"The truth will set you free. But first it will piss you off."

Gloria Steinem

Friday, October 2, 2015

Make It Safe, Clean It Up And They Will Come

Part I:  Try To Keep It Simple

I have been following with great interest the dispute in my favorite town, Norristown, Pa.,  over financial grants allocated by Municipal Council to bring a restaurant from the town’s periphery to its downtown core.  This dispute greatly interests me, but I have refrained from joining in the chorus of comment because I did not like the focus of the discourse.  That focus has been on the business in question, with its history and finances questioned publicly, trying to make the issue whether this particular business “deserved” the grant.  That’s wrong, on more than one level.

I’m not going to come down on one side or the other about the restaurant.  Norristown Municipal Council clearly (if not unanimously) wants to see the restaurant on Main Street.  It weathered the initial wave of disapproval, and then, when the bids to accomplish the first plan of work came in much too high, added more monies to the grant and restructured the work to be done.  That is a sign of commitment if there ever was one.

I comprehend several of the reasons why such a commitment might be made, and I know and respect the people who made it.  Yet I believe the decision is an example of “failing to keep it simple,” a very important commandment for municipal councils.  Once again, I am going to make the case for a simple guiding generality instead of a series of ad-hoc decisions, regardless of how well intentioned.

The dispute I utilize to launch my “Keep It Simple” series is not a simple story, but that’s part of the problem; it ought to be.  Decisions to spend tax monies should follow commitment to a simple, fundamental and broadly accepted plan, and should each advance that plan, even in the face of the many tempting opportunities to tack on what appears to be other good ideas that do not advance the plan.  That’s a lot harder to do than anyone who has never been in—or near to—municipal public office can imagine.  I use the issue of grant money to introduce both the needed philosophy and the equally needed sense of perspective.

First, why should a municipality offer financial grants to lure a business in the first place?  There are several reasons that can be offered for such an action, but there is really only one REAL reason…wait for it…MONEY.  That’s net money, by the way, which is how municipalities calculate it.  Here’s the axiom: residential developments cost more in services than they pay in taxes; businesses cost less.  Stripped of all the (perhaps relevant) details, that’s the point.  A municipality that is purely a “bedroom community” is caught within an inescapable financial vise.  Hence all municipalities seek to have businesses locate within their boundaries, to make up the deficit that residences create (the Pennsylvania tax code lies at the bottom of this, but that is an issue unto itself).  Norristown is hardly alone in such a search.

The point is not whether or not a municipality should try to attract businesses, but rather what kind of businesses it should try to attract.  Before anyone gets the wrong idea, let me make it clear that I am not referring to how a municipality should handle a potential business, but whether it should consider giving that business financial incentives.  ALL those inquiring about opening a business in your town should receive quick, positive and informative service, regardless of their proposal.  Whatever is required to expedite the application/approval process—and is in accordance with all relevant laws and ordinances—should be done.  You want to make it as easy as possible for a business to negotiate the approval maze, effectively taking each by the hand and seeing them through it (or as far as they get, alas).  By the way, “easy as possible” refers to the application/approval process, not to their life in town thereafter.  Along the way you introduce the relevant laws and ordinances, and make it clear they will be enforced.

But I digress.  In the interest of keeping it simple, I am going to suggest that when it comes to businesses a small municipality is likely to attract, there are really only two types:  Production and Service.  You want both types to set up shop locally, but you offer financial incentives to only one type.

Both terms have a multitude of definitions, so here’s mine, solely for the purpose of this analysis.  Both types produce (or process) things; the significant distinction is the location of their primary market, whether outside the community or within it.  If it is outside, let’s call it a production business; if local, then it is a service business.

The river towns were built on Production businesses, and what they produced tended to be both physically noticeable and rather heavy.  Today, a “product” could be paper, or just something added to paper.  They may even produce software, i.e., something with no tangible existence at all.  It doesn’t matter.  If all—or at least the vast majority—of whatever is produced is marketed outside the local community, it’s a “Production” business.

“Service” businesses may produce or process things just as much as any “Production” business, but they do so to supply a local clientele (whether full-time residents or day workers) with items for their consumption, adornment or use.  Thus retail is added to the “Service” category.  Restaurants clearly fall into the Service category.  They want a widespread clientele, of course, but depend on local patronage to survive.

The applications of both types of businesses should be treated as described above, but there is one significant difference between how the applications of Production businesses and those of Service businesses should be handled.  Production businesses can be considered for “financial incentives,” but not Service businesses.  Period.

The reasoning behind this admittedly harsh approach is a dispassionate understanding of what brings businesses into a community, not one crafted for the widest possible approval.  It’s all about the Benjamins, or rather the odds.

A production business establishes—or relocates—itself for purely economic motives.  It looks for a site of sufficient size and close to the form of transportation both its employees and its product requires.  It then tries to obtain that site—and the necessary approvals—for as little expense as possible; hence negotiations, and the possible need for incentives, etc., etc.  The arrival of such a business provides tax benefits, and perhaps much more, to a municipality.  It’s a competitive world out there, and the unpleasant reality is that concessions, even those that will limit future revenue, are often necessary to attract any business of any size.  This reintroduces the element of personal decision into the equation, but if your decision is going to cause controversy anyway, at least make it about a Production business.

And what about Service businesses?  Why shouldn’t they get incentives?  They are also established for economic motives, and may themselves represent quite a substantial investment.  Starting a business is a much bigger deal today; you can’t begin with a cart and a horse, as did several of the Schuylkill Valley’s commercial legends.  Even a “mom and pop” business requires risking substantial capital (at least substantial to those attempting to establish a “mom and pop” business).  Sources of such capital are always welcome, but the public coffers should not be among them.

The reason is, alas, statistical, which means it is cold, analytical and lacking the human component.  The data is, however, quite clear: businesses that open depending on a local market (and thus “service” by my definition) have an obscenely high failure rate.  They are recurrent testimony for both human optimism and the attraction of a market economy, but they are not the type of investment worthy of tax monies.  There are higher priorities.

In future posts I will discuss those priorities, why they deserve special status, and why focusing on them to the exclusion of attractive side projects keeps it simple, or at least as simple as such a thing can be.  In so doing, I will also point out some reasons why keeping it simple is so very difficult and why we shouldn't judge too harshly those who fail our ephemeral purity test.