Blogs » J.Q. Tomanek of Victoria » Continuning the Conversation: BSspotter and Economic Development


Geeze this is the worst medium for this! Beers?

Because my response is longer than a comment box would allow, I hope BSspotter will allow me respond to his blog post "The Delusion of Economic Development." To follow along if you so wish, BSspotter's comments are in the quotation marks. My response follows without them. If there were a keg around with "Gulf Water" (the name of the brew I will one day make when I get my homemaking brew kit), then this dialogue would be much more enjoyable! I still think around a good pint is where economics and politics is best discussed. Cheers.

“Infrastructure improvements benefit everyone, not just a select business. This is one of the few things a government should be responsible for.”

The same argument is made with the current practice. It benefits everyone that pays taxes by increasing the tax roll. There are also some economic practices that would suggest that infrastructure should be privatized. Although it benefits all the citizens, this doesn’t mean it is not an “incentive,” it just happens to be an incentive that has a physical benefit for everyone versus a monetary benefit for the citizens. My point being, infrastructure is still an incentive and we are arguing “how much to incentivize” not “should we at all.”

“It could be argued that that an overall (relatively) lower tax burden is an incentive for a business to locate here, and it would benefit all businesses equally.”

Agreed. The lower tax burden should be a given for a good business climate. If ours is too high, this is something we can act on at the local level. I would consider this an incentive as well (assuming definition from article). I think this is why Texas has a better business climate compared to other states. According to the author above, this would seem to create a zero-sum game still. If Utah has a higher tax structure compared to Texas and a company moves to Texas, “What gain is there for Utah?” if I may use his reasoning on why other incentives should not be used.

“In terms of investments, I think the citizens should be able to keep more of their money to invest in the community as they see fit.”

At a local level, get involved in those areas that have the purse. This allows you to let your wishes be known on where to spend it. That is really all I can say. The allowance for an existence of an economic development corporation and its rules of practice are a state thing. Contacting your representative, senator, Austin is the tree to bark at. I would say the practice on the Victorian level is very conservative. For example, the percentage that the VEDC is allowed to operate with could be as high as 10% of the ½ cent sales tax, here locally they only get somewhere near 4%. Some cities give the whole 10%. Some cities have a retail wing to attract retail. Although we all need retail, VEDC is attracting primary jobs (which has a strict definition) because as these jobs come, they increase spin off business (read: healthcare, retail, commercial, etc.), pay higher wages and often include things like health care coverage. Basically, I am saying this particular EDC that we have is operating very conservatively. They don’t just hand out money from the sales tax corp. (provided by consumers buying goods and services in the area). This explains why it took 10 years to land Caterpillar. The marching orders are to find primary jobs, the ones that spinoff the other industries. On a side note: this is a great example of a niche working and surpassing a “we want anything” or making something so mediocre that it could be for any industry.

“Lower taxes can be an enticement in two (or more) ways — by allowing a business to operate at a lower cost and to signal that consumers are able to spend more of their money, either on the goods the company produces or to sustain a higher standard of living for its employees.”

Fighting for lower taxes, I would say is a good thing and promotes good business climate (promoting good business climate is what you, the city, county, etc. is desiring BTW, it is a common cause, it is the process that is disputed). This should be the goal. However, this is a wrong argument because the citizens are not the ones being taxed to support this initiative until they hear the cha-ching of the register. In this sense, people from out of town are being taxed to support our local development because they spend here. The same applies to you when you spend in other cities. The taxes you pay for a good or service in another city goes to support their local economic development. Yet, another reason to spend local when appropriate.

“The problem with the ROI scenario is that taxpayers don't get cash dividends and the appetite of govt never wanes. Higher revenues will always lead to greater spending. When times get lean, that appetite doesn't go away.”

Your comment on the ROI scenario is legitimate, but doesn’t invalidate the practice of economic development. It is something that needs to be watched. Like, “This was supposed to help ease the tax burden, why the h-e-double hockey sticks are you not living up to what you said this whole initiative was supposed to do?” which would be holding local politicians feet to the fire if this ends up happening. I can appreciate your “never waning” comment, I don’t know if I would say always, but it does seem to be the case. I would hope that the greater spending of the local government is the result of lower taxes for the citizens while the wages are increased and more jobs are created.

“Just because they "can" purchase real estate for economic development doesn't mean they should.”

Yes, this can be argued. Real estate seems to be part of the game at this time. In the future it might be nearness of sea travel, green energy availability if the prices of fossil fuels go up, nearness to the capital, etc. I happen to know that our location became a great incentive for Caterpillar to locate here, the options for moving products in and out is a great attribute of Victoria. I suspect, as the VEDC rightly markets, this will be the case for future companies to choose this area as well. As it happens to be the case now, abatements and land are some of the first things a company looks for. In this sense it is primary. Then the company goes on to measure all the other incentives a city has: education priority, healthcare facilities, and what I think is most important which is her people. This is why so many were thanked for their support, at any point on the list of attributes Victoria could have been scratched off the list. If we didn’t have a great community college, if we didn’t have staff to crunch numbers, if we didn’t have the importance of education, if we didn’t have access to highways, if we didn’t have any number of things Caterpillar could have chosen another city to locate too. Before even abatements and land, we had to have a marketing agent that strategically place their presence in front of the right people so that Victoria is at the top of the list when a consultant is helping a corporation. This was the case for Caterpillar and the marketing agent is the VEDC.

“You understand economic development, as it stands, quite well. Do you understand the attached essay that debunked it?”

That is a loaded question, BSspotter. If I say “No” it means I cannot understand the essay therefore I don’t think it is debunked because I cannot understand it. I will say I understand the essay, but disagree with some of his thoughts. For example, I think he is picking and choosing what is an incentive. I think he is being very general in how economic develop is practiced or implemented overall. I, of course, would enjoy his thoughts on ways to improve Victoria’s economic development. I am not saying it is perfect here, I would say I think it is better here than what I have heard of elsewhere and some places may have better practices than Victoria and it would be good to learn and apply those practices.

As I said earlier, this is a terrible medium for this discussion. Next time first round is on you!