Government's Business Boondoggles

If You Build It, They Won’t Come (or Stay)
By Mr. Michael D. LaFaive Dec. 4, 2009

In 2002, the Michigan Privatization Report dedicated an entire issue to dismantling the state's economic development complex — the myriad programs designed to create jobs where central planners think too few exist. One of the articles, "If You Build It, They Won't Come," critiqued a government effort to create a shopping plaza anchored by a grocery store in the Northside neighborhood of Kalamazoo. Northside's experience shows that a business won't stay just because government builds it.

The grocery store project was well-funded: The Michigan Economic Development Corp. — the state's official "jobs" department — promised $1 million; the federal government contributed $300,000; and the city of Kalamazoo dedicated $200,000 to the project.

After more than three years of planning and delays, the grocery store finally opened and was met with great fanfare. Indeed, public interviews and comments suggested that the deal had panned out nicely and was bringing much-needed direct and indirect jobs to the neighborhood. The new grocery store and plaza even got positive coverage in the Congressional Quarterly, a popular periodical read by members of the U.S. Congress and other "movers and shakers."

But a funny thing happened on the way to economic nirvana. Despite generous subsidies, the grocery store closed in May of this year, less than six years after opening.

The tale of this economic "winner" is really one of government economic development work in the Great Lakes State. It involves the redistribution of tax money in the name of jobs; government officials' false belief that they can increase total jobs in specific geographic areas; and a disregard for past experience and evidence.

In the first MPR article on the Kalamazoo grocery store project, we argued that:

Three previous attempts by private vendors risking their own money had already failed at this precise location. Why would the fourth time — with taxpayer dollars — be the charm?
The neighborhood in question had high crime rates, and thus it was difficult to attract shoppers, let alone service-providing vendors.

Moreover, throughout Michigan Privatization Report and other Mackinac Center work, analysts have pointed out that taxing some to give to others does not create new jobs, but at best just shifts them around.

The grocery store's operations may have ceased, but government efforts have not. The Kalamazoo Gazette reports that the Northside Association of Community Development would like another grocer to take over the building. In June 2009, the Kalamazoo City Commission allocated $250,000 of federal stimulus funds to help "resurrect a grocery store in the city's Northside neighborhood," according to The Gazette. The first $50,000 is slated for maintenance on the empty grocery store.

One has to wonder how many of these development initiatives need to fail before officials at all levels of government get the picture. Even if AutoWorld's inglorious implosion — both figurative and literal — wasn't enough to dissuade policymakers from such gambits, examples of failure abound. A quick summary shows this folly:

Some $35 million in local, state and federal funds was invested in AutoWorld, a seven-acre theme park in downtown Flint. The park, which opened in 1984, was supposed to draw 900,000 visitors annually and revive the beleaguered city. It closed after only two years.

Construction of Cereal City USA in downtown Battle Creek, was made possible by a $900,000 loan the city secured from the state. The attraction, which opened in 1998, was billed as "a land of wonderful, interactive experiences and entertainment for the entire family, as they explore the birth, development and global impact of the cereal industry." Officials estimated that the park would draw 400,000 visitors annually, but it was shuttered in January 2007 after years of dismal attendance.

The Kalamazoo Aviation History Museum secured a $3 million state grant to launch construction of an aviation theme park. The attraction was touted as "a centerpiece for economic development and tourism in southwestern Michigan," and local officials hoped that the state would finance half of the $80 million construction cost. A 25 percent hike in the local hotel tax also was considered. Ultimately, the grant money was returned to the state after the project was scaled back for lack of support.

The city of Pontiac invested $55.7 million to build the Silverdome in 1975. The Detroit Lions relocated to Detroit's Ford Field in 2002. Although the team paid the city $26 million for breaking its contract, Pontiac continues to incur a hefty deficit in maintaining the 127-acre site.
A better economic development approach would be for local units of government to make sure their public services are effective and efficient and then roll back the costs of living, working and investing in the community. The likely result would be a far stronger economic base, and one that can easily induce grocers to open stores without targeted subsidies or other incentives.

Michael D. LaFaive is fiscal policy director at the Mackinac Center for Public Policy.

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Side note: Thanks go to the Kalamazoo Area Taxpayers Association, especially Ray Wilson, for helping to stop the aviation theme park boondoggle.