Pushback Time

Economic development officials may be going too far and being too secretive in their deal making.
April 2005
William Fulton
By William Fulton  |  Columnist
Director of the Kinder Institute for Urban Research at Rice University and former mayor of Ventura, Calif.

Economic development is the art of using public policy, often in the form of financial incentives, to stimulate economic growth, usually in the form of more jobs and higher tax revenue. It necessarily involves strong and even aggressive use of government power. Economic developers negotiate behind close doors, subsidize private businesses and rearrange private land ownership patterns--all, supposedly, in the public interest.

But how far is too far? This is a question that always lurks around the edges of the economic development business. Recently, however, it has emerged as a front-and-center question.

The U.S. Supreme Court is pondering the "how far is too far" question in a property rights case from Connecticut. Property owners are trying to get the high court to strike down a pretty typical redevelopment deal--one in which the redevelopment agency takes land by eminent domain from reluctant property owners and then turns it over to other private property owners who will accomplish economic development objectives. Is it in the public interest to condemn property because it isn't producing enough tax revenue or not promoting the economic development strategy adopted by the city?

Meanwhile, in Georgia, lawmakers this year debated a bill that would exempt economic development negotiations from the public records act. The Georgia proposal is part of a kind of secrecy arms race--more and more states and localities are moving toward secrecy as a competitive advantage. The simple rationale is, "We can't give away what we're up to because then Florida would know." But the Georgia bill got a big pushback from Attorney General Thurbert Baker, who says, "Economic expediency should never outweigh the public's right to know."

Why is all this coming up now? In part, it's because some property rights advocates have morphed effectively into "economic liberty advocates," especially the Washington-based Institute for Justice, which is litigating the Connecticut case. But it may also be because competition has gotten more intense, and economic developers are pushing the envelope.

Indeed, the two instances noted above represent two separate strands of economic development. The Georgia bill is focused on classic state or local economic development: Individual businesses receive land, subsidies or other incentives. The Connecticut deal is classic urban redevelopment: A government rearranges land ownership patterns to benefit a variety of private and semi-public business-oriented entities. (In New London, a city-charter development corporation was looking to create a hotel and convention center near a recently expanded Pfizer facility.)

And this difference reveals one of the most basic conflicts in economic development: Do you try to set the table for economic growth, or do you go after individual businesses in order to get the jobs and the tax revenue you want? Either approach can work, but each requires aggressive processes that do not fit comfortably into the traditional framework of public policy.

Dealing with individual businesses necessarily involves some secrecy. Businesses are private and must use confidentiality to maintain competitiveness. Economic development offices regularly consult with businesses on a confidential basis--explaining programs and opportunities--and there's nothing wrong with that. Sometimes the offices negotiate large, one-time incentive deals with businesses. The troubling part of the Georgia proposal was that all records, including assessments of community impact, would remain secret until after a deal is negotiated.

This is where secrecy comes into conflict with the policy process. And yet, as some supporters of the bill rightly pointed out, in a competitive environment with other Southern states, what choice does Georgia have?

The Connecticut case is an inside-out version of the Georgia bill. Instead of providing subsidies to specific companies, it rearranges land ownership patterns to create new economic opportunities in a particular district. (Individual developers usually benefit in the end, of course.) This often leads to the use of eminent domain--a blunt instrument if ever there was one. Decisions to use eminent domain are often made in closed session, and sometimes turned over to private or quasi-private entities. But at least the overall redevelopment strategy is debated in public and voted on by local elected officials.

Economic development is necessarily a public-private partnership. But government agencies and private businesses are different animals, and that partnership works best when the partners do what they do best. Private businesses develop products and services. They find markets and customers, and in the process they create jobs and wealth. Economic developers often get caught up in subsidizing such activities. But government can operate most effectively by creating public policy that can serve as the foundation for private businesses to grow.