The rush by many Georgia cities to enter new businesses and expand existing ones, in direct and unfair competition with small and large private companies, poses the primary long-term fiscal challenge to Governor Barnes and the Legislature. Many cities are adding to their traditional services — water, sewer, trash, gas and electric — such new ventures as cable TV, telecommunications, hotels, real estate development, construction services, appliance sales, etc. This alarming trend in local government is the purest form of socialism and is crashing onto the scene at a time when all other levels of government are discovering inefficiencies and privatizing services at a steady pace.
- The problems with government expansion into these areas are evident: Government is inefficient and will invariably provide less service at higher cost to consumers (the same utility crews you see holding up shovels around town will be delivering the new services).
- When government sells a service or product, state and federal tax revenue is lost and the associated costs shifted to all other taxpayers. More importantly, cities do not pay property taxes on their facilities, directly costing local taxpayers great sums that would otherwise be paid by private firms.
- Taxpayers are being exposed to tremendous risk with capital investments being made on their behalf, without their approval, through industrial revenue bonds originally intended to promote private business. These investments cannot possibly keep pace with coming innovations in the private sector; and who will cover the bond costs when they fail?
- Most importantly, using tax dollars, regulatory exemption and government protection to compete unfairly with small business owners and corporate shareholders who have invested their life savings is patently un-American.
In my final session as a state senator, I introduced “The Free Enterprise Encouragement Act of 1998” (SB 343), in an attempt to check the unfairness of this trend and to save taxpayers the future pain clearly associated with the consequences of these ill-advised ventures.
The political reaction was astounding. Other senators showed me literally hundreds of letters and faxes from city managers, mayors and other elected city officials opposing the measure. This was the most intense lobbying effort on any issue I experienced in six years in the Georgia Senate. And it worked. Legislators were so intimidated by the pressure applied that the legislation was never properly debated and was ultimately killed in the Rules Committee. (Privately, many legislators agreed that the problem should be addressed.)
The motivations and political dynamics that cause this trend to exist, in an era that has observed the failure of socialistic systems around the world, are interesting. One can only guess how Georgians could fall for such a ruse. The short-term attractiveness can’t be resisted by city management, which is lured by the prospect of fiefdoms that can be created without personal liability. Elected officials too often defer to the advice of those same management types and cannot themselves resist the misleading perception that local government expansion will work and allow them to “make a profit” for their city and keep taxes down.
The truth is that in the long run taxes are only shifted, and the final outcome — when the inevitable failures occur — will cost taxpayers plenty. The governor and Legislature must take action now. A legal framework should be established that assures the availability of needed services, limits taxpayer exposure and treats private business fairly. Specifically, new legislation should be passed with at least the following features:
- Cities should be required to impute into all their prices the taxes and fees required of their private competitors. This process or requirement will help end unfair pricing structures and, if the cities are truly as efficient as they claim, generate more revenue to further reduce taxes.
- No city should be allowed to regulate any private firm with which they compete in a particular service.
- The practice of employing eminent domain should be suspended in cases where a city competes with a private business that has no such power to aid in expanding its facilities.
- The use of industrial revenue bonds for city endeavors should be suspended. City councils and mayors should be required to sell all bond issues to their constituents. Additionally, any capital expenditure over a certain amount, for capital investment to compete with private business, should be put to a referendum.
- Cities competing against private business should be held to all anti-trust requirements applied to those businesses, such as prohibitions against predatory pricing, price squeezing, etc.
- Where private competition exists, rate increases for services provided by cities should be approved by city councils and mayors. Rate increases are often hidden tax hikes, and the governing body should have knowledge of these increases and be required to vote on their implementation.
- Rules for fairness in the award of franchises such as cable TV should be standardized and implemented.
The only cases in which cities should be exempted from these rules are services that are not otherwise available in a particular community. There is an argument for cities being unregulated in such a scenario.
Let’s hope that the “Home Rule” argument, always given by cities (and counties), will not continue to prevail in this matter as has been the case in the past. There is no justification for “Home Rule” where a practice is simply wrong, as in this case. And in such an instance, it is totally appropriate for the state to deal with any injustice.
Steve Langford served in the Georgia Senate for six years and was a gubernatorial candidate in 1998. He lives in LaGrange, Georgia. The Georgia Public Policy Foundation is an independent, nonpartisan organization dedicated to keeping all Georgians informed about their government and to providing practical ideas on key public policy issues. The Foundation believes in and actively supports private enterprise, limited government and personal responsibility.
Nothing written here is to be construed as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature. © Georgia Public Policy Foundation (December 21, 1998). Permission is hereby given to reprint this article, with appropriate credit given.