Most corporate welfare is easily recognizable as such. Oil companies get huge, targeted tax breaks. Big agribusiness collects mountains of direct subsidies. The Export-Import Bank regularly lends Fortune 500 companies billions to create jobs overseas.
And, at least in popular perception, the typical purveyor of such blatant largesse is some corporate lackey from the right side of the aisle.
But, as with many things, our preconceptions can serve to blind us. In fact, the practice of bestowing handouts on those who need it least might be coming soon to a progressive city government near you, on a massive scale.
Judge Doyle Square -- the two blocks bordered by Martin Luther King Boulevard, Doty, Wilson, and Webster streets -- is being offered up by its owner, the city of Madison, for private redevelopment. The contemplated centerpiece is yet another luxury hotel for the downtown, this one specifically intended to serve Monona Terrace convention-goers. The thinking is that more groups would book conventions at Monona Terrace if there were more hotel rooms within very close walking distance.
The Common Council recently authorized the city to pursue negotiations that will, if approved, very likely end in taxpayers forking over tens of millions of dollars (and a valuable plot of land) to the selected development team. The developers' opening ask is over $75 million in tax incremental financing (TIF) funding.
That figure is unprecedented. As a matter of fact, it is many times the size of any previous TIF disbursement for a single-site private project.
Aside from a couple more notches in our skyline, what will Madison taxpayers get in return? If projections are to be believed, the hotel complex will generate enough in direct taxes over the next few decades to cover the outlay. Beyond that, the typical hope with this type of project is that public "investment" will morph into tourist dollars, which will in turn morph into increased sales tax revenues from surrounding businesses. And, of course, the project supporters expect that the development will significantly increase downtown employment opportunities.
This set-up might, at first blush, seem quite distinct from any common example of corporate welfare. Sure, we will give away a lot of money, but we expect to get back even more. It looks like a great deal for the common folk. But the project supporters' "trickle-down" pitch is the same one used to justify all corporate welfare. No politician says, "I'm giving some goodies to my cronies." They say instead, for example, that exploration for new oil reserves must be encouraged because plentiful energy is vital to overall economic health.
The trickle-down justification is used disingenuously by some politicians, but others are well intentioned. The city leaders who are pushing this plan surely belong to the latter camp. But I probably do not need to point out the loose causal relationship between intentions and results, especially when government is involved.
Besides, there is plenty of evidence that this type of public-private development consistently fails to trickle down to the degree that starry-eyed politicians project. In 1999, a developer received over $10 million in city help to construct the Hilton Madison Monona Terrace on East Wilson. It was projected that the hotel would generate almost $700,000 per year in property taxes within a decade. But by 2009, the hotel's annual property tax bill was only $421,899. By 2013, its bill was still only $469,245.
And it is not clear that any problems Madison has in attracting conventions will be relieved by increasing the number of hotel rooms around Monona Terrace. According to a late-2012 study, lost convention/meeting business in all of Madison between 2009 and 2014 would have had an estimated positive economic impact of $210 million, had every deal been won instead of lost. But according to a survey of the meeting planners who decided against Madison, only $25.4 million, or 12.1%, of that impact was lost for hotel-related reasons at Monona Terrace.
The private developers vying to build on Judge Doyle Square believe that this project will benefit them. They would not be pursuing the project if they did not. And the developers' interest in the project is contingent on an immense taxpayer contribution. So that contribution fills all or part of these companies' projected profits in the equation. This is not a work-for-hire agreement; the city will likely not retain any ownership interest in the hotel or any profits arising from it.
That, fellow Madisonians, is corporate welfare.
The powers that be in Madison preside over a very nice city. State government and the university supply a fine base of ambient economic activity, which will automatically foster consistent, moderate growth in good times. Our leaders should resist the temptation to gamble our money -- and the city government's financial fitness -- on get-big-quick schemes.
Again, I do not believe that the city officials who support this proposed TIF funding are in the pockets of private developers. But they are nonetheless fixing to fill them.
Michael Cummins is an organizer for Dane County Campaign for Liberty. "Citizen" is an opinion series that presents the views of the author. If you would like to reply, please comment or consider submitting an op-ed in response.
