Thursday, August 15, 2013

Dos and Don’ts of Urban Renewal


Evansville, Indiana, has reached a deal to construct a $74 million convention center that is expected to revive the downtown area and bring in new business and infusions of cash.  This is pretty much the standard pitch when something of this scale is planned, whether a convention center or a sports arena.

Let’s get down to brass tacks right away.  If the convention center will generate revenues (not tax subsidies) that will enable it to liquidate the debt and generate a reasonable ROI (that’s “Return On Investment”), then go for it.  If, on the other hand, the proposal relies on tax subsidies or breaks, unrealistic projections or of the expected benefits of the business that will result, it is a waste of money.

We should further stipulate that the facility not be publicly owned.  It should be privately owned — by every permanent resident of Evansville, by means of a no-cost, non-transferable, fully participating and voting share in the center.

Financing should not be a problem — and without using tax money or floating a bond issue.  Evansville is in the St. Louis Federal Reserve district.  Contrary to popular belief and current government practice, the Federal Reserve was established to rediscount eligible paper from the private sector, not fund government.

IF the center is financially feasible, i.e., can pay for itself within a reasonable period of time and generate a profit, then it would qualify to have its paper accepted at local commercial banks and rediscounted at the St. Louis Federal Reserve.  If the banks and the Fed are satisfied with the discount rate, this would mean "interest free" money.  (A discount rate is, despite the fact that the term is usually applied to it, not an interest rate.)

Once the loan is repaid, profits can be paid out to shareholders in the form of dividends as a "second income."  The convention center could be the "flagship" for turning over all land and infrastructure that the city government now owns over to direct private ownership, and lease back whatever facilities it needs, making everything else into profit-making enterprises that directly benefit the owners, not the politicians.

"User fees" charged by the private companies providing services could replace property taxes so that costs are assigned directly to whoever benefits from the services.  An income tax would generate revenue to cover costs of government.  If you stop to think about it, all taxes are ultimately "income taxes," since if you don't have the income, you can't pay them, so why not tie the tax directly to the ability to pay?

Handled in this way, the fiasco that hit New London, Connecticut, could be entirely avoided.  Otherwise, the city could be stuck with a very expensive boondoggle at a time when no city in America (or anywhere else) can afford that kind of mistake.

#30#

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