Thursday, May 19, 2011

House Paint, Stock Shows, and Shopping Malls

Backyard Bail-Outs?

 Sometime soon my house will need a paint job (I mention this at risk of an onslaught of painting companies soliciting my business).  If I don’t repaint, my house will likely lose value.  If I neglect it long enough, my neighborhood will lose some of its value.  As values go down, property taxes go down.  Clearly it’s in the best interest of my neighbors and government to get my house painted.

But we are in a depression.  I mean a recession.  Pardon me, we are officially in a recovery.  Somehow that doesn’t help me afford paint. My income has taken a drastic hit due to this economy, no matter what it’s called.

So here’s my plan: If all my neighbors pitch in and help me buy the paint and rent the equipment, I’ll paint my house.  All will benefit by having a nicer neighborhood with higher home values.  The taxing districts that rely on property taxes will benefit as valuations rise.

Some of my neighbors might not want to help. That’s not fair to the others since all will benefit.  We’ll create a Paint Renewal Authority.  The Authority will borrow the money and give it to me.  They will repay the debt with the higher property taxes in my neighborhood.  After all, those higher taxes won’t happen if my house remains unpainted.  Which I won’t do if I can’t afford it.

Trust me: I’ll use good paint and superior workmanship. I won’t sell my house to an illegal drug or prostitution ring.  I’ll faithfully water my lawn and maintain my property so that the Authority’s investment in my property will be safe, and all my neighbors will benefit. And you can rest assured that the higher property values in my neighborhood are entirely attributable to my fresh paint.

Economic Development?

On a much larger scale this is just one form of tax incentive that economic development authorities use. It’s called Tax Increment Financing, and this ridiculous scenario takes place across the country.  Economic development authorities use these incentives to attract developers to build malls, office parks, industrial complexes, etc.  And taxpayers are on the hook if the authority invests poorly.

Democrats hate Wal-Mart because their low prices make it hard for Mom-and-Pop businesses to compete.  Republicans praise Wal-Mart because they offer goods at lower prices, which raise our standard of living.  But Wal-Mart is the beneficiary of tax incentives, a valuable advantage that Mom-and-Pop aren’t able to access.  A government subsidy to Wal-Mart is a disadvantage to competing businesses that don’t get a similar subsidy.  It’s a grand example of government choosing winners and losers. 

Politicians get the immediate benefit of a visible improvement to the community and can point to new jobs. What isn’t seen is the loss of small businesses and their jobs. Also, the project might not work out as well as hoped, and the additional taxes might not come in.  Perhaps the development would have occurred without the subsidy. Or, as often happens, a new subsidized project will make the old one obsolete, perhaps even before higher tax revenues can retire the debt.  The politicians may be long gone before that happens.

Recent Examples

The National Western Stock Show might move to a new location. Taxpayers may be forced to fund development of the new site, a private enterprise. Walt Isenberg, CEO of Sage Hospitality said of the plan, “Colorado…and…Denver have spent a significant amount of money building a conference center downtown.  If this hotel and conference center is built, will they cannibalize that investment?” 

The Westminster Mall has received millions in taxpayer “investments” over the years.  It was once home to 300 shops.  Then Westminster helped develop the Westminster Promenade, and then the Shops at Walnut Creek. Now Westminster Mall has 15 shops. The city is buying the mall, and you and I are once again “investing” in the property. And the Promenade is losing tenants.

Look around at the major malls and developments in our Metro North area.  Chances are they have been subsidized by you and me and Mom-and-Pop who have to compete with them. Can you feel the despair of store owners who, by virtue of years of hard work, paid taxes to fund the superstore that runs them out of business? Who will bail them out?


  1. Hooray Brian, for pointing out the difference between markets and government subsidies to business.

    Henry David Thoreau said, "Government never furthered any enterprise but with the alacrity by which it got out of its way."

  2. Good quote, Craig! Anybody know where I can get a bucket of alacrity?

  3. I'll let you know when I find one.