Business and Industry

L.A.'s Automotive Bailout

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At least it's an ugly car.

In the Los Angeles Business Journal, Alfred Lee tells the story of a Los Angeles sweetheart deal that would be worth reading even if I weren't quoted in it.

The city's successful courtship of the Chinese electric car manufacturer BYD is expected to bring between 46 and 102 jobs, with a total city subsidy of $5.2 million—a taxpayer hit somewhere between $51,000 and $113,043 Per job. In the traditional manner, this deal became steadily less attractive as it got near to closing: 

When the company's move was announced in April, a press release issued by the city said that BYD expected to create "150 jobs throughout 2010 and 2011." A June staff report by the Mayor's Office also projected 150 to 200 jobs by the end of 2011. But recently that number has been pared down: A July 22 report by the Community Development Department projected at least 46 new full-time jobs by the end of 2011, and approximately 102 by 2013.

[First Deputy Mayor Austin] Beutner denied that the jobs projections had changed, calling them "imprecise by nature," and said that he expects BYD to exceed 102 jobs. He also said BYD's presence would create 700 to 800 other jobs in the marketplace, including suppliers, service technicians, and installers of solar panels or charging stations.

Others say that, within the parallel universe of business incentives by cities, this deal isn't the worst:

The package has drawn support from the Los Angeles Area Chamber of Commerce, the city's most influential business group. Chamber Chief Executive Gary Toebben said it's unrealistic to expect the city could attract such a business courted by other areas without some incentives.

"Some people in Los Angeles may use the term 'generous,' but anyone who is critical of this incentive package probably has not seen the kind of incentives and the red carpet rolled out in other states and cities," Toebben said.

My purpose in this article was to damn the whole deal from a free market perspective, and I delivered: It's infuriating that cities are still flushing money down the specific-business-incentive drain when they could be drawing more jobs just by getting out of the way of all businesses—cutting taxes, eliminating permitting, relaxing regulation, getting rid of zoning restrictions, and all the other things politicians hate to do because they allow real prosperity rather than generating a press release about how the government is helping the economy.

But with great regret I must concede that Beutner is right about something: As relocation bribes go, this one is probably at the less awful end of the spectrum. And that's the real problem.

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20 responses to “L.A.'s Automotive Bailout

  1. Threadjack

    http://www.marketwatch.com/sto…..2010-09-07

    The population bomb is back in style! Everybody party like it’s 1968!

    Where’s Bailey? This should be right up his alley.

    1. HTML fail, I don’t like these pseudosmart comment boxes.

      http://www.marketwatch.com/sto…..2010-09-07

  2. The city’s successful courtship of the Chinese electric car manufacturer BYD is expected to bring between 46 and 102 jobs, with a total city subsidy of $5.2 million

    That’s what they *say* it will cost, today. The real number will be much higher.

  3. Okay, I’m going to quibble here. Is the city actually writing them checks? Or is the city not taking as much money from them as they normally would? That first one is a subsidy. The second is not.

    The government letting someone keep their own stuff is not now, nor will it ever be, a subsidy. The logic is the exact same as saying the government subsidizes you by not taking everything you own.

    1. What T said. Since Cavanaugh is too dense to get this, let me explain at length the libertarian perspective:

      If the city is cutting their tax rates, then bravo for that company. Everyone should try to emulate that tactic to force cities to run a tighter ship and compete against each other with lower taxes.

      If the city is not taxing them, and also handing them other people’s tax money also, then the raspberries (directed at the government, not the company) are appropriate.

      1. Exactly how far do you extend this principle?

        Tax breaks only for companies owned by minorities- ok? Tax breaks only for companies owned by whites, or by US citizens- ok? Tax breaks for individuals who happen to be of a particular race?

        At the end of the day, there’s not a damn bit of difference between: “Raise everyone’s tax rates to 20%, but give half the people a tax break to 10%,” and “Set the tax rate at 10%, and then tax half the people an additional 10%.”

        The problem is the (inevitably distortionary) spending, and since that spending isn’t going away and the state and local governments are required to run a balanced budget, this tax break means that other people will be forced to pay higher taxes to make up for it.

        There is no lowering taxes without lowering spending. Otherwise, it’s all just making a different group of people pay the taxes (which may include different generations.)

        “The libertarian perspective” is to shrink the size of government, not to keep government the same size but make some other sucker pay for it, which is all this is.

      2. Well I wasn’t too dense to read the article, where we find that the $5 million consists of $2 million in Community Development Block Grants and an agreement to purchase $3 million of BYD’s products. Outside those subsidies, there is a tariff-reduction agreement, but that is a general offer not limited to BYD and outside what I was discussing above.

        As for the merits of targeted tax breaks — as anything other than social engineering — I’ll yield the balance of my time to Thacker above. In any event, they’re not an issue here. RTFA.

    2. “Is the city actually writing them checks? Or is the city not taking as much money from them as they normally would? That first one is a subsidy. The second is not.”

      No, fuck market manipulation through tax breaks, too. Giving one party a lower tax rate than someone else is, in effect, a subsidy.

  4. Uh Peter…I’m gonna have to go ahead and disagree with you.

    Bending the rules for a particular company is a subsidy.

    1. No, it’s bending the rules. When you accept the term subsidy for a tax break or anything but a direct transfer of funds, you’re implicitly buying into the idea that everything you own is actually the property of the government. Lowering your taxes is letting you keep more of your possessions, not subsidizing you. If the .gov is still taking money from you at the end of the day, it ain’t a subsidy.

      1. “When you accept the term subsidy for a tax break or anything but a direct transfer of funds, you’re implicitly buying into the idea that everything you own is actually the property of the government.”

        No, I’m buying in to the idea that all laws should apply equally to everyone, including taxation if it is to exist.

  5. You know, bigger government would solve this problem nicely.

    Libertarians, of course, have no solution to racing to the bottom. Indeed, you consider it desirable for some sick reason.

    1. Then again, bigger government is ALWAYS the answer. To everything. And higher taxes on the rich. And the externalities.

    2. Isn’t big government the reason the US is going bankrupt? Talk about your race to the bottom. Zimbabwe here we come.

  6. Chad|5.15.09 @ 2:02PM|#
    Given that the public sector largely spends its marginal dollars on SUVs, McMansions, credit default swaps, and cheap Chinese crap, I feel that it is pretty much impossible for the government to do worse.

    So what does Chad think when the government spends money on “cheap Chinese crap”?

    1. That’s completely rhetorical, by the way. No one gives a fuck what Chad thinks.

  7. of $5.2 million — a taxpayer hit somewhere between $51,000 and $113,043 Per job.

    That’s nothin. Seattle is about to spend $158,333 per job on this project. In your face!

  8. Creating jobs:
    Convincing an employer who otherwise would not have come to the area to locate themselves there on the same terms as other businesses.

    Not creating jobs:
    Taking people’s money that they would have most likely spent on things they wanted and paying a company to locate there.

    They’re taking money from the cash register and giving it to a buddy, then asking the store to give them credit for the referral.

    Okay, I’m going to quibble here. Is the city actually writing them checks? Or is the city not taking as much money from them as they normally would?

    If the city is not treating them the same as they would any other business, it’s favorable tax treatment and a subsidy. If tax rates are lowered for all businesses (assuming a balanced budget or equivalent declines in spending, ha), it’s not.

    Transferring money from one party to another in a way that effects the same outcome is the same principle no matter the means. Lowering one entity’s tax rate from a high rate paid by everyone to a low rate is the same as raising everyone else’s from that low rate to a high rate.

  9. Some people in Los Angeles may use the term ‘generous,’ but anyone who is critical of this incentive package probably has not seen the kind of incentives and the red carpet rolled out in other states and cities.

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