Monday, August 5, 2013

Development Subsidies Waste Resources

Tax breaks and subsidies for new development are common ploys used by cities across the country to attract businesses. In Baltimore, the $1 billion Harbor Point project is scheduled to receive $107 million in public financing for things such as parks and a promenade among other handouts. While private development is badly needed in Baltimore, taxpayer dollars should not be subsidizing these narrow private interests.
            Ronald Kreitner, Maryland’s planning director from 1989 to 2000 and current head of non-profit Westside Renaissance, estimates that Baltimore has provided Harbor Point developer Michael Beatty and his partner John Paterakis more than $1 billion in taxpayer assistance for the Harbor Point project and another nearby development, Harbor East. These handouts were granted despite the fact that the city estimates that the Harbor Point project would earn a $124 million profit for its investors without city financing; city financing increases the profit to $174 million. Apparently cronyism has become so ingrained in Baltimore’s culture that even projects that would be profitable without subsidies receive them.
            Of course local politicians who support the project, such as city council president Jack Young, tout the jobs aspect of the project.  Young claims that the development will create “union jobs” and that a “significant amount of minority contractors” would get jobs. Estimates done by the Baltimore Development Corp. claim that 7,000 construction jobs and 3,300 permanent jobs would be created by the project.  Baltimore’s 10% unemployment rate is evidence that jobs are sorely needed in the area but putting taxpayers on the hook for $107 million dollars is not the best way to create them. Cities like Baltimore need to create better business environments overall by reducing regulation, lowering taxes, and making the process of development clear and straightforward. This will attract employers along with their new products and services and leave taxpayers free to spend their money as consumers, not investors.
Developers and businesses want to go where they can make money. Cities that incentivize developers to meet with politicians and union officials in order to acquire subsidies or circumvent zoning restrictions, burdensome regulations, taxes, and local/minority hiring laws distort the market for urban development in favor of developers who are best at playing the political game rather than the best developers. Simplifying the process by removing regulations and politics and lowering taxes is a better way to encourage good development that does not put the taxpayer at risk.

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