Another reason to end local “economic development” efforts by government

In the continuing saga of incompetence in crony capitalism in Dayton, we now can thank the Dayton Daily News for finally uncovering a failure by the powers that be in handing out cash to private businesses.

Note, that this was money that was put aside as payola for allowing Waste Management and the Danis Corporation to build a mountain of trash on the West Side- not actual tax dollars:

A $100,000 West Dayton Development Fund grant the city awarded to Loritts-Neilson Funeral Home Inc. could be pulled back after the Dayton Daily News discovered the state had canceled the funeral home’s articles of incorporation in 2007 for delinquent taxes.

Ernest Neilson III, president and owner, owes an undisclosed amount of taxes to the state and more than $36,000 in property taxes on the business, 3924 W. Third St., to Montgomery County, records show.

“If the tax issues are true, then the funding would be in jeopardy,” said Timothy Downs, deputy director of the city’s economic development office, the division that distributes the grant.

Downs said he was unaware of the canceled articles of incorporation until the Dayton Daily News informed him of it.

The background reporting system the city uses did not reveal the cancellation, said Veronica Morris, senior development specialist for the city’s economic development office.

No decision had been made Thursday about the grant, which is funded through landfill fees paid to the city by Waste Management Inc. The grant money is used as reimbursement money for projects recipients of the West Dayton Development Fund have spent money on.

City commissioners approved the grant to the funeral home Oct. 12.

Neilson applied for the grant in August. The grant application he used included a question as to whether he owed any delinquent taxes to the state or any political subdivision of the state.

He responded “no.”

“I said ‘no’ simply because those were already in arrangements and I felt that was no one’s business,” Neilson said Tuesday….

If the grant award stands, Neilson will use it toward a $450,000 renovation and expansion of the funeral home, according to his application.

“He cannot use (the grant money) to help pay his taxes,” Morris said.

via City fails to investigate grant requests.

The list of grants handed out to questionable companies is long and the return on investment reports totally lacking. No other business would survive based on the practices and policies of “economic development” employees of government organizations. The only people who seem to make as many wrong calls and keep their jobs are meteorologists on local TV news. To list a few favorite “economic development” flops- where economic development gurus blew it: the funding of a new HQ for the ponzi scheme called MCSi, money thrown hand-over -ist to Ultracell which never had a production ready product and the tons of money thrown away on the “Wayne Avenue Kroger” which has decimated a neighborhood and given us an empty lot.

Crony capitalism is the correct term for when government gets to pick winners and losers in the private sector. Read this excellent essay from the NYT on crony capitalism in the US by Nicholas Kristof: Crony Capitalism comes home.

Imagine if the West Dayton Development fund went to funding parks and rec programs for kids, or for consolidating good neighbors into solid savable neighborhoods? That may have been real economic development, instead of crony capitalism at its finest.

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25 Responses

  1. jay madewell October 28, 2011 / 10:24 am
    I prefer the vacant lot to what was there before on Wayne Ave., but you’re right.
  2. jstults October 28, 2011 / 11:43 am
    Here’s a site sponsored by the Ford Foundation on rebuilding rural wealth.  The “triple bottom line” accounting strikes me as greenwash marketing hype rather than an actually useful tool for building wealth, but it would be interesting to know if anyone has taken a similar approach to the urban case. 
  3. Civil Servants Are People, Too October 29, 2011 / 1:20 am
    Here we go again…. so that’s three examples out of how many projects?
     
    And, is it really “picking winners” if the company asked for help and received it?
     
    And that means the alternative is NOT providing help to small businesses?
     
    And you talk about Parks, but no mention of how the two budgets actually compare?    
     
    To quote Herman Cain (for laughs) it’s apples and oranges!
     
    The easy answer is never really that easy.
     
     
     
  4. jstults October 29, 2011 / 12:14 pm
    CSAPT,

    If our government were more transparent, then you could more easily provide a link to the answers rather than asking a question.
    Yes.
    False dilemma.
    See #1.

    The simple answer is often hard.  For example, telling the truth is a simple thing, but because of our perfidious desires it can sometimes be very hard.  People often unnecessarily multiply complexities to obfuscate behavior that would otherwise be seen as unethical or unwise on its face.  Your comment provides no information to help anyone decide if the complexities are necessary or no, the actions inequitable or just.  It’s just a Glenn-Beck-style, I’m-just-asking-questions list. 

  5. David Lauri October 29, 2011 / 1:59 pm
    I have to agree with jstults and his response to CSAPT.
     
    CSAPT asks, “so that’s three examples out of how many projects?”  Um, CSAPT, you’re the civil servant.  Do tell us, how many economic development projects are funded per year in Montgomery County?  Do you know?  Care to share?
     
    CSAPT also asks, “is it really ‘picking winners’ if the company asked for help and received it?” Does every company which asks for financial help receive what it asks for?  If not, then how is it not “picking winners”?
     
    And CSAPT asks, “that means the alternative is NOT providing help to small businesses?” (which jstults points out is a “false dilemma”).  CSAPT, couldn’t an alternative to financial assistance be instead to help small businesses by reducing red tape or providing ombudsman- or concierge-type assistance in navigating the various government offices with which someone opening or expanding a small business must interact?
     
    (And before our resident Esrati.com Libertarians see that last question as an invitation to eliminate all government regulation whatsoever, sorry, that’s not what I was suggesting nor something I’d endorse.)
     
  6. djw October 30, 2011 / 12:10 am
    CSAPT also asks, “is it really ‘picking winners’ if the company asked for help and received it?” Does every company which asks for financial help receive what it asks for?  If not, then how is it not “picking winners”?

    Indeed. Rarely have a I seen a rhetorical question fail in such epic a fashion.

    Echoing jstults and DL, CSAPT: I’d love to see actual answers to your question, but I can’t find them. Are they publicly available? Do you agree they should be? Do you have them, or are you just pretending you do. If you don’t, why are you so sure they make your case look good? 

  7. Civil Servants Are People, Too October 30, 2011 / 2:14 am
    Fine, jump on me for raising the counter point.    I guess one-sided editorials are fine with you.  
     
    Yes, the information should be available.   I fully support the idea of transparency.   Someone is voting on these things to approve them, so it should all be public record.  It probably is out there, in some form.  
     
    For example, this took about 30 seconds to find.    It says the City of Dayton budgeted $3.31 million for Recreation and $1.04 million for economic development out of a total $150M budget.    I don’t know if that is a good ratio, but for Mr. Esrati to imply they are not spending money on Parks is disingenuous.
    http://www.daytonohio.gov/departments/omb/Documents/2011%20Budget%20Overview%2011-10-10.pdf
     
    No one –  no person, no business, no government, no investor  – gets it right every time.   Development is a blend of public and private action, and it is bound to have failures occasionally, like any other venture.   Other than the current story about the funeral home, the other “failures” listed are all several years old.    No one here seems to be discussing any success stories, only the failures.   Why is that?
     

    Your comment provides no information to help anyone decide if the complexities are necessary or no, the actions inequitable or just. 

    @Jsults, the same could be said of your own comments, and this article.    I am asking the questions that would have created a more well-rounded piece, and defending our local government (which gets it right most of the time), rather than jumping on the Esrati bandwagon.  
     
    @Lauri – Yes, they probably are providing those other services – but that’s economic development too.   So it’s not a “false dilemma”  – Either we WANT government to provide services to assist businesses, or we don’t.    If the answer is yes, then we should be discussing the matter of how and when.  This article only looks at one aspect of what they do, and condemns the entire profession based on a few isolated cases.
     
    @Both of you – we all know that “picking winners” has a connotative meaning here that implies smoky backroom deals or underhanded manipulations.    So I object to that phrase on principle.  If there is a process to apply for assistance, and guidelines that drive those decisions, that is called public policy.   We can agree or disagree with the policy, but that doesn’t mean we should be damning those civil servants responsible for implementing it.
     
    My point is that if Mr. Esrati really wants to make the case that government should not be helping businesses, he needs to do better job of it.   So for him to bad mouth a group of civil servants based on a few isolated cases is throwing out the baby with the bath water.  
     
     
     
     
     

  8. jstults October 30, 2011 / 9:02 am
    CSAPT, thank you for the link to the budget slides.  I’m sorry you don’t like mine about the rural economic development stuff (I thought it was somewhat on topic because of their focus on accounting and measuring, and their focus on building the “value chain” is instructive). 
     
    I agree with you that no one can pick winners without fail.  That’s why financial planners suggest that we diversify our investments.  Where can the Dayton taxpayer  find information on what the return on investment has been on Dayton’s diversified portfolio of economic development efforts?  I guess we can follow the econ-dev “blog” to get one spin, and esrati.com to get another, and then perform some magical spin cancellation to find the “truth”.
     
    David Esrati claims the economic development folks are incompetent.  You claim they are not.  The rest of us are left with “he-said-she-said” because nobody will show us the data.  I think it would be great if the Dayton taxpayers and voters could put all the wins and all the losses in context to make an informed decision about whether policy needs to change.
  9. Civil Servant My Ass October 30, 2011 / 6:04 pm
    disingenuous- anyone not working pro-bono (without pay) claiming they are a “civil servant”
  10. Ice Bandit October 31, 2011 / 1:02 am
    So for (David Esrati) to bad mouth a group of civil servants based on a few isolated cases is throwing out the baby with the bath water.  (CSAPT)
    …yeah, CSAPT, David shouldn’t be bad-mouthing civil servants. That’s my job…
  11. joe_mamma October 31, 2011 / 7:45 am
    “No one –  no person, no business, no government, no investor  – gets it right every time”  CSPT
    That’s why it’s a called a profit and LOSS system.  The “Loss” is as important if not more than the profit because it is what separates the wheat from the chaff.    Government can’t lose, because it is not risking anything except OTHER PEOPLE’S MONEY.
     
    “.   Development is a blend of public and private action, and it is bound to have failures occasionally, like any other venture.”  CSPT
    Nonsense.  Venture implies “risk taking”.  Government is not taking on any  risk of real measure.  It’s doing the exact opposite.  It is merely facilitating private profit taking and socializing losses to captive tax payers.    All that “development” requires of government is equal application of the law among the citizenry.
  12. joe_mamma October 31, 2011 / 1:56 pm
    “Where can the Dayton taxpayer  find information on what the return on investment has been on Dayton’s diversified portfolio of economic development efforts?” jstults
    Government’s P&L is whether people would rather work and live under their jurisdiction as opposed to living somewhere else.     The numbers speak for themselves.
  13. jstults November 2, 2011 / 7:10 am
    From the DDN:

    The goal of economic gardening is to connect entrepreneurs and expanding companies to resources, infrastructure and information to give them the same opportunities to grow and thrive as large corporations.
    The strategy was developed in 1987 in Littleton, Colo., after a major employer left the city. Littleton has doubled jobs and tripled tax revenues over 25 years without money incentives or tax breaks to recruit new businesses, said Mark Lange, executive director of the Edward Lowe Foundation. The Michigan-based nonprofit seeks to accelerate entrepreneurship and its impact on economic development.
    “Existing companies are the key for the growth of our economy,” Lange said. “Moving companies from one place to another does not create jobs,” he said.
    New Strategy Touted to Grow Local Jobs
     

  14. Civil Servants Are People, Too November 3, 2011 / 6:49 pm
    Littleton is a sprawling residential suburb of Denver that has more than doubled in population since 1980.     Growing tax revenue in that environment is like finding a teenager who likes “emo” music.    It’s pretty easy.   It’s a lot like West Chester, for example.

    http://www.littletongov.org/history/chronology.asp

    http://www.daytondailynews.com/project/content/project/grow/1028westchester.html

    @JoeMomma – the risk is when a community invests our tax dollars to support a growing company.   Sometimes they fail.  That’s a loss.   The reward is when they create jobs and new revenue to pay for public services.    When you look at it that way, it’s not unlike other investments.   
     
    Put those ideas together, and perhaps people can start to see why taking things out of context will ALWAYS provide the easy answer.    But it’s usually an incomplete answer.   As a society, we need to do a better job with understanding the big picture.

     

  15. jstults November 3, 2011 / 7:16 pm
    Why is Littleton growing?  Why is Georgia’s population growing and Ohio’s shrinking (two states now roughly the same size)?  The “truth” is probably complicated, but at the end of the day Maslow rules: folks gotta eat.  I bet we could make up some pretty decent stories to explain the data.  If the answer is that screws at the state level have to turn, then local pols should probably stop swinging that hammer.
  16. joe_mamma November 3, 2011 / 8:14 pm
    “@JoeMomma – the risk is when a community invests our tax dollars to support a growing company. Sometimes they fail. That’s a loss. The reward is when they create jobs and new revenue to pay for public services. When you look at it that way, it’s not unlike other investments.”   – cspt

    Not really. When bad investments are made by government those that made the bad investment do not bear the cost, the taxpayers do.   Which explains why government really isn’t that good at making “investments” in business. 

  17. Civil Servants Are People, Too November 3, 2011 / 11:31 pm
    Joe, that’s a false premise if you think it only applies to government.   That logic could apply to any one who spends money on behalf of someone else.   Purchasing agents, bankers, lawyers, non-profits, foundations, hospitals, universities, etc.   Someone is spending money that doesn’t belong to them.  Government is no different in that regard.  There is always a degree of risk.
     
    Furthermore, most of us in local government live in the community where we work – so it actually is our money, too – and we have a vested interest in seeing it used wisely.
     
    Finally, we also bear the opportunity costs that come with making public policy decisions.    As noted above, every community has to choose what services to fund, and at what level.
     
    Your logic also implies that we don’t give a damn what happens, which is also a false premise.
     
     
     
     
  18. Jesse November 4, 2011 / 10:29 am
    CSPT,

    It isn’t a false premise.  

    Case A)

    Party 1 earns money.  Party 1 has money taken away by Party 2, who invests in Party 3.

    If Party 2 does a bad job, the only option that Party 1 has is to physically move.  The benefit of the possible gains is spread with primary benefit going to Party 3 and primary risk transferred to Party 1.  Party 2 has no significant risk and no significant benefit.  

    Case B)

    Party 1 earns money.  Party 1 chooses to give money to Party 2, who invests on the behalf of Party 1 in Party 3.

    If Party 2 does a bad job, Party 1 can choose to invest in Party 2A, the competitor of Party 2.  The benefits of this are spread among the three parties, as are the risks.  Party 2 has significant risk and reward given the outcome of the transaction.

    Now to your false logic.  Just because you live where you decide to spend the money of others doesn’t mean that you will spend it in the same ways that you would spend your own money.  For instance, would you fund the RTA privately or build a skate park?  I think that the answer is probably no.  These are tremendous wastes of money.  If you saw that the benefit was so very small and the cost so high that you wouldn’t, but when you have the ability to decide on what happens with the wealth of 100 people you can “spread it around” a little more.  

    As opposed to me being focused on giving my money to help African refugees, a cause near and dear to my heart.  I am forced, because of your whims, to support things that I do not value at all.  

    Third parties interacting with third parties is a big part of the problem that we have in our society.  http://www.liveleak.com/view?i=af4_1292030036

  19. joe_mamma November 4, 2011 / 1:58 pm
    “Joe, that’s a false premise if you think it only applies to government.   That logic could apply to any one who spends money on behalf of someone else.   Purchasing agents, bankers, lawyers, non-profits, foundations, hospitals, universities, etc.   Someone is spending money that doesn’t belong to them.  Government is no different in that regard.  There is always a degree of risk.”  CSPT

    Wrong again.  When 99.9% of businesses make a poor decision they lose money and they never get it back.  If they lose enough money they cease to exist.  Government merely shows a debt and/or extracts more funds from taxpayers.  Government has the power to tax so it can make bad decision after bad decision and still have more money to make bad decisions. 

  20. DaytonCitizen November 5, 2011 / 9:43 am
    Recreation is a department, Parks is a subdivision of the Division of St. Maint., in the Dept. of Public Works.  So…3.31 million for the Dept. of Recreation to provide programs in 60 parks (nearly 1000 acres) that are “maintained” by a total of 15 maint. workers.  The city has cut the parks maintenance staff to the point that our parks are nothing more than vacant lots….impossible to maintain at any level even approaching acceptable.  Where exactly is the Dept. of Recreation supposed to provide programs?  In the last three existing Recreation Centers?  And what are they doing with 3.31 million dollars, because it is NOT being used to staff grounds maintenance in parks. 
  21. jstults November 6, 2011 / 3:07 pm
    This is somewhat related to what David Lauri was saying,

    Unemployment represents a crisis of imagination, a failure to figure out how to make potential workers productive in the modern economy. The people who make creative leaps to solve that problem are entrepreneurs. If we want to bring America’s jobs back, our governments—federal, state, and local—need to tear down barriers to entrepreneurship, create a fertile field for start-up businesses, and unleash the risk-taking innovators who have always been at the heart of our economic growth.
    Unleash the Entrepreneurs

     

  22. jstults November 8, 2011 / 6:51 am
    Here’s an interesting article on disappearing middle-class jobs.  He mentions the online artificial intelligence class out of Stanford (that some of us are taking together) as an example of hugely increased productivity (large student to teacher ratio).  I like the class, but I still don’t find the learning experience to be as good as a “real” class.  One of the problems with economic development by third parties is that the incentives don’t line up to force the developer to “confront the brutal facts” about the job-destructive power of technology.
  23. Eric Coleman December 23, 2011 / 7:53 pm
    The whole EC effort in the Dayton region has been screwed up for a long time. There have been many people or should I say so called business leaders who sit on the DDC board and the so called leaders on the Chamber. All have been doing what has been politically correct and sit on these boards and groups for recognition and show. Only one guy that I know of has tried to push these organizations to a different place and he has ended up in a similar space as you. But people who really want to make a difference on economic improvement in the region are eventually beat down for trying to make change. I am so pissed at the latest victim of these idiots I can’t see straight. I was informed today we are losing someone who leads the DDC because of the narrow minded people who can’t accept the change he was trying to achieve. He was and is the only change agent I thought could make that organization and others understand how to make this region proper. What a shame. Now as you noted more money will be pissed away with no real economic value. I wonder what it takes for these people to recognize real leadership.

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