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Here's a few of my initial thoughts as I ponder the tak break being given to those developers building high priced multi-family projects in downtown Spokane.
The fact that our lives have private and public aspects is clear. But just how these aspects are to be best balanced and mingled by public policy is not so clear and is in constant debate. I want to discuss one recent trend in that public policy which, besides being an excellent example of how confusing things can become, raises important issues of justice.
The following is often presented by community leaders to the citizens as a maxim: If a public body should ratchet up public subsidies to a private business person or corporation, there will be a general public benefit which will return, on some economic scale, many times the original subsidy. I should say, the leaders hope this appears as a maxim. But note that to be a maxim the above proposition must be independent of the subsidy and the private beneficiary. And concrete proposals never do fit that bill; it is always a specific subsidy and project which is proposed, with the insinuation that such a maxim is lurking below the surface.
If all such subsidies were so magically beneficial, should not every real estate development, for example, be totally paid for with all public funds available, allowing the developers to reap their required profit and the public to be guaranteed their investment returned many fold? But I’ve never heard this general proposal officially put forth. Of course, there is still the possibility that certain policy makers do believe we are dealing with a maxim here, in spite of the preposterous conclusions, and they don’t propose it as a general policy only because there is not yet a legal basis for such plundering of public funds. But setting that aside, I hope we agree that it is each particular subsidy we need to evaluate as to its justice.
A subsidy for a sports arena is one much discussed example of what I am discussing. But I want to deal with another example: a subsidy for a more ordinary real estate development. And the one I want to dissect is one being implemented by our lawmakers and mayor right here in Spokane. The concept was devised and made into law in Olympia and says that at the whim of city officials certain developers should be enriched in the following way: Lands within clearly defined boundaries can be mandated by the city to be blessed such that any newly constructed multifamily structures on such land shall be exempt from property taxes for ten years. The lawmakers in Olympia showed the usual moderation we find these days in stealing from the lower classes in that they leave the land itself on the tax rolls.
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The section in Spokane’s municipal code needed to launch this endeavor at making a killing for all involved lists seven possible purposes, a number that on the face of it is a red flag and near assurance that all is not well in the whim department; i.e., if one purpose might seem too fanciful, another shall be at the ready, and so the opposition can be worn down by sheer numbers. Let us ask a few questions: Why a subsidy of ten years and not five years or twenty years or fifty years? And what about the unlucky property owners just outside of one of these hallowed boundaries? Might they be running with the wrong crowd?
It is difficult to get the lawmakers in Spokane to discuss their personal rationale for this law. At least, they won’t talk to me about it. But for starters, let’s assume one of them would say something like this. There is an old ramshackle house sitting on a 30,000 square foot lot in Peaceful Valley. The yearly property taxes on the house are $1400. Now, developer Ben E. Factor has always had a hankering to build a twenty unit condominium on this site with a value, let’s say, excluding land value, of $500,000 per unit. The problem is that the buyers, while willing to shell out $500,000 for the unit, will not pay the property tax of, say, $7,000 per year. And hence, the developer must just let this land sit idle, saving himself from a poor development decision and depriving the community of tax dollars they may receive ten years down the road. But it is even worse than that:. Because Factor is not building, neither is any one else in the district, so the blight goes on. Is any one laughing yet? Please tell me developers had no hand in the writing of this bill in Olympia, nor any role in it’s implementation in Spokane. And then I’ll be ready to say this is other than pure blackmail.
Now, government subsidies are common in our society and many serve a useful purpose. And in fact, many are accepted with little debate; for example, the provision of public goods such as roads, clean air and water, and public safety. Though these are too seldom thought of as such, these goods are business subsidies in the sense that they provide a the minimal infrastructure required for any commercial enterprise. And then there are social goals sought through other more special policies such as special tax breaks for the poor, disabled, the elderly, homeowners, and on and on. These are all under regular review and debated as to their details.
It is a different fish we are looking at here. As proposed, the tax abatement is proposed as a sort of financial perpetual motion machine or, better yet, a magician pulling a rabbit out of a hat. First, we are shown there is nothing in the hat. That is, there will be no development at site A if the public doesn’t ante up through their government. Now this is impossible to prove or disprove once the particular subsidy is on the table because the developer can simply threaten to hold off unless the subsidy comes through. A weak attempt at a proof is sometimes tried by pointing out, for example, how long a certain piece has remained undeveloped. But market conditions, interest rates and so forth are always changing, so that doesn’t always work either. To state it flat out: with no subsidy available, the developer would, I believe, most likely proceed with the development anyway, putting the property right on the tax rolls. And think how much better this would be for all public projects needing immediate funding
