Saturday, January 24, 2015

What to do about Nashville's Corporate Welfare?

Daniel Horwitz, a Nashville attorney and an occasional contributor to this blog,  and Mike Jameson, an attorney and former Metro Councilman  had a good op-ed in The Tennessean today entitled, "Nashville's corporate welfare habit will harm city."

They examine Metro's payment of millions of dollars in corporate welfare. It amounts to a lot of money, as they point out:

The current tally: $623 million for a new convention center. $70 million for a new Sounds stadium. $182 million to the Omni Hotel. $5.8 million to Gaylord Entertainment Co. $6 million to LifePoint Hospitals. $12.5 million to a downtown tower developer. $66 million to HCA. And, most recently, another $56.3 million to Bridgestone. All in a city that just had its credit rating downgraded and purportedly can't afford sidewalks.
I must take issue with including the convention center being included in the above list. The convention center is a publicly owned facility. One may oppose the convention center on other grounds and think we should not have built it, but I do not think one can call building the convention center "corporate welfare."  It is a different type of spending than money given to HCA or Bridgestone. It is not money being given to a single corporation. With the convention center, we did not forgive taxes because as a publicly-owned facility it would never pay taxes. The investment in the convention center does not help one company but supports a vast hospitality industry including lodging, food, entertainment, transportation, and retail. 

When serving in the Council in the 80's I supported Metro's first convention center and would do so again. Without Metro's first convention center I am convinced we would not have become the great city we are today. Had I been in the Council, when the Council was considering building the Music City Center, I would have supported it also.

I find the support for HCA and Bridgestone and similar deals problematic however, and agree that, that is corporate welfare and is more difficult to justify. When these deals came up in the Council for approval however, I have stated that I would have reluctantly voted for most of them had I been serving. 

Horwitz and Jameson say that the idea that these "investment" will ultimately "pay for themselves" is laughable. They may be right on that count.  If not right yet, then surely there is a tipping point at which giving away public money has a diminishing return and then no return at all but instead becomes a cost. I don't know were we are on that curve, but I think it is "laughable" to think this kind of corporate welfare will always pay for itself.

The authors point out that with the exception of a few conservatives and Councilman Josh Stites that this form of corporate welfare has had broad  support including support from  Republicans who would be screaming if this same level of  welfare was being provided to Nashville's poorest citizens. I think they are correct about that also.

I agree with the author's sentiment and agree in principle, but my reason for supporting these projects is pragmatic; if we don't do it and other cities do, we lose. We cannot unilaterally disarm. If other cities bribe companies to relocate to their city and we do not match the bribe, then the companies will not relocate here. If companies are being wooed to leave Nashville and relocate to Austin or Raleigh and we do not place a bid to convince them to stay, they will likely go.

I feel the same way about the bribes to Bridgestone and HCA as I do about using pubic money to pay a major league sports team to come to our city and building them an arena or stadium. However, other cities are doing it and cities who do not, do not get major league sports teams. The danger is that in a few years when the new stadium gets a few years on it and is no longer the newest and best, the team can be enticed to relocate to another city. The subsidy is never ending. Does the "investment" actually ever pay for itself?

With regard to corporate welfare such as the HCA and Bridgestone bribes, the authors say "with local politicians clamoring to hand over public dollars to any business that even whispers about leaving town, why on earth wouldn't every other corporation in Nashville make the same threat?"  That is a major concern. Giving a deal to HCA or Bridgestone encourages other companies to demand the same deal.

Agreeing in principle that corporate welfare is wrong, recognizing that paying extortion results in more demand for extortion and believing that these type "investments" has limits and eventually diminished returns, my question is, how to you get off the merry-go-round? Do we let other cities take our sports teams and HCAs and Bridgestones?

I asked this question of Daniel Horwitz and his response is that we need to provide sufficient value to businesses that doesn't come in the form of money or tax abatement.  He sited as an example, Governor Haslam's community college program which will equip a skilled Tennessee workforce to do 21st century jobs and give Tennessee a huge advantage over other states, and make Tennessee a much more attractive location for businesses to relocate or to stay.

He said  a business-friendly environment devoid of crazy licensing requirements helps as well, as does not having a state income tax.  A lower sales tax for goods and services sold in Nashville and Tennessee as a whole would help also he said.   Or, alternatively, a lower property tax for everyone, rather than just Nashville's biggest corporations.

He also said that another major problem with providing incentives to companies to stay or to relocate is that frequently, the bribes don't actually end up working, and taxpayers are left with the bill.

I think in the long run, Horwitz is right but when faced with a specific incident of a major company being bribed by another city to relocate and knowing the company is seriously considering relocating, should we just let them go without offering an incentive to get them to stay?  Should we just say, "Can I help you pack?"

In the long run, taking care of the fundamentals may be a better policy than paying companies bribes, but as some economist once said, in the long run we are all dead.

In principle I agree with Horwitz, but as a practical matter, it is still hard not to play the game. I am almost persuaded but not totally. In the future however, the bribe would have to be small and what we get in return would have to be very large before I could support it. And, occasionally we ought to call a companies bluff when they come with their hand out looking to extort money from the public.

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