The Public Enterprise System
Of the developers, by the developers,
and for the developers
January 11, 1980
In Springfield as in every other sizable Illinois city, municipal government had always been a mostly passive partner in the development of local economies. That changed in the decades of my active career, when city halls became very active partners indeed. Using novel legal notions concocted for the purpose, they began giving private developers credit, land, and loans. Michael Houston, a banker-turned-pol who served as Springfield’s mayor from 1979 to 1987 and again from 2011 to 2015, was an especially aggressive public entrepreneur. The result was not always the kind of building Springfield needed, but few citizens ever asked what the taxpayers got in return, only whether it was possible, so that’s what Springfield got.
When he was running for mayor of the City of Springfield a year ago, Mike Houston liked to tell people that he would be Springfield's "Number One Salesman." Job development is a key to expanding the city's tax base, Houston insisted, as he pledged to bring "a business approach to the conduct of city government.”
Well, Mike Houston is one politician who doesn't make idle promises. Most people no doubt took that last statement to mean that he would run city hall in what is usually described as "a businesslike manner," which is the kind of thing every politician used to promise in the days before Chrysler hit the headlines. They didn't know he meant that he would run it for the benefit of business.
Houston has been an economic activist since his swearing in, lending the city's good name and sometimes its share of assorted federal largesse to some half-dozen major private developments. For example:
—Houston headed a delegation to HUD offices in Washington D.C. and returned with a pledge for more than $1 million in 3-percent loan money to be used to rehabilitate downtown commercial and residential structures.
—Houston is asked informally by the Springfield Airport Authority for city money to help buy land for a major expansion of Capital Airport. SAA officials so far have denied it, but it is widely assumed that the purpose of the expansion is to convince Flying Tiger Airlines to locate its Midwest cargo hub in Springfield. Houston is noncommittal but reportedly was "very attentive."
—Houston and the rest of the city council approved the use of $31 million in bond money for a reduced-rate home mortgage market to buy houses, and have made clear their intention to expand the program.
—Houston headed a cooperative effort with the Springfield convention center board to find a developer for a new hotel to be built on convention center property downtown. Houston wants to fund the project in part through a $3 million Urban Development Action Assistance grant, in part through issuance to the developer of as much as $20 million worth of city-approved low-interest industrial revenue bonds. "I don't think you can have a hotel without industrial revenue bonds and a UDAG grant," the mayor reportedly explained.
—Houston's staff negotiated an informal agreement which, if approved, would authorize issuance of an estimated $3.5 million in those same tax-exempt industrial revenue bonds to help finance the conversion of the vacant St. Nicholas Hotel into an apartment/office complex by a large national real estate development firm.
In short, Mike Houston has been handing out public money like a bank hands out free toasters. This enthusiastic commitment of public means to further private ends is hardly unique among American mayors, however. As Robert Goodman, who recently wrote a book about the U.S.'s modern regional economic wars, pointed out last month in the New York Times, "The most aggressive risk-takers are not found in corporate board-rooms and executive suites; instead they are in our town halls and city council chambers . . . . These entrepreneurs are elected officials who are taking risks for business with taxpayers' dollars." The effect, Goodman notes disapprovingly, is that by "pursuing each other's industries and jobs, local and state governments have created over 15,000 economic development agencies that invest millions of taxpayers' dollars . . . (so) some of our largest, richest corporations are recipients of a steady infusion of development incentives, tax abatements (and) land subsidies."
This practice goes by several names, depending usually on the philosophical bent of the namer. Houston calls it job development. Goodman calls it public entrepreneurship. Others call it corporate welfarism. Of course, this is not such a new phenomenon as Mr. Goodman—who has a book to sell, remember—implies. Springfield itself offers proof. One of the first big job development projects ever undertaken in Springfield got under way in the early 1830s when city fathers campaigned to get the state capital moved to their city from Vandalia in the face of stiff competition from other Illinois cities. (State government is not a business in the usual sense, but Springfield has always regarded it as one, and it was courted as any largish corporate citizen might be courted.)
Part of the bargain city fathers struck with the General Assembly was that the city would donate the city square to the state and chip in cash toward the cost of a new statehouse. (It was not the last time Springfield would pay dearly for the state's presence, as a trip down West Jefferson will confirm.) The pledge was paid by local property owners both directly (through special assessments) and indirectly through payments made by the city and county governments.
This vigorous public entrepreneurship set a pattern from which Springfield has never deviated. Depending on how rigorously one defines the word, "incentive" (not to mention how rigorously one defines the word “legal”) the awarding of streetcar franchises at the turn of the century might be said to have constituted a subsidy by taxpayers of streetcar companies, since franchises often were given away for much less than they were worth. Similarly, a half-century of zoning administration so loose as to be nymphomaniacal has provided incentive enough for businesses. The bill for this has been paid by taxpayers in noise, visual clutter, and eroded property values in otherwise livable neighborhoods.
But one needn't reach back so far for examples. In 1977, when, for a few sunshine-filled days it looked as if Springfield might be chosen as the site for the Ford Motor Co.'s new $600 million transmission plant, the city (in cooperation with the local Industrial Development Council) talked of offering $1 million in low-interest bonds and free utility extensions to the plant site. This was penny ante stuff; as the director of the IDC noted at the time, "Out of a $600 million investment, our $1 million offer was only an indication of our desire to cooperate." Ford had a better idea and put the plant in Ohio.
Still, if Houston's brand of public entrepreneurship does not differ in kind from that of his predecessors, it differs in degree; the only hard money Mayor William Telford was willing to commit the city to during the Ford campaign was a lousy $5,000 in expense money for the IDC. So vigorously has Houston shaken the public purse that the traditional private sources of risk capital have been all but supplanted by public ones—much of it from state and federal sources, to be sure, but most of it requiring the endorsement of city hall, thus making the mayor and the rest of the council the dealers in the biggest poker game in town.
Is all this wise? Goodman, for example, worries that public entrepreneuring doesn't create jobs so much as it moves them around; it is worth remembering in this connection that the big conventions that will be booked into Springfield if and when it builds its new hotel will be unbooked from some other city. The hotel project is troubling for other reasons too; in order for the project to qualify for the hoped-for UDAG money, city officials reportedly had to include the downtown business district in the east side poverty area. Houston's staff has insisted that the new hotel will create jobs for east-siders, and thus is a valid way to spend such funds. Perhaps, although there are no guarantees that east-siders will get those jobs. But such gerrymandering raises questions about whether public entrepreneurs in their zeal don't sometimes steal from the poor to give to the rich.
Also, after so many years during which city hall acted as the private sector's partner, it now threatens to become its competitor. Two commissioners have raised public questions about the practice. Streets commissioner Ossie Langfelder, for instance, wondered during a December executive session whether the plan to sell bonds to help the St. Nicholas Hotel conversion did not constitute "sticking our nose in private enterprise, where it doesn't belong." Langfelder, like his colleague in charge of public health and safety Pat Ward, has backed such underwritings for housing for the elderly, the poor, and the handicapped—each a part of the housing market ill served by private enterprise. But that is where Langfelder, like Ward, draws a line.
The St. Nick, Langfelder pointed out, would be an apartment building built on a competitive basis with other developers. "Private enterprise," he told the State Journal-Register, "should grab a hold too.” ●
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