Public bucks spur economic growth
Columnist defends state subsidies to arena
By Roger Pitt
There was virtually no support among End Stool regulars to finance a new arena for the Milwaukee Bucks.
A $250 million funding by state taxpayers in the 2015-17 biennial budget, was certain to fail because of partisan politics. Democrats, mostly representing pro-arena constituents, would not vote for the budget and out-state Republicans risked their futures if their budget included it.
The funding was dropped from the budget and submitted to the legislature in a separate bill. It passed on a bi-partisan vote – 21-10 in the Senate and 52-43 in the Assembly. It was signed last week by Gov. Walker to finalize the deal.
Cost of the arena is $500 million. The state is not committed to any over run costs, often associated with a publically-supported project.
Privately owned venues are the extreme in government financing of a private business venture. Miller Park and Lambeau Field are state examples.
Stakes for new business/industry grow exponentially, as competition for job-creating jobs increases between states and municipalities as the economy stagnates.
Taxpayer dollars are common and often tip the scales for job growth in an area. Public investment often includes local, state and federal dollars. It also includes incentives involving taxes. It is all a cost of doing business in the modern economy and has been in practice for decades.
The arena project began paying an early dividend, prior to state approval, as the venture capital owners of the Bucks, and some associates, bought property in the site area for development separate from the arena.
Any public funding of private development should meet several criteria – the two most important being job creation and building the tax base. Related development of an area, like the arena, often is a side benefit.
An example of public investment and anticipated pay back is a recent $1.9 million commitment by Milwaukee to relocate an industry to the city.
Zurn Industries, owned by Milwaukee-based Rexnord Corp., will get a $900,000 forgivable loan and $1 million grant.
The plumbing products maker, must have at least 35 full-time employees at its new three-story 52,000-square-foot building by March 2017 and 120 by March 2021, to avoid repaying the loan. The $15 million building is to be completed in late 2016.
The $900,000 loan and $700,000 for the grant from a city fund to help finance the new building would be repaid through property taxes from new buildings at the Reed Street Yards business park and nearby developments. Also, $300,000 for the grant comes from a $1 million Wisconsin Economic Development Corp. grant to the city.
In addition, Rexnord will be eligible for up to $2 million in state tax credits based on how many employees it hires at the new Zurn facility.
There are several employer state tax credits – work opportunity (WOTC), economic development and employee tax incentives.
WOTC is federal income tax credit that provides an incentive for private-for-profit employers to hire, often low-income individuals. The credits reduce an employer’s cost of doing business and can save up to $2,400 per new hire. It may also qualify for an economic development credit, affecting a distressed area.
There are other means to assist local economic growth, some without tapping the local revenue fund.
Industrial Revenue Bonds were a popular option before I retired as a reporter covering local governments in 2005.
IRB were sold much like the revenue bonds issued by local governments and benefitted private development with lower interest rates, reducing overall cost of a project. The tax-exempt status appealed to bond purchasers. The government sponsor had no liability for the bond.
Revolving Loan Fund (RLF) money is most commonly used to aid growth and development of job-creating businesses.
RLF money is attained by businesses from Community Development Block Grant job creation funds. The application to the state for the federal Housing and Urban Development money is approved by the county or municipality.
The loan plus interest is paid back to the local source and establishes a pool of money to assist further local economic development.
The pay back on use of taxpayer dollars needs to be considered by the public. In this example, it creates jobs for people who pay taxes and support local economies and also builds the base for property taxes.