Tag Archives: subsidies

Local Governments Fight for Businesses

http://www.buffalonews.com/business/delaware-north-says-tax-breaks-needed-for-new-headquarters-in-buffalo-20131028

I wanted to quickly post this article from my hometown of Buffalo, as an example of some of the dealings that smaller cities and municipalities are often pushed to make.

It’s somewhat of an arms race – local governments are pressured to make sure that they are doing something for the local economy, so are often in the position of offering incentives to businesses to expand, grow, or relocate into a particular city’s limits. Tax rebates, grants, and other financial incentives have become very common for cities or counties to offer businesses. And why wouldn’t they? Take a rust belt city government such as Buffalo, fighting not only for every marginal job and bit of economic growth but also for an identity and a sense that things are improving. It only makes sense that they do everything they can to encourage expansion.

However, given that cities do this, businesses have their pick. After doing the analysis of what they need, what market is best, and what they can afford, a business can threaten and cajole to get as much out of those governments as possible and sell their expansion to the highest bidder, while pocketing as much as they can along the way.

It’s more than sad that this manifests itself as Delaware North basically threatening to leave Buffalo unless they can get as much money out of the taxpayer as possible. That cannot lead to good or optimal economic decision making or allocation of resources – someone has to lose. “Revenue dollars won’t justify construction of the building” – so don’t build it. A parking ramp won’t bring in enough revenue, then likewise. “Being based in a hub city” or a better talent pool would improve the company – great. Sadly, Boston may be a better home for Delaware North. However, what should we be willing to give up to see them stay?

A city does not build a competitive or sustainable advantage one financing deal at a time. It does nothing to tackle the actual problems that prevent a city such as Buffalo from growing organically.

This phenomenon is also common with sports stadiums, which often “need” gigantic financing packages from governments, despite the fact that sports franchises (and organizations like the NFL) make quite a lot of money themselves.

This is a cursory muse on the topic, but just wanted to cite the very blatant example.