Sunday, January 4, 2015

A Deal with the Devil

Hiram's comments on the previous post are so disturbing that they deserve further discussion.
"I assume the MOA got tax breaks and roads, but probably no actual cash. And I am assuming that money has been paid back hundreds of times over in additional sales and property taxes..." G2A

And that's a problem since it arguably makes the mall a public facility where first amendment rights apply." Hiram

"So every dentist office, gas station, Church, planned parenthood office, gay/lesbian counseling center, political office space, etc is "public" space and everyone should be able to enter and protest at will?" G2A

"Are you arguing that these tax subsidized spaces open to all are not public spaces? Doesn't taking public dollars entail certain obligations?" Hiram

"Conservatives are not wrong when they they express concerns to the effect that when you take government money, government rules come with it. The Mall of America was willing, eager even, to take money from the government. That has consequences." Hiram
To me it seems that when the government chooses to reduce tax rates or improve the roads near a prospective business to encourage private investment, Hiram believes that the company then becomes answerable to the government.  That in someway they become a public entity...

I think Jerry's comment is much more correct.
"Courts have already ruled that those receiving tax breaks do not incur public obligations, and those receiving direct tax subsidies do so only to the degree the contract spells out such shared ownership or obligation. For example, the $500Billion given to Solyndra did not confer any taxpayer ownership of the potential profits, no special access to the facilities, and no claim even on the assets of the bankrupt corporation." Jerry
If a company is obligated to the "government/collective" because they were allowed to keep more of their personal property as part of the deal, what do people on public assistance, Medicaid, welfare, etc owe the government?  Maybe their first born child?  Or life long indenture?

Or all of us who get to deduct our mortgage interest and take a child tax credit.  Is Hiram saying that we all are "public entities" that government should be allowed to control and use as it wishes?  Thoughts?


jerrye92002 said...

I think you are carrying the argument a bit far, creating a true and complete equivalence between persons and corporations. For example, the right to protest at the "MOA house" is different from the right to protest at MY house, even if the government gave me a big tax break, or incentive, to build it.

On the other hand, the idea that (some, but not enough) corporate welfare has "strings" but that individual welfare is an "entitlement" I find repellent.

Anonymous said...

That's the problem. Government money comes with strings attached, in this case the extension of first amendment protections. The Mall of America didn't have to ask for the deal they wanted; they could have conducted their business on a much smaller scale, like a dental office, for example where business is conducted by appointment. I know my dentist's office seems to do just fine without a dedicated off ramp from a freeway. But they chose to reject that business model. They wanted access to resources unavailable from the private sector it seems which were only available from the government.

At the very least, this should make Fox News happy. They make quite a point this time of year arguing that exercise of first amendment rights in public places is somehow banned. I, for one, am pleased to note that what happened at the Mall of America has proven them wrong.


John said...

Not you to... "Corporate Welfare"...

I don't think the government makes a habit of giving "money for nothing" to corporations because "it is only fair", like they do constantly for individuals.

If a company gets a loan, tax break, facility, etc from the government, it is because the government wants something from them. It is a negotiation / transaction, not welfare. The government is dealing and/or setting policy for the benefit of our society, not for the benefit of the corporations.

Sometimes politicians do make bad deals, just like all business people. However I am absolutely certain that they did say...

-Let's send money to the Vikings to support their education, health, finances, etc.
- Let's support the Mayo Clinic because that company needs the help.
- Let's give Solyndra loans because it is only fair that we help them.

In all of these cases, the government wanted jobs, technology, investment, excellence, or some other benefit that would be good for both the public and private sector and our society.

Sometimes they are correct and sometimes they are incorrect.

Have you ever negotiated to attain something you want?

Let's use a car as an example. After the sale, does the car dealership owe you something that is not written in the contract? I mean they gave you certain concessions to get your business. Does this mean you now have some authority to control how they do business in the future?

What is your rationale that private businesses owe the government something that was not clearly specified in the contract?

jerrye92002 said...

Yes, John, government is "making a deal" when they engage in this corporate welfare, and sometimes there is even an enforceable contract involved. However, the REASON for these deals is political gamesmanship, not solid economic analysis, and as a result, most of the contracts are at best implied and with intangible benefits simply assumed. For example, [ONLY] if we give the Vikings a stadium, we will have a team called the Minnesota Vikings. Whoo-hoo. If we give Northwest Airlines big money for a repair hub, economic development will flow into Duluth like a river. If we give big bucks to Solyndra, solar cells will quickly displace coal as our leading energy source. It's fantasy coupled with political stupidity, not economics or anything vaguely related to it.

John said...

As I said, some of the business deals yield great results and some yield significant losses.

My point is that at no point is it welfare...

"financial or other assistance to an individual or family from a city, state, or national government: "Thousands of jobless people in this city would starve if it weren't for welfare."

"Informal. a governmental agency that provides funds and aid to people in need, especially those unable to work."

The government personnel think they are getting something of equal or greater value back for the expenditure. Whether they are correct or incorrect is a different topic.

Laurie said...

this topic doesn't interest me so I am going to suggest another topic:

The True Cost of Teach For America's Impact on Urban Schools

I spent some of my xmas break reading abut how to improve education and I am always interested in what others think.

jerrye92002 said...

The term "corporate welfare" was coined to point out that individual welfare goes to many who do not really need it at all, and likewise to corporations that do nothing to deserve it. I'm not talking about government contracts, or even tax breaks, but direct "welfare" like building a stadium or solar panel factory and gifting it to a private enterprise.

John said...

The problem with your logic is that no one is giving a building/stadium to a Corporation. (for better or worse)

I don't know enough about Solyndra, but that does sound like someone was doing a lot of wishful thinking.

Then again after reading this. Maybe I was correct when I said some deals are winners and some are losers... Especially those in R&D companies.

Sean said...

"The problem with your logic is that no one is giving a building/stadium to a Corporation."

Maybe not in terms of who owns the title. But effectively that is what we're doing.

The Solyndra deal is completely different. The government backs all sorts of loans -- that's what the SBA does, for instance -- to help people who can't get financed in the traditional market. Some of them fail (just ask Sen. Nienow and former Rep. Leidiger about that).

John said...

"Maybe not in terms of who owns the title. But effectively that is what we're doing."

It depends on ones perspective. The other perspective is that we just convinced the Vikings/NFL to pay for half of a public building that will be used for many other events. Including the possibility of attracting a professional soccer team to MN.

Sean said...

"The other perspective is that we just convinced the Vikings/NFL to pay for half of a public building that will be used for many other events."

I suspect that if you offered most private businesses a deal where we would pay half the construction costs, but they get to keep the revenue, they would jump at such an arrangement, too.

jerrye92002 said...

I find it odd to agree with Sean, but I must. The Wilfs could have put up the whole thing by themselves, and had plans to do so, along with an adjoining real estate development that would have been even more profitable. But that would have left taxpayers "holding the bag" that is the Metrodome, and the politicians could never admit that THAT publicly-funded stadium was a fiasco (I know, they rejected our bid in favor of an inferior one).

So, somebody suggested that the taxpayers would be happy to pay for part (eventually half) the stadium, doubling the return on the Wilf's investment and halving the risk. The Wilfs pursued it, encouraged by the League, and other, better options (from the taxpayer POV) fell by the wayside. I have to ask, what return am I getting for the $200 I'm kicking in?

John said...

Again... Different perspectives... It is good to see you both aligned and bonding.

I like this description. Celebrating 20 Years as Minnesota's Rec Room And I am looking forward to seeing what our new and improved rec room looks like and what memories are generated in it.

Sean said...

I completely agree that stadiums serve many useful purposes, and that professional sports (like the arts) are integral components of a major metropolitan area.

But the evidence shows stadiums don't pay for themselves, and arguments that they are useful economic development tools don't hold water.

John said...

What are your thoughts on light rail transit and tons of bike paths/bridges then? We seem to be willing to spend much more on these with even less economic justification.

Sean said...

I would disagree that there's less economic benefit to LRT than a stadium. Our current less-than-optimal LRT Lines move about 70,000 people a day, which is significant. Another key distinction between public investment in LRT versus a stadium is that the revenues accrue to the public, not a private entity.

I think that light rail transit can be useful, if it designed in a manner to efficiently move people from point A to point B and not as a method of driving economic redevelopment. The Central Corridor and the current SWLRT plan are compromised IMO because they have routed them to serve other goals. The Northstar commuter rail line is compromised because we don't control the tracks.

I don't believe LRT needs to pay for itself through user fees, though. Not even our roads and bridges do that.

There is a place for dedicated bike lanes on some roads, and bike paths are more likely treated as a parks issue.

John said...

"revenues accrue to the public, not a private entity."

The problem is that the "revenues" are typically less than the operating costs, therefore we citizens do not just pay for the rails/stations up front, but we continue to pay for people to use the system indefinitely.

And most of the benefit for these Light Rails go to a very small percentage of Minnesotans who use them. (ie mostly those who live near them or the park & riders)

Maybe the Bike Trail /Park comparison works well for why we fund Stadiums. I am guessing more citizens will get enjoyment from the stadium / Vikings than the bike paths.

Sean said...

"The problem is that the "revenues" are typically less than the operating costs, therefore we citizens do not just pay for the rails/stations up front, but we continue to pay for people to use the system indefinitely."

Sure, but the same is true for roads, airports, harbors, passenger train service, etc.

"And most of the benefit for these Light Rails go to a very small percentage of Minnesotans who use them. (ie mostly those who live near them or the park & riders)"

Sure, but you could say that for many things. The individual utility of your average rural county or local road is pretty low, too, but we contribute towards its construction because of the network effects of transportation.

John said...

Food for Thought

Now if you think parks, bike paths/bridges, light rail, etc are good uses of public funds.

What is your rationale for being hesitant to support the stadium deal? How is it different?

I think all of them are "nice to haves". Whereas basic roads and utilities to each citizen seem like "basic government responsibilities".

jerrye92002 said...

Sounds like we are looking for a definition of "public good," for which government spending is reasonable. I would argue that there are a few qualifications for what is acceptable.
First, it is something that all the "public" can access if they have the need or desire, though not precluding a fee (a State Park, for example).
Second, any fees or revenue go back to repay the government's budget. These should be self-sustaining, because otherwise the general public is subsidizing those particular citizens who choose to use it. Example would be light rail, or certain museums.
Third, those fees should NOT benefit any private, for-profit entity, as the stadia do.
And finally, they should be the best use of scarce (or should be) taxpayer dollars, offering the best "return" (though that includes intangibles like "quality of life"). That's how I justify the building of art museums, but not individual works of art. Government can provide the capital, and a non-profit group can manage the operation on a self-sustaining basis. That way, the art nobody likes doesn't pay for its showing.

Sean said...

"What is your rationale for being hesitant to support the stadium deal? How is it different?"

I'm not opposed to building stadiums. I'm just saying they don't pay for themselves, and they are not good economic development tools. If you're going to spend $500M of government funds, there are a lot more efficient ways to do so.