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 naivetŽ. 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.
ÒAvailable buildings and shovel ready land are key factors in attracting a new
business.Ó
But then he
continued by saying that Òincentives 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.Ó 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