A competition we all lose

Posted on June 04, 2007 | Type: Op-Ed
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Competition is usually a good thing except when the competition is among cities to see which can spend the most tax payer money on corporate welfare. Cities across Arizona are showering subsidies on businesses, with taxpayers picking up the check.

Tuscon is a poster child for why cities should not get into the subsidy business. In 2000, it gave Slim-Fast $7.8 million in tax benefits and other goodies to lure it away from Goodyear to open a caning plant at Rita Ranch. Turns out Tucson could have reaped a better return at the roulette table, because in 2004 Slim-Fast repaid the city's generosity with a Christmas gift of its own: shuttering the plant and laying off 150 employees.

In a fitting tit for tat, central Arizona has upped the stakes by stealing the Chicago white Sox spring training franchise away from Pima County, using taxpayer subsidies to build a new $80 million facility in Glendale.

Tuscon needs to stay away from the corporate welfare bidding war, because central Arizona cities are throwing money around like crazy. The latest trend is shopping and auto malls. Scottsdale offered $7.5 million to a car dealership to locate on its side of Scottsdale road. Phoenix countered with a $12.7 million to another dealer to build on its side of the road.

Chandler gave away $41 million in subsidies for the Chandler Fashion Center. Then Gilbert spent $60 million to attract an auto mall. Followed by a $100 million subsidy from Phoenix to build the upscale City North shopping center. Surprise holds the record with its massive quarter-billion dollar subsidy to Westcor for a new mall there.

Think about it: do taxpayers really need to bribe retail developers and auto dealers to sell their products? Of course not. Retail development follows booming affluent populations like night follows day.

What's more, as the Slim-Fast fiasco demonstrates, cities are not very good at predicting economic winners and losers. That's why the Arizona Constitution forbids government to ever make any donation or grant, by subsidy or otherwise, to any corporation. Our state constitutions framers were fed up with subsidies flowing to railroads, too many of whose grandiose schemes went belly-up. And they concluded the only effective way to protect against abuse was to prohibit subsidies altogether.

Not only does the state constitution forbid corporate subsidies, but it guarantees to all of us equal privileges and immunities. Why should a small business have to pay taxes to subsidize its more politically powerful competitor?

Unfortunately, misguided court decisions have diluted those constitutional protections. Unshackled from constitutional constraints, cities have shown themselves completely bereft of self-discipline.

Similar overzealous government actions in the realm of eminent domain led first to a court decision reining in city power; next to legislation to the same effect; and finally to last Novembers proposition 207, which curbed eminent domain abuse altogether. Do cities really want to invite another populist backlash?

Yet that's exactly what they're doing. Already, state Sen. Ken Cheuvront, D-Phoenix has sponsored legislation to stop the subsidy bidding war. And legal challenges to the corporate giveaways are certain to materialize.

Cities are not without ways to attract new businesses and jobs. Lower taxes and a favorable regulatory climate are the surest ways to attract, incubate, and nurture sustainable economic development. By contrast, subsidies add to the tax burden and place competitors and newcomers at an economic disadvantage. That's why economists on both right and left condemn subsidies as bad public policy, and why the framers of our constitution acted to prohibit them.

The Slim-Fast experiment may not have helped people lose weight, but it did succeed in helping Tucson shed tax dollars and jobs. Our constitution is plain as day in its intent to never tolerate the fiscal abuse and corporate welfare swirling around us. To make good on that promise requires us to demand that our elected officials act within their constitutional bounds and when that fails, to ask our courts to make certain they do.

 

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