The Lost Magic of Property
“If we’re going to turn our local governments into investment banks, we’ll need to find smarter people to run them.” — a Fort Wayne manufacturer
IT IS WHAT you hear most, and should trouble you the most: “I don’t know about the financing but I love what’s going on downtown.”
In Indiana, that might be said about a new sports stadium, or a riverfront walk, or a convention center, or an entertainment venue, or a high-end apartment complex or a boutique hotel, or an ice rink — the list goes on and on, all with obligatory parking garages.
It is known as economic development or eco-devo, enlisting local government’s help in the financing of downtown architectural splendor in steel, rebar and concrete. Gone are the dusty old office buildings and worn-out, failed commercial frontage, demolished as the city is freed at last from the chains of private property and risk capital.
What could go wrong?
Well, for one thing, it could change your city’s democratic processes irreversibly as well as change its very nature — all for the worse. The means of financing, common sense should have told us, is critical to your city’s economic and political health. The participation of people putting their own property at risk for potential gain is essential for sustained development anywhere and everywhere.
Indeed, some of us believe that protecting the right to own and use property freely is government’s most important job.
For as influence in our cities shifts away from those actually creating wealth to those with merely the right connections, what is being created is not an enduring new downtown but a modern-day political machine, a regression to mercantilism.
A friend, apolitical and without a public-policy bone in her body, put a finger on it. “It’s impressive,” she said after a visit to Carmel, Indiana’s poster city for this sort of thing, “but it doesn’t look ‘natural.’”
Hers was a way of saying that this is not how things are supposed to work, how economic growth normally happens, i.e., supply building up to meet demand. Instead, the process is turned upside down, initially financed not with money at risk (investment) but with a dog’s breakfast of government loans, grants and bonds backed up with tax revenue, plus special taxing consideration and outright cash gifts — inscrutable in the aggregate to both city voters and their council representatives.
It gets worse. What the promoters call “investors” are politically selected interests paid up front for their development efforts. Again, they carry little risk relative to a private-sector deal. Economists call them “rent-seekers.” Some of us call their projects “boondoggles.”
In alliance with these new miracle “investors,” the owners of our old downtowns were no longer stuck with bad investment in declining property values. The solution, however, required a political rather than real estate answer, convincing a majority on a city council that the downtown was failing only for need of cosmetic renovation and a bit more cash — “Build it and they will come (back).”
In fact, our downtowns failed intrinsically — in both space and demand. This was detailed in two dedicated issues of the Indiana Policy Review (Fall 2017 and Winter 2019). Therein was a prescient warning from one Fort Wayne councilman:
“When private investors agree to such a deal, any loss is on them, but when an unknowing public is asked to pay for what amounts to a real estate scheme, fashioned in the dark, it should be a matter of serious concern and investigation.”
That warning stands. We are learning that our council majorities cannot be trusted to perform such an investigation, at least not beyond the electoral cycle.
It’s someone else’s money, you see.