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Wednesday, January 10, 2018

Privatize Economic Development

With all the criticism that I have presented against Governor Mead's ENDOW project, it is important to remember that it is not unique in its tying economic growth to government initiatives. The same line of thinking exists at all levels of government, including our cities and towns.


One of the biggest problems with the economic-development world is that those who consume tax dollars for the purposes of expanding the local economy, rarely if ever explain exactly what taxpayers get for their money. On the contrary, when the issue comes up, the return on tax revenue is often treated as a given. 

During the local sales tax debate in Campbell county this past fall, the lack of accountability for the return on tax-paid economic development stood out as a key problem. The Energy Capital Economic Development corporation, one of the designated winners if the tax hike had been approved, had numerous opportunities to explain what return Campbell County taxpayers were getting on their money. Their president, Phil Christopherson, never took the chance.

In one debate, where I participated as a critic of the tax-hike idea, Christopherson explicitly stated that he needed more employees in order to further the county's economic development. At no point during that debate, or any other event or media outlet opportunity, did Christopherson, or anyone else in favor of the tax, explain the return that the community had received on the economic-development spending that had already taken place. 

The city of Casper has a similar problem. Its local economic development outfit, the Casper Area Economic Development Alliance, has received taxpayers' money for 30 years - and can't even tell taxpayers how it is spending their money. On December 18, KTWO reported:
The local, publicly funded economic development organization made its long-awaited formal presentation last week of how it spends the money it receives from the city after months of demands by the Casper City Council. Charles Walsh, the chief executive officer of the Casper Area Economic Development Alliance, talked about the organization's finances at a work session, but said more about its accomplishments and its efforts to be pro-active in an economy recovering from the energy bust. 
A search of CAEDA's website produces absolutely zero accounts of what the organization has accomplished. How much tax revenue has come to Casper, that would not have come to the city if CAEDA had not existed? What is the return per $1 that CAEDA has spent of taxpayers' money? How many jobs? After all, are these not the products that CAEDA is supposed deliver?

These questions have become urgent to Casper taxpayers, as the city has taken a hard beating in the economic decline over the past two years. KTWO again:
Casper City Council had been asking CAEDA for months to show its finances. So at a work session last week, Walsh supplied a brief spread sheet of CAEDA's finances that only listed public funding and not private funding through its Forward Casper program in which businesses donate $10,000 each to participate. As a result, a lot of line items were left blank. 
Since I was not at the presentation, I am not going to criticize it per se. However, it is more than a little surprising that an organization that is supposed to do only one thing - help grow the local economy - cannot even explain how it spends its money. Never mind the return on the tax revenue it gets; they can't even report how they spend the money they get.

In the non-profit world of 501(c)(3) organizations, where I have worked, you have to be able to report how you use every dime of revenue - and that revenue is not sourced by force. It is completely and entirely a matter of voluntary donations. 
The City of Casper allocates $400,000 and Natrona County allocates $100,000 to the City-County Economic Development Joint Powers Board, which in turn directs the money to CAEDA. The public and private funds are not commingled, Walsh said. Walsh said that and other revenues, such as interest income and those from the Bishop rail car facility east of the airport, total nearly $560,000. Of that, CAEDA spends about $318,000 for salaries, $101,000 for operations, and $79,000 for marketing. Walsh said he makes $132,000, but he would not say how much the other three employees make because he said it would not be fair to them. 
In other words, Walsh makes about three times as much as the average private-sector employee earns in Casper. If he and the other employees are paid out of tax revenue, then their salaries must be public record - anything else is immoral - but if they are paid out of private revenue, the question arises: why do taxpayers shovel half-a-million dollars annually into CAEDA's economic development operations (whatever those are)?

In fairness...
Walsh also detailed CAEDA's office and other expenses; its efforts to develop wind energy; its influence in recruiting two businesses with 50 total new jobs; and achievements this year including hosting site visits for prospective businesses, partnering with Casper College to create a scrub tech program; and promoting infrastructure projects and the David Street Station. 
Still, this is an organization that has been up and running for 30 years. Surely they should know by now what difference they have made over the years. 

The Casper story is a reminder for others, such as the city of Cheyenne. Here, we have our own little economic development activist, a.k.a., Mayor Orr. For reasons that only a statist can explain, she is fixated on having government take the lead in rebuilding the city's west side. When she was elected in 2016 she started the "west edge" project for that very purpose; the west side of town remains an eyesore to our city's chief executive, whose vision includes purchasing the Hitching Post property for up to $2 million.

This, however, is not the only economic development project under Orr's administration. As is common practice these days, the city is actively involved in the development of new subdivisions. According to the Wyoming Tribune EagleOrr wants to take the city even deeper into that territory:
Orr also plans to revisit implementing developer impact fees, which cities charge developers to help pay for things like new roads, sewer lines and public safety equipment needed to service and protect new buildings and subdivisions. A 2015 attempt to introduce new impact fees died before the council got to vote because it came under fire from the local business community. A city-commissioned study said that even with some proposed fees, Cheyenne would likely be charging less for infrastructure costs than most other places along the Front Range.
A development impact fee is a tax, plain and simple. A tax is supposed to finance ongoing operations of government; investments should be funded by loans, which in turn are repaid through the use of the capital created by the investment. In this case, the proper approach would be to either:

a) privatize the power, water and sewer infrastructure needed for a new subdivision; or, which perhaps is more realistic,
b) bundle all these investments into one package, funded by bonds offered to city or county residents. 

Bond buyers would get a small, but safe return paid for through an operating fee on users of the infrastructure. That way, taxpayers can evaluate if they think the subdivision is worth their money; they can either make an investment in their local community, or decide that this is not what the city needs. Those who do not agree with the investment project can choose not to spend their money on it. 

At the other end of the transaction, the city - or even the subdivision developer - would have a great opportunity to make their case to the public as to why it is a good idea to help fund this new development. Furthermore, voluntary funding instead of impact fees would guarantee that there is no money siphoned off to pad the pockets of the city government. This, says the Wyoming Tribune Eagle, has been one of the concerns in the local business community:
Greater Cheyenne Chamber of Commerce President and CEO Dale Steenbergen said ... that the business community wasn’t consulted, and felt the [impact fee] changes were designed to enrich the planning department at the expense of business. However, as Cheyenne continues to grow and add developments like the planned 580-acre Whitney Ranch to the northeast and 2,349-acre Sweetgrass south of Laramie County Community College, city leaders have said the city will need to create new sources of revenue. 
New sources? Will not these new subdivisions have residents who will pay taxes like everyone else? 

Government should not be involved in economic development. Plain and simple. Leave that to the private sector, for-profit and non-profit. Infrastructure is a government function, as is public safety, but investment in those are best done on a voluntary basis where the return to bond buyers is explained upfront - not in some distant future when overwhelmed taxpayers finally put a foot down. 

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