Cities need the business community more than ever before. Thanks to voter initiatives drastically curtailing the abilities of local government to levy taxes or collect fees, sales tax revenue and job creation have become cities'' lifeblood, the only way to adequately fund even the most basic governmental services.
Pushing this local government dependence on business growth are both state and federal governments, which in recent years have expanded giveaways of public funds-dubbed "corporate welfare" by some-through new business grant programs, expanded redevelopment laws, "streamlined" environmental approvals and a variety of other programs under the "economic development" heading.
The typical California city these days can have millions of dollars stored away in funds that may only be used to subsidize the business community, at the same time they are cutting police, road or social services because of shortfalls in discretionary funding-which is generated mostly by sales tax revenue. The financial health of government now depends on the financial health of business.
It was against this backdrop that hundreds of bureaucrats and elected officials came to Monterey last week for a League of California Cities conference. One-third of the program was about community services, while two-thirds dealt with economic development and redevelopment-a telling mix.
"City officials are keenly interested in trying to be sure there is a good business climate in their community," says the League''s Terry Dugan, who helped set up the conference. "They''re interested in finding what they can be doing in terms of enticing businesses, supporting business, creating new opportunities that are friendly to either existing or potential businesses. It makes sense."
Actually, amid the workshops and panel discussions devoted to economic development cheerleading and strategies for luring businesses to town was one session that dared to question whether it really does make sense, entitled "Are Incentives Really Worth It?"
"Many economists deem financial incentives [to businesses] to be a zero sum game, at best, or even a negative sum game," said Robb Steel, redevelopment director for the city of Colton, who spoke during the session.
By "zero sum game," Steel argued that the business world is going to do what the business world is going to do, and government giveaways only serve to move finite economic benefits from one jurisdiction to another. The "negative sum game," he said, is created when government expends precious public resources to facilitate that shift.
"There is a body of literature that says businesses make decisions based on other factors, and not anything local government does," Steel said.
Yet the zero or negative sum game is the only one in town, and one California voters have unwittingly sanctioned at the ballot box through measures like 1986''s Proposition 62 and 1996''s Proposition 218. These measures subjected more and more local taxes to voter approval, (a supermajority of two-thirds vote in many cases), and their net effect has been to turn municipalities away from a reliance on property taxes and toward an addiction to sales tax revenues.
Given that reality, it''s not surprising the perception persists that local governments make or break local economies by how willing they are to make concessions to businesses. In the very same session as Steel''s comments, Denise Conley of the San Francisco-based consulting firm Keyser Marston talked about economic development success stories ranging from big economic development giveaways by Silicon Valley cities to the $20 million incentive package the city of Vacaville recently gave to win a Genentech plant-half of which came from the state, half locally.
"The state definitely wants to keep the business in the state, so they''re your partner," Marston told the city officials, adding with a smile, "And the best money to give is someone else''s."
Of course, that "someone" is the taxpayers of California. Marston advised against governments giving away too much, saying, "Whatever you put on the table, if the company wants to be there, they''ll take it." But her ultimate conclusion was a pro-incentive message: "You need to let businesses know they are wanted."
Meanwhile, across the hall, at a session entitled "Achieving Economic Vitality on Main Street," Pasadena Development Administrator Marsha Rood was quickly rattling off the city-backed downtown "revitalization" that increased city sales tax revenue from $1 million in 1983 to $165 million last year.
After firing through the extensive development activity with dizzying verbal speed, Rood explained how the city''s main focus is still recruiting more business to town and expanding the public-private partnerships that make that possible.
And next to speak on that very topic was Monterey''s own Jane Harder of the Old Monterey Business Association, who focused her presentation on the Tuesday evening "Marketplace" on Alvarado Street, contrasting it with the long-standing San Luis Obispo Farmers Market, which the speaker before Rood had discussed.
"We want to accentuate the needs of the businesses over the farmers," was how Harder explained her decision not to use the traditional "farmer''s market" title for the downtown event. Money funneled into the business community by the event is even "better than a few lettuce leaves," Harder added.
Not only is the downtown event not for the farmers, one might even get the impression from Harder''s presentation that it''s not even for the people of Monterey that subsidize it with their city services.
Harder talked about the event as a tool for recruiting businesses and increasing profits for existing ones-"It''s not only used as an economic development tool, but also as a business incubator"-but never mentioned its intrinsic value to the people of Monterey.
"Monterey is a very small, provincial area, and I can say that because I''m not from Monterey," Harder said, before explaining the close alliance she helped forged among city officials, the business community and property owners.
"When I say it''s a close relationship, I mean close," Harder said as a reporter studied her face, waiting to see the wink connoted in her voice.
Such close relationships between business and government have become commonplace in a state that has almost totally accepted the premise that what''s good for business is good for the country, a reality reinforced by the conference''s frequent admonition that cities need to be more "entrepreneurial."
But those weren''t the comments that rang in my head as I left, but rather Steel''s rhetorical questions: "Is redevelopment corporate welfare?", "Is all we''re doing redistributing sales tax and not creating anything?", "Do incentives just subsidize favored businesses?", "Is this money that could be invested in public infrastructure?"
I wonder what parts of the conference are ringing in the heads of the leaders of California''s cities. cw