Most taxpayers want their government to be run in a businesslike fashion—to operate efficiently and to be careful stewards of tax dollars. But most of us also understand that government isn’t a business.
So when is it prudent or acceptable for government to invest our tax dollars in for-profit ventures? When do such deals make economic development sense?
I vividly remember the early days of the Hudnut Administration, when downtown Indianapolis was a pretty forlorn place. Businesses were leery of locating in the urban center, and banks and other financial institutions routinely refused to make loans for those few who were willing to do so. The ability of the City to step up, to guarantee those loans and provide infrastructure and other accommodations was crucial to reversing urban decline. The point was to demonstrate to the private market that downtown enterprises could be viable. The trick—and it could be very tricky indeed—was to generate sufficient business activity to allow market forces to take over, without artificially depressing that market, or inadvertently subsidizing some businesses to the detriment of others.
Today, downtown Indianapolis is flourishing. Those early, strategic investments have paid substantial dividends. Municipal loans have largely been repaid, and more importantly, the central city’s tax base has grown substantially.
There are probably cases where public investment in the urban center is still necessary, but many of us who participated in that early redevelopment process are scratching our heads over the Ballard Administration’s proposal to put $98 million dollars (up from an originally announced $86 million) into North of South, a hotel and apartment complex being developed by Buckingham Properties.
The Administration justifies this use of taxpayer dollars (at a time when libraries and public transportation are starving for funds) by pointing out that private lenders all rejected the project as too risky. It doesn’t seem to have occurred to them that those lenders may have had sound business reasons for coming to that conclusion.
Indianapolis has recently added over 1000 downtown hotel rooms; furthermore, hotel bookings in central Indiana declined by 5% during 2010. Why—in the face of excess capacity —would lenders risk financing a hotel project right now? And why should taxpayers subsidize a hotel that will compete with hotels in which we’ve previously invested?
Local blogger Paul Ogden recently posed a fair question: Why is it too risky to borrow $6 million to buy and install new parking meters, but not too risky to issue $98 million in bonds for a project private lenders wouldn’t support?
Ogden also noted that the project’s lobbyist is Tom John, who just stepped down as Marion County Republican Chairman.
Councilor Ryan Vaughn cast the deciding vote on the ACS parking contract despite being ACS’ lobbyist. More recently, Robert Vane resigned as the Mayor’s Press Secretary and won a no-bid consulting contract with the Capital Improvement Board.
It all looks a bit too cozy.
When there is an appearance of impropriety, taxpayers can be forgiven for questioning questionable deals.