Stop the Presses: The little green pill

 

The first initiative undertaken by Galesburg city manager Dane Bragg upon his arrival here was to establish the position of economic development director. After decades of no economic development from the anointed ED insiders both the citizens and city council were eager to see someone new try something new on the ED front. The Galesburg Regional Economic Development Association doesn't like to talk much about economic development except when it comes time for public funding but their approach has always appeared to be to wait for some business to come sniffing around the Galesburg area and then either ignore them entirely or dazzle them with our naiveté. Amazingly we have nothing to show for this effort despite broadening to encompass the Asian continent and 350 acres of overpriced farmland with two really, really nice driveway approaches.

Recently Galesburg's new economic development director Cesar Suarez conducted a special work session with the city council to discuss possible revisions to the city's current economic development policies with respect to incentives. Whenever economic development is discussed costly incentives always seem to be included despite a near total absence of any evidence that they pay off. Essentially ED incentives can be thought of as the little green pill that makes it possible for Galesburg to successfully conjugate with a business venture. Suarez, who was expected to bring some new ideas to this problem, appears to be promoting the same old ED approach.

To his credit Suarez acknowledged that very few medium to large business entities are looking to relocate nationwide in any given year. I believe his figure was about 200 businesses with 200 or more jobs consider relocation or expansion in any given year and of that no more than 12 percent are giving serious consideration to our region. He correctly notes that the key is not to be eliminated from consideration on those rare occasions when your city is in contention. “Available buildings and shovel ready land are key factors in attracting a new business.”

But then he continued by saying that “incentives are important if and when they impact the company's decision to invest, differentiate one location from another or draw attention to areas targeted for development.” But except where huge incentive packages are bandied about by state governments or really large cities the issue of incentives only becomes a consideration after other more critical factors have already narrowed down the potential sites. The general geographic location and what are considered necessary prerequisite characteristics of any city worthy of serious consideration are much more important in the critical early stages of site selection. In most cases incentives of the magnitude possible by a city our size only factor in late in the process.

ED incentives didn't keep Maytag here, they left just as their Enterprise Zone benefits were due to expire. But good corporate citizens make their decision based on sound business judgment and their appraisal of the Galesburg community. When Horne Properties came here to establish the Seminary Square they not only weren't offered any financial incentives, they didn't ask for any either. Horne chose to develop here because Galesburg met their requirements.

Let's be honest here, Galesburg is presently not the most attractive location to attract new businesses. Our population is on the decline as is that of the surrounding area. We are also hindered by our geographic location despite claims to the contrary. We are too far from a large city such as Chicago and for many the rural Midwest is far less attractive than milder climates to the south and west. Additionally, we are not located beside a major river or lake and we don't have a major college or university (no, Knox and Carl Sandburg College aren't even close).

Although it is a chicken-and-egg problem, our declining population and the flight of educated and talented youth is the major problem for the Galesburg area. Even before the closing of Maytag and Butler and Briggs this city was already in a downhill economic development trajectory. All of those employers had been reducing employment for years before they closed and for decades the best and brightest of our children left for college and never looked back. Next to the geographic limitations (about which we can do nothing) these demographic problems loom very large indeed against economic development success and simply offering little green pills will not mitigate this problem.

In fact, there is plenty of evidence that ED incentives could actually be counterproductive to Galesburg's longterm success. Money offered as bribes to developers is money not available to address some of the many real needs across Galesburg. The best incentive we can offer is to make Galesburg a more attractive community by investing in city services and infrastructure.

The most common forms of ED incentives are the creation of Enterprise Zones and Tax Increment Financing districts. In both cases what is being traded away are property and sales tax dollars for a prolonged period of time for the promise of jobs. To make matters worse the real losers in the creation of such zones are those entities that depend greatly on property taxes. The local public schools, Carl Sandburg College, the library, the county, the township general assistance office, and the Health Department.

For the city itself property taxes have become a smaller and smaller proportion of their funding, but it is still significant. In an enterprise zone the taxes are simply not paid for a period of years while in a TIF district they are paid but simply redirected away from the tax supported entities. Now in nearly all cases the affected tax bodies still get their tax dollars but this is only accomplished by increasing the tax rate applied to all remaining property owners. When the city council increases the size of the enterprise zone or adds another TIF district it necessarily increases the property tax bill of each and every property owner across town.

The new proposal calls for adding a new TIF district that will encompass most of downtown and beyond. The proposed TIF 4 zone will mean that as the assessed value of any downtown area property increases in value the newly collected tax dollars go not to the typical tax-supported entities but into the TIF fund to be spent on other things. If new buildings are constructed or existing buildings are improved the property tax dollars created by this increased assessed value will not go to schools or the library or Carl Sandburg College.

Once the TIF fund begins collecting cash what becomes of it? Well the city can dole it out in any number of ways. The original concept of a TIF district was that it would be used in blighted areas where the collected funds could be spent on badly need area infrastructure improvements like streets, public utilities, sidewalks, etc. What typically happens instead is that much of the money becomes grants for the businesses that located in the TIF district; in essence it amounts to a property tax refund for the businesses.

In the specific case of the proposed TIF 4 the big money winner is supposed to be the National Railroad Hall of Fame. Even as the organizers of this venture have been unable to raise but a tiny fraction of their $60 million goal they are looking toward the city to provide them with $2 million (nearly triple what they have already raised in actual dollars excluding pledges yet to be realized). You can bet that the new proposed location for this project will be within the TIF 4 zone just to make sure the NRRHoF qualifies to receive this TIF money. Considering how far the NRRHoF committee is from their own fund raising goal and how little progress they have made toward actually constructing a building it would appear likely that this would just be another sum of money to be tossed into the black hole.

There is no question that downtown Galesburg has real needs and perhaps an expanded TIF district might be justifiable, but only if the money raised is used for public improvements and not as cash gifts to either businesses or hopeless causes. Funding an expanded facade  renovation program or parking improvements or establishing a fund to maintain the Orpheum Theatre; these are all worthwhile uses of TIF funds. Even creation of revolving loan funds to assist local businesses startup or expand, presuming they meet realistic financial qualifications, would be a good use of TIF funds.

If Galesburg is to survive we need to forget about attempting to bribe some business to locate here and focus on making this community a great place to live and work. Let us take care of our infrastructure and encourage local entrepreneurs. Let us insure that our schools are sufficiently funded and intelligently managed to obtain the best educational results. Let us invest in this town's arts and culture and people. ED incentives are all too often akin to buying lottery tickets. While it is true that you cannot win unless you play the lottery nearly everyone who plays the lottery comes out a loser. Galesburg doesn't have sufficient discretionary funds to squander them on traditional economic development incentives or lottery tickets.

 

2/14/08