☆ Mark Moses: Ponzi schemes are dependent upon growth. Cities shouldn’t be (2/4)
“Cities should be neutral when it comes to growth,” says Mark Moses, author of The Municipal Financial Crisis, adding that the need for an ever-expanding tax burden suggests less-than-transparent accounting of the costs. He argues that unfair business incentives further disrupt carefully planned fee structures, shifting the burden to residents and other businesses. An Opp Now exclusive Q&A.
Opportunity Now: If local governments don’t step in to incentivize the right kinds of business and create a healthy ecosystem, isn’t there a risk of a free market turning into a free-for-all, with one kind of industry crowding out the others?
Mark Moses: Well, then you’re back to central planning. I grew up at a time when San Jose was nothing on the map. Now it’s an international destination. Central planners could not have anticipated the nature of this growth. Look at what all the tech money has done for the restaurant industry and entertainment. They have major sports teams centered in the area.
ON: So, growth is good. Cities want to grow and expand their tax base. Wouldn’t it be irresponsible for a government not to bring in a big employer using government incentives, and risk losing it to another city, or state?
MM: I think cities should be neutral when it comes to growth. That is, their policies should neither artificially prevent nor encourage growth.
Think about what it means to be dependent upon growth. It means that the city has not been honest with the residents and businesses about the cost of city operations and needs to spread the burden across a wider and wider base. Ponzi schemes are dependent upon growth.
Municipalities should be collecting the taxes commensurate with the government services they provide.
ON: Right, and with more growth comes more demand for basic services. But isn’t there a happy medium where incentives bring in more growth, meaning more tax revenue to pay for expanded city services?
MM: What about the implications of the incentives? They undercut the city’s fee structure.
At some point, a city official made a detailed argument and probably paid a consultant tens of thousands of dollars to determine what the construction taxes should be. That was then probably the subject of a big debate: what the impact fee should be. Those things don't get adopted without crazy amounts of calculation and research and consulting fees.
ON: And those impact fees don’t account for popular business incentives like tax rebates and the like?
MM: That’s right. The cities take this carefully created impact fee and say, "Well, that's too high. We can't attract business with that. We've got to give a prospective business a break on that." They just undercut all this work that they’ve done, which means they’ve really undercut their whole revenue-generating structure.
At the same time, they’re likely already lagging in infrastructure maintenance.
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