority, including the politico, of the 100,000 have their utility maximized [those that directly gain from the economic incentive] while the vast majority either gain a small utility or zero utility.
The point of the above discussion is: all is not what it appears to be"
Of course, you know there's no government body that will ever finance a 3rd party independent study to attempt to prove Mr Heasley wrong on incentives and I seriously doubt there's anyone in Greensboro politics who would want to take him on either. Now let's take what he's taught us and start putting together a plan.
Much of the problem with Greensboro's economic development policy is there is no means to provide incentives to small business for anything other than real estate needs. Well guess what: most small businesses need a lot more than a building. Another problem is that there has never been any metric by which to prove it works. When I ask for proof I'm told they don't know. Let's start building an incentive program that works and can be measured.
Points: A points system should be established that grants the most points based on set criteria instead of giving out incentives based on friendship and backroom deals. Some of my suggestions for criteria can be found in Part 31: A Different Light. http://greensboroperformingarts.blogspot.com/2014/03/incentives-in-greensboro-part-31.html
Accounting: Small businesses need help with accounting costs. 'Nuff said. Having a certain amount of City involvement in the accounting of businesses receiving incentives makes it easier to keep track of what works and what doesn't work.
Studies: The cost of feasibility studies and other such studies required for economic incentives is often enough to start some small businesses. A means to help with this cost will have to be established.
Insurance: If possible-- and I realize this is a big if-- the City and local economic development agencies should be working to establish insurance pools to meet the various insurance needs of new and existing Greensboro businesses.The very idea that every small business should have to go it alone against all odds is overwhelming and absurd. This would make Greensboro more competitive locally, nationally and internationally.
Accountability: The books of any for profit or non profit receiving incentives from the City of Greensboro should always be open to City auditors bar none. Any secondary corporations, shadow companies, businesses or LLCs operated by recipients of Greensboro incentives should also be open to City auditors at all times. Extreme? It's our money.
Mentors: Take me for example: I'm good at building things. I can build houses, cars, bridges, buildings, motorcycles... most anything you can dream up I can eventually put together. But running a business is something I've tried and failed at several times. I dream of building a moped factory, perhaps a co-op. I've built prototypes that get over 150 miles per gallon and I've even managed to build a 2 speed automatic transmission. Only 1 other moped in the world has a 2 speed transmission and it's the best machine on the market. But I need a mentor to make it happen. So do at least a thousand other inventors, craftspersons and tradespeople in Greensboro who are all probably better investments than me and could be running businesses, hiring employees and paying much more in taxes than we do now.
Teams or Pods: Okay, as an example: if we were to get incentives for our moped factory we would need suppliers and various vendors. Part of that could be handled through the topic I bring up in the next paragraph but for what isn't available locally the City should place a priority on incentives that provide more local options for local business to function as a team. A moped factory might simply be an assembly line operation, frames would be needed. Rather than ship those frames in from some factory across the country or overseas, the frames could be made here. Any factory that can make moped frames can also make bicycle frames and a thousand other things made from steel tubing. In that way even more businesses could be created. And when it comes to cost: there's about $10 difference in the price of a moped frame welded by robots in China vs. a frame welded by robots in the USA.
Buy Local: Buying local is good, buying locally made is even better for the local economy. And yet none of Greensboro's economic development efforts have been aimed at buying locally made. One of the websites I own is EzGreensboro.com, a searchable database of products manufactured in Greensboro, in the Greensboro city limits. The goal is to help Greensboro's manufacturers sell more at the wholesale and retail levels. This is the kind of thing the City or one of our economic development agencies should be doing as they've already got the information I'm still searching for but no they're too busy traveling from Paris to California. The site doesn't make any money for me, I just saw a need and filled it. If the local economic development agencies wanted the domain name I'd happily arrange a transfer at cost.
Microloans: A microloan program should be established that can be funded by the City and private investors who want to pitch in. Existing microloan funds like Kiva and others allow for communities to establish funds designated to only be invested in their own community or the fund could be set up separately. While I'm sure there are advantages and disadvantages to both options, one of the advantages to a Kiva operated microloan program is worldwide exposure and the chance to solicit funding from all over the world. Every dime that private citizens invest in a microloan program is a dime that doesn't put the taxpayers at risk. And some microloan programs actually pay dividends to their investors beyond that warm, cozy feeling. I currently have $25 floating around the globe in Kiva microloans that I would love to redirect towards Greensboro as they are repaid.
Mall: Okay, this one is off the wall but if there is a developer who is willing to take the risk (and it's a really big risk) to build a mall or shopping center that only sells products made in Greensboro I would be in favor of incentives provided it also does Internet sales so that Greensboro's products can be retailed to the world via a minimum of middlemen. You know, sort of like an Amazon.com of Greensboro products but with a retail location as well. But, I don't really expect this to be high on the list. That's the logistics business Greensboro's economic development "gurus" should be chasing.
Marketing: Ever got a free gift for buying a product? Or perhaps a coupon good for a free gift? Sure you have, companies market their products like this all the time. Or if not free at a discount. What if everything made in Greensboro was sold with free gifts or coupons good for lots of other products made in Greensboro? Sure, Greensboro companies could be doing this on their own but that requires duplication of labor as each and every company does it for themselves again and again. Why isn't the Greensboro Partnership, which happens to be our chamber of commerce, taking the lead? Think of the work that would provide to our local printing companies. And you damned well better believe it should be printed locally in Greensboro, not Kernersville, High Point, Burlington or even Jamestown.
Location: Businesses locating in Greensboro's Urban Distressed Tracts (in red) other than the downtown Business Improvement District should be highest priority. The BID should not be considered because there is already a process in place that includes Downtown Greensboro Inc and other taxpayer funded structures to provide incentives to downtown businesses. More on our distressed neighborhoods can be found at the UNC Center for Urban & Regional Studies.
Networking: Everyone knows networking is important and while there are lots of networking groups out there, my experience has been they are mostly geared towards service sector, retail and inherently flawed. Inherently flawed in that most of them only allow only 1 business from each category to join. In my limited experience in business I got far more leads, tips, advice and actual business from competitors than I ever got from leads groups. And while that may not ring true for the retail and service sector businesses most leads groups cater to these groups do not appear to be geared towards the types of businesses Greensboro needs most. Part of any new incentive program should include help with networking.
Taxes: No one owing back taxes should even be considered for incentives. Such a rule would have prevented the $1.975 Million Dollar incentive grant that was just given to the developers of the downtown Wyndham Hotel.
Previous falsification: No one who has previously falsified reports to the City should even be considered for incentives. Such a rule would have also prevented the $1.975 Million Dollar incentive grant that was just given to the developers of the downtown Wyndham Hotel.
Co-operatives: I happen to believe that for-profit co-ops should be high on the list of businesses that should receive incentives. Co-ops like Deep Roots and the now forming Renaissance Community Coop in my own neighborhood will never leave Greensboro because their member-owners live in Greensboro. On average, co-ops return more money to local economies than any other kind of business and for that reason co-ops should be #1 when considering who we give our tax dollars to.
New and Existing: Should incentives be provided for new and existing businesses? Of course they should. While I believe our first priority should be in starting new businesses helping existing businesses to grow should also be part of the agenda.
Long Time Residents First: Attracting new business is fine but what about giving a leg up to the people who have suffered here the longest-- they've paid their dues, paid their taxes, they should be first on the list before you start talking about attracting out of town companies. It's only fair. Besides, do we want to be overwhelmed with every con man in the country rushing to Greensboro to try to get a piece of our deal? Even if we can screen them out we don't need the headaches.
Why so tough? Again I defer to another of Mr Heasley's recent e-mails to me:
"For a moment revisit the Nussbaum Center for Entrepreneurship “jobs chart” which is attachment one for quick reference.
Intentions are very warm and fuzzy, but results really do matter. The Nussbaum graph tells a tale and displays a result. The result is not warm and fuzzy.
The aggregate result is the highest taxes in the state of NC given comparable cities/counties, poverty increasing at an increasing rate and anemic job creation.
Now see the second attachment (please take a few moments and review). The document is entitled: FY 2011-12 Property Tax Rates and Selected User Fees for Major North Carolina Cities. The report does not to appear to have an author other than: City of Greensboro Budget & Evaluation FY 2011-2012.
The report rationalizes comparable tax rates by including user fees (user fees are depicted as additional tax). What does leap off the page is the taxes paid by comparable property owners of $150,000 of real-estate: Raleigh $560 and Greensboro $948 (see page two). Hence general taxes are widely different as are “user fees” among cities compared.
Let us agree with the above mentioned report. That indeed total tax is comparable among cities compared. However, one group is more “user fee” oriented while Greensboro is more “general tax” oriented.
Here is an observation that the author(s) of the report likely never considered applied to their particular report:
Adam Smith from The Wealth of Nations, book five [paraphrasing];
It you charge a harbor fee, road toll or bridge toll the user pays the fee to maintain the ongoing operations of the harbor. The fee is a tax.
The tax is necessarily passed to the consumer by the firm using the harbor, road and bridge and the passing on of the tax is an efficient method. Why? The consumer at the point of exchange with the firm using harbors, toll roads or bridges is dealing with a firm that is bringing to exchanged an item in the most price effective manner i.e. through the use of the harbor, road or bridge (efficient mode) and hence the fee [tax] passed on is a price for efficiency, at exchange, which is driving overall price down or speeding delivery or both.
Harbor fees, toll road tax and toll bridge must be associated with harbors, road and bridges that exist at a locations that maximizes value to all parties. That is, harbors, roads and bridges are not going to be built in non-effective places as the toll/fee/tax would never be collected as merchants would not use the harbors, roads and bridges. Which makes for an important point. How so?
When government builds items not associated with direct user toll, fees, tax for the use of the specific items (built using diffused tax), the items built through indirect taxes can indeed leads government to locate the items in ridiculous places.
One might say that the “user fee” approach maximizes value whereas the “general tax” approach leads government to locate the items in ridiculous places. Further, the “user fee” approach does not create an environment for shenanigans as the fee is directly related to service requested and any poor delivery of such service is immediately detected. Whereas, the “general tax” approach leads to an environment for shenanigans (politicos using tax revenue for many items not immediately detectable by taxpayers as inefficient uses resulting in poor delivery).
John B. Taylor from the book Getting Off Track [paraphrasing]: If one sets the stage for shenanigans, one will indeed experience shenanigans.
Just saying.............
Thank you"
As I like to put it: leave a pile of money sitting around long enough and someone will haul it away.
Of course, by now you already know about the $5 Million Dollar budget shortfall the City of Greensboro is facing and the cutbacks to transportation that will make it even harder for Greensboro's working class poor to get to and from work. How will we pay for these incentive packages? How will these people get to work?
We'll pay for these incentive packages from the $272 Million Dollars Greensboro has stashed away in investments in its Rainy Day Fund. After all, being the center of the 2nd hungriest metropolitan statistical area in the United States with poverty above 21%, the highest unemployment of any comparable city in North Carolina and a growth rate of less than 2%-- the lowest in North Carolina-- looks a lot like a rainy day to me.
And how do we get those people to their jobs? I don't know how to handle the problem in the short term but in the long term we should be talking about putting the jobs where the people live now. As a matter of fact: we should have been talking about it a very long time ago.
Recently Greensboro City Councilwoman Marikay Abuzuaiter, who has a seat on Greensboro's Economic Development Board, read my post Part 31: A Different Light and has since agreed to allow me to bring my ideas before the Economic Development Board. I'd like to thank Councilwoman Abuzuaiter and welcome your ideas as well. Leave them in the comments below or e-mail me at RecycleBill@gmail.com and I'll pass them along with or without your name attached, whichever you prefer.
Note: while I wrote it in Part 31: A Different Light I'd like to reiterate:
"...I think my proposed incentive packages should be taxed in some way so that those receiving incentives help provide for those who come behind them and the risk to the rest of Greensboro's taxpayers is reduced. In other words, I want what we call incentives to be a hand up, not a hand out."
And finally, I want to make something clear. There will be failures. Not every business receiving incentives under this plan will be a success but unlike current incentive plans where all our eggs are in one basket the losses will be spread out, diversified. Besides, too many of the businesses we give incentives to now end up failing. In closing a quote I lifted from On demanding nothing and... by George Hartzman.
"Capitalism without financial failure is not capitalism at all but a kind of socialism for the rich" --James GrantPlease forward this post to everyone you know so that Greensboro can begin turning in a new direction.
Please continue reading Incentives In Greensboro: Part 37: Letters From Bill
