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The New Welfare-Billionaires Only Need Apply

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CORRUPTION WATCH-The City of Los Angeles has given hundreds of millions of dollars in tax breaks to major real estate developers to build high-rise hotels and offices. This is a new form of welfare…for billionaires only.  What is the purpose of this money? Fundamental real estate economics dictate the property will be developed to their "highest and best use" provided there is no undue government influence. The influence of government subsidies eliminates the free market alternatives for the use of land. While government subsidies for affordable housing are being reduced, subsidies for large hotel and commercial property developers are being expanded. 

If the property supports the building of a high-rise commercial structure then that developer should take the risk since he will make the profit from a successful building. It is not the public's job to protect and subsidize billionaire real estate developers. Even Chinese billionaire developers are now being given tax credits.  

Where is the supposedly free market when it comes to development of real estate? It is not possible to compete in an open market when one participant receives subsidies from the government and the other is forced to take all risk upon himself. The theory is that these buildings develop additional tax base is flawed by its very nature. Government attempts to subvert the free market have rarely turned out well for the general public. 

Whatever land is developed will generate an increase in the tax base of the community in which it is developed. What we are doing by giving tax credits is protecting the billionaire real estate developer against his own poor judgment. Since when has this become the function of government? In a free-market society this approach is an attack upon the free market. Is the land going to go somewhere else to be developed if we fail to subsidize the judgment of  billionaire developers? I do not think so. The property will be developed to its highest and best use based on the free market economies. 

The state of California recently decided to expand its tax credits for film development within the state. The theory is that other states are taking jobs from California by giving tax credits to movie producers. The movie producers have now learned to make states compete against each other in order to attract movie development that had previously been done in California. While this is a more valid rationale than subsidizing real estate development it still leads to a slippery slope.  If the movie is successful the state does not receive any of the profits. 

Regardless of the quality or profitability of the movie each taxpayer in California has partially subsidized the development of motion pictures for major studios. The studios and their owners are worth billions of dollars. Once again, where is the free market? Now we are in the business of subsidizing poor decision-making by movie studios. Where does it end? 

The tax credits that are being given to the billionaires must come from somewhere. The only source remaining, in order to fund the necessary programs of the government, is the average working person. Increased sales taxes are merely a function of the tax giveaway for the billionaires. 

This welfare subsidy leads to overdevelopment of property. The overdevelopment of property comes at a time when the City is unable to provide basic infrastructure services.  The streets, sidewalks and water system of the city are collapsing faster than the City can repair them and will require hundreds of millions of dollars over the next 10 years to bring them up to acceptable standards. Overdevelopment will further strain these resources. The loss of tax revenue is the main reason why the city cannot perform basic infrastructure maintenance. 

The politicians justify this behavior with statistical projections for the next 20 years of the possible impact of the development.  The supposed justification for this behavior is statistical analysis performed by the City with the assistance of developers. Politicians tell you to believe the statistics they present to you but their budget fiascoes over the past decade indicate otherwise. 

These statistical fantasies are little more than overt lies told in order to support the poor decision-making being made by elected officials for the benefit of their contributors. Mark Twain was once quoted, as saying there are three kinds of lies in this world. "Lies, damn lies and statistics". It is not hard to understand why the politicians, who we accept as liars, are now attempting to use statistics in order to justify the welfare being given to billionaires. 

For other Clinton Galloway articles, go to search. 

 

 (Clinton Galloway  is the author of the fascinating book “Anatomy of a Hustle: Cable Comes to South Central LA”.    This is another installment in an ongoing CityWatch series on power, influence and corruption in government … Corruption Watch. Galloway is a CityWatch contributor and can be  reached here. Mr. Galloway’s views are his own.) 

 -cw

 

 

CityWatch

Vol 12 Issue 79

Pub: Sep 30, 2014

 

 

 

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