David Cay Johnston’s excellent corporate-welfare column

What a proposed mall project illustrates about subsidizing developers

Reuters’s David Cay Johnston has a great column on corporate welfare that mixes reporting and analysis to show why subsidies for development are so problematic.

Johnston looks at a proposal by mall heir Scott Congel to get New York taxpayers to subsidize the redevelopment of the Medley Centre mall outside Rochester.

That dead mall has already gotten several million dollars in tax breaks, but that’s not enough. Congel wants over a quarter of a billion dollars to subsidize its redevelopment a mixed-use project with a hotel, condos—one third of the total cost of the project. That’s about $340 for every person in Monroe County.

Johnston gives us context that most journalists don’t when talking about subsidies, and retail subsidies in particular. That’s critically important because with corporate welfare, you really have to take the 30,000-foot view to see the issue. Businesses want journalists and readers to focus on individual projects, because that’s the only way they usually make sense.

So, Johnston reports that nationwide, taxpayers spend an estimated $70 billion a year on corporate welfare—$900 for each family of four.

Equally important, he looks at how retail subsidies in particular are usually extremely wasteful economically:

Subsidies for retail businesses are the worst kind of corporate welfare because, as the end of the economic chain, retailing grows only when population and incomes increase. If population or income falls, then subsidies for new projects like Congel’s damage existing businesses, where people would otherwise be spending their money.

In other words, subsidizing retail projects doesn’t make the pie bigger, it just rearranges the slices. Rearranging the slices can actually benefit a community, but only if it takes away from a neighboring one, which can then outbid it on the next project and on and on in a race to the bottom.

Johnston also delves into data to show us that the numbers don’t add up. County income there tumbled 13 percent from 2000 to 2008, for instance, making the county’s high sales projections iffy. Even if they were on target, though, those sales would come at the expense of other retailers in the area, as Johnston noted in the above quote.

But he also estimates, by looking at typical construction costs, that it appears that the $750 million total price tag of the proposed project is “wildly inflated” to make the giant subsidies look less giant.

If the larger figure is real, and taxpayers put up $250 million, they would pay for a third of the project, while for a $260 million project the taxpayer share would be 96 percent.

The good thing about this one is that Congel’s Medley Centre subsidy proposal is just that—a proposal. The bad thing is it’s hardly unthinkable that it could go through.

That’s another big reason to like Johnston’s column here. It’s not hindsight journalism. It’s preemptive. It’s still possible it can make an impact.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,