☆ A clean, deregulated place: Mark Moses on what drives a city’s economic life (4/4)
Much of what goes into making a business-friendly environment actually falls outside the scope of a city’s economic development department. So says Mark Moses, author of The Municipal Financial Crisis, in an Opp Now exclusive Q&A. He points to ongoing and long-term factors like crime prevention, infrastructure maintenance, and lowering the cost of living.
Opportunity Now: You talked about the problems with business incentives and even gave plaudits to San Jose for their efforts to help businesses in a real way, like navigating the bureaucracy.
What other things can be done to create a business-friendly environment?
Mark Moses: You make the city attractive for businesses. First of all, address the crime level. The city needs to do its job in terms of supporting the police force.
Then, the city needs to maintain public infrastructure, like roads, and also divest from infrastructure that it can't maintain. Those are good starting points.
ON: What about the cost of living?
MM: Yes, a low cost of living makes for an attractive business environment.
ON: But isn’t housing a huge drain on people’s finances? For every dollar residents spend on their rents and mortgages, that’s a dollar they can’t spend at local businesses. It’s like those unseen costs you were talking about.
MM: Right. But the housing department isn't going to solve the housing problem by just running a bunch of subsidy programs, where people who get the subsidy are selected by lottery. That's costly, and it’s picking winners and losers.
ON: Couldn’t changing zoning requirements relax some of the upward pressure on housing prices?
MM: Zoning laws and the approval process for permits are certainly under the city's control.
ON: Even in California?
MM: There's a lot of development freedom in California that's preempted by the state, which has mandates that the city's required to implement. And I consider that a negative for California cities to have to comply with some of those dictates.
ON: So you're saying that much of what can be done, in crime and infrastructure and housing, can take years to turn around to make a city more business friendly. What about immediate steps a city can take to help businesses? Like, deregulating approval processes?
MM: Yes, if a business can't open because it can't get an occupancy permit, it's burning cash, it's not generating income, it's not able to employ until it gets the occupancy permit.
ON: But is there a way to do that universally, so the city isn’t selectively fast-tracking approvals and picking winners and losers?
MM: The way we do it now, a really important business comes in, and then the city drops everything and organizes around it.
Instead, a city needs to develop a good reputation as a destination for new businesses. If word gets back that it was a piece of cake to open up a business, it takes time, but this way, a city can fix a poor reputation.
ON: It seems simple, but maybe it’s hard to implement because the city’s perspective is so different from the entrepreneurial mindset?
MM: Before I worked for any public agencies, I consulted small businesses. I worked with this windsurfing guy who was financing his shop on credit cards. Your business tax departments don’t understand the entrepreneurial way of doing things; they’re numb to it.
They think, "Oh, you're in business. You must be making money. You must be able to pay this fee or that fee, and you must have all the time in the world to figure out our business tax structure."
But these guys are working 10 or 12 hours a day just to keep their retail shops going. They don’t even know if they’re making money 'til a year or two in.
So, anything a city can do to bring more sensitivity to some of these upfront charges for businesses as they come on board.
ON: So, deregulation is the humane approach.
MM: I think we have ridiculously high floors for how little you have to make to report business tax in the city.
One argument from the city’s perspective is that this is the best way to catch them all and track them as they grow.
ON: So the fee isn’t really a major part of revenue, but it’s almost like a tracking device?
MM: There’s just a lot of people in most cities paying the minimum business license. How much does it cost to collect all that? This is where a kind of sense of fairness winds up adding to a clunky system causing people to stand in line to wait for their business licenses.
These aren’t deliberate decisions; they’re accidents of the past. Maybe $50,000 was a lot of revenue 40 years ago when the business tax ordinance was last adjusted.
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