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Government incentives vs. nonprofit funding
Just as Fredericksburg begins to ask for applications from outside agencies for funding in next year’s budget, the director of one of the groups that got its funding cut last year takes the city to task on today’s letters page for what she sees as the council’s being more willing to give tax incentives to large businesses than tax dollars to small nonprofits.
The letter’s author, Oya Oliver, is Executive Director of the Fredericksburg Area Food Bank. Her organization had been recommended by the city manager to receive $13,000 in this year’s budget–the same amount it has gotten for the past two fiscal years.
But the City Council cut that completely after council members Marvin Dixon and Matt Kelly reviewed applications from all the groups and determined that since the Food Bank had hefty reserves, it could survive without the city’s contribution in a year when real estate taxes rose for most city residents.
Oliver suggests that the city is more interested in giving “flush offers and tax breaks” to large corporations than in funding local service organizations. At the meeting the Silver Cos. held last night to sell the Kalahari idea, a representative of another organization that was hit hard by the council’s budget ax had a different take on that.
Gene Bailey, executive director of the Fredericksburg Regional Alliance, a regional economic development group, said incentives these days are “the expected norm in the practice of economic development.”
The council cut $20,500 from the $30,903 Bailey’s group was slated to receive in this year’s budget. However, the Economic Development Authority has agreed to fill in the gap.
The idea that incentives are a necessary evil in the game of business recruitment is getting some consideration right now just south of here. In North Carolina, state and local governments have inked some extremely generous incentive deals to lure big employers over the past several years, and frustration over that is rearing its head, if only just a little, in the early campaign rhetoric of gubernatorial candidates.
One Republican candidate told the Greensboro News & Record that incentives are “a dirty little game that the governors and the states around the country have gotten into,” but that they can’t be ignored if a state wants to compete.
With the Kalahari and Wegmans deals, we’re not talking about state incentives (like the ones that recently lured Rolls Royce to Prince George County), but last night, Bailey used some of the same reasoning to justify the local-level incentives that are being negotiated for Kalahari.
“Communities have to decide whether they want to compete,” he said. “If we choose not to act, another community will.”
Another argument that usually gets thrown out there is that in the incentives deals Fredericksburg has been negotiating (except for this one), the city is using the tax money that the incoming business would add to its budget as the bargaining chip. So proponents of these deals will tell you the city is still getting money it would never have received if the business had gone elsewhere in the first place. (In the Rolls Royce deal, by contrast, the state is going to be making some up-front cash payments. City Economic Development Director Kevin Gullette has said of the city’s deal, “We do not write checks.”)
Proponents will argue that the added revenue the incentives deals help localities to secure helps to pay for government expenses without always looking to the real estate tax, and perhaps allows localities to continue to fund groups like Oliver’s.
Today’s letter and the ongoing debate about incentives raise two basic questions about the role of government:
- Should it use tax breaks to lure private businesses it deems valuable to the local economy?
- Should it give taxpayer money to non-governmental community organizations, and if so, how should it dole that money out?
I’d be interested to know what you think about these questions. They’re both likely to get some attention as we enter budget and election season after the holidays.
(Thanks to business writer Bill Freehling for reporting on Bailey’s comments from last night’s meeting.)