Government-Funded Boondoggles Aren’t Just a Federal Problem

Below are excerpts from a commentary the Foundation published over a decade ago by former State Senator and gubernatorial candidate, Steve Langford, that are unfortunately relevant today:

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.

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.

· 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.

[Link to original publication:]

Isn’t it amazing how some things change and some things stay the same?

Kelly McCutchen, Policy Foundation President

Imagine you have invested your life’s savings into a small business that provided television, telephone and Internet access to your small town community. Just a few years before you were ready to sell your business and retire, your local city government invests millions of taxpayer dollars in its own network and draws away your customers with lower, taxpayer-subsidized prices. How would you feel?

How about you, the  taxpayer, watching your local government lose millions of dollars providing a service that is already provided by the private sector? What if that same local government passes a property tax increase to fund a new courthouse that could easily have been paid for if not for the government’s failed attempt at running a business? How would you feel?

This is why the Foundation has long supported safeguards to prevent these things from happening. Just as referendum is required before taxpayers are obligated to pay for major capital projects, a referendum should be necessary before government makes a major capital investment in a business operation. If voters approve government involvement, the government-provided service should at least have to abide by the same rules and pay the same taxes and fees as the private business.

What if no private solution exists in your community? One option would be “demand aggregation.” For example, the local chamber of commerce could get commitments of 100 businesses that would sign up for service if it were available. This may be the incentive that a private company needs to justify the investment. Local government investment should be the last resort and it should charge customers market rates in order not to deter future private investment.

Modern telecommunication networks are critical to attracting industry and growing jobs. They play an increasingly important role in education and health care. But these networks are expensive to create, expensive to maintain and based on technology that is constantly evolving. In the interests of limited government – and considering the track record of financial losses by local governments – there is a clear need for taxpayer protections.

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