Are handouts really necessary?
Tax subsidies to attract business have become a disturbingly common practice in what was previously known as private enterprise.
It's great news that The Black Dog Smoke & Ale House, a popular Urbana restaurant and bar, plans to open a second location in downtown Champaign next year and that it will rent the 114-year-old Illinois Central Railroad Depot.
The building's owner, Dr. William Youngerman, contemplates a $1.3 million renovation of the dilapidated property that will require stripping the 4,113-square-foot building of everything but its outer shell.
Virtually everything will be new — plumbing, heating, air conditioning, electrical, roof. Landscape and lighting improvements will improve the parking lot's visuals.
With just one exception, it represents a triumph of free enterprise born of the Black Dog's popularity and Youngerman's unused property in a busy part of town.
But the exception spoils the story. It is the city council's decision to rebate $200,000 in sales and food-and-beverage tax proceeds ($40,000 a year for five years) to the building's owner. The intent is to help underwrite the cost of the renovation.
There is nothing new about government subsidies. Sometimes, there's a certain logic to them.
City officials know that the property, in its current unused state, generates nothing in tax revenue. They figure they're ahead of the game if they rebate $40,000 a year in sales taxes for five years; they assume, of course, that the business will be successful enough to generate that much or more in sales tax revenue.
That also assumes, without reason, that the building won't be put to use without a giveaway.
City officials have offered similar subsidies to encourage the construction of a downtown Champaign hotel and the new car dealerships north of Interstate 74 near Prospect Avenue.
We don't blame business owners for seeking these subsidies. After all, if city officials are handing out cash, it would be foolish not to take some.
But it's fair to wonder if they're really necessary. These business owners have made what they think are market-driven decisions to open or expand their businesses. In other words, they anticipate their investments will generate a profit. New restaurants arrive with some regularity, and all of them fill an empty space.
Subsidies are obviously attractive, but they can't be the difference between profit or loss. If they were, there would be no plans to build in the first place. This is, after all, business.
So why offer subsidies to the new businesses? Older, existing businesses don't get a rebate on the property or sales taxes they pay. In effect, the city is making it easier for the new to compete against the old.
To what end? City officials will argue, with some justification, that it's in the community's interest to restore older, unused properties, like the old train depot, to the tax rolls, that fixing up older properties creates incentives for further investments in an area that needs it, that at the end of the day everyone benefits.
The same, of course, could be said for letting the marketplace work. The amazing regeneration of downtown Champaign is an example of the vibrancy of the marketplace and the success that can be generated by visionary risk-takers.
City government helped pave the way, but private investment has driven the progress. We ought not underestimate the power of the profit motive by overestimating the importance of subsidies where they are not required.