Aside from having a keen sense of how to satisfy the whims of a fickle marketplace, what separates the successful businessperson from the rest of us is an especially canny ability to exploit the rules to the legal limit.
An excellent example of the skill is the taxpayer-funded consortium called the “Downtown Development Authority” or DDA.
For those who are unfamiliar with this particular species of business/government hydra, a brief explanation is in order.
In an effort to rehabilitate decaying commercial districts a law was passed in 1975 permitting cities to create a Downtown Development Authority – the unique characteristic of which was special status under a Tax Increment Finance Authority.
The TIFA district had to be contiguous and contain commercial properties that were deteriorating and/or declining in value. Under such circumstances, property tax contributions by the included businesses to support city services could be frozen at the existing level. Thenceforth, any incremental increases were “captured” into a separate fund, specifically earmarked for improving the area.
Faster than you can say, “Some flowerpots and wrought-iron benches sure would dress up the front of my Starbuck’s franchise,” dozens of cities across the state discovered that they were suffering from a decaying downtown.
In 1991 my own hometown of Allen Park, for instance, identified two “blighted” properties (one of which was the US Post Office branch), and another with “declining” value (a brand new credit union, the initial over-assessment of which had recently been corrected on the books).
Officials proceeded to define the afflicted area as consisting of the full length of all three of the city’s primary thoroughfares. The distressed “downtown” formed a giant criss-cross, transecting the city from border to border in both directions.
Thus the Allen Park DDA was born. And all the businesses in the TIFA have paid for city services at 1991 levels ever since – capturing all the increases between then and now (and bonding against anticipated revenues) to be spent exclusively on their own, pet projects.
Needless to say, the costs of providing police and fire, snow removal and so forth has gone up a tad in the intervening thirteen years. In fact, the city budget has more than doubled since then. And you don’t need to be Noble Prize winning economist to figure out that somebody must be picking up the difference.
But at public meetings where DDA projects are discussed, any suggestion that TIFA funds ought to be used for downtown projects of general value – such as repaving the main streets or building new municipal facilities – are met with outright scorn by DDA officials (i.e., the same business owners). They genuinely regard the captured funds as theirs. And conspicuously resent any insinuation to the contrary.
Predictably, the result has been DDA projects of two types.
The smaller ones are transparently self-serving, such as restaurant owner deeding over his parking lot to the DDA so that tax money can be used for maintenance and insurance. The more ambitious plans involve obscenely lavish expenditures for very marginal improvements – many so absurd that no businessperson would entertain them for an instant, if his or her own funds were required.
The city recently approved one of the latter type – a proposal to beautify a 3/8 mile stretch of our rambling “downtown” by burying telephone and utility lines to permit the removal of ugly poles. Cost: $1.7 million.
I suggested that a far more effective customer enticement would be to simply print up and distribute seventy thousand $10 coupons redeemable only at the stores along the targeted half-dozen blocks. I’ll wager that would bring in far more business than merely hiding phone and power lines. And we’d save $1 million besides!
But no one was interested in even discussing the possibility.
So I observed that since this Tax Increment Finance Authority concept seemed to work so well for our business owners, we should consider extending it to us homeowners, as well. How about making my residential street a TIFA? Freeze our property taxes at current levels in perpetuity. Then as inflation works its inevitable magic my neighbors and I could “capture” the increase and use the money specifically to improve our own property.
Now, I’m not especially offended by the sight of the phone and power lines coming into my house. However, I am about to shell out $1,000 apiece to have three dying Ash trees taken down. And, personally, I can’t think of a better use for my tax money.
Of course, it’s hard to see where it all ends.
Our city’s already declining industrial sector will undoubtedly be next in line seeking control of their own tax contributions.
As for covering the increasing costs of such mundane necessities as trash collection and public safety, maybe we can hold an annual bake sale. Downtown.
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More on economic regulation:
- Throwing our money down a rabbit hole
- Government as venture capitalist
- Wholesale whining
- Michigan’s titanic business climate
- Time to give workers the right
- Prescription for controlling drug costs
- Brave new diversity
