Crony Capitalism

Crony Capitalism: Taxpayers Forced to Fund Virginia Brewery

Government handouts leave a bitter taste.

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The way public officials acted last week, you would have thought they'd already had a long quaff of Stone Brewing Co.'s strongest. The company's decision to place a brewery in Richmond "really puts Virginia on the map," Gov. Terry McAuliffe enthused.

According to Richmond Mayor Dwight Jones, while Richmond is already "one of the coolest cities … we're about to get a whole lot cooler."

Make no mistake: The announcement that Stone chose Richmond as the site for its first brewery east of the Mississippi is great news. The launch will create almost 300 jobs, generate $74 million worth of investment, and help revitalize a part of the city that has struggled to go from shabby to chic. Cheers and toasts all 'round.

But at the risk of behaving like the skunk at a beer-garden party, we shouldn't let the moment pass without noting that the incentives the brewers will get are substantial. Richmond is issuing $23 million in bonds to build the brewery and an additional $8 million to build the restaurant. Stone also will get a $1.5 million economic development grant and a $500,000 sustainability grant.

McAuliffe—who installed a kegerator with Stone brew in the Executive Mansion—is kicking in $5 million from the Governor's Opportunity Fund, aka the Official Slush Fund of the Commonwealth. No surprise there. Virginia's future governor put his GreenTech Automotive plant in Mississippi because that state offered more of other people's money, and "I have to go, obviously, where they're going to put incentives."

Supposedly, Stone will pay back the debt for the brewery. Details as to how—or if—the other $8 million will get paid back are a little sketchier. The Jones administration has shown less than a robust commitment to transparency. The details about every angle of this deal should be fully disclosed. The public also should receive regular reports about loan repayments. That certainly would be better than learning details later on, in yet another report from City Auditor Umesh Dalal.

Oh, and the Richmond Economic Development Authority will oversee construction of both the brewery and the restaurant. Washington's heavy-handedness has rendered banks gun-shy, but does the city have to act as both the banker and the lead contractor?

When deals like this are struck elsewhere, they're often referred to as crony capitalism. Tea party types point to case studies such as Solyndra to indict the Obama administration for engaging in it. But these days everyone plays the game. Tennessee offered Volkswagen a $274 million package this year. Nevada is giving Tesla more than $1 billion in tax breaks. Boeing got several billion from Washington state.

And by now most people are familiar with the way financially strapped metro areas go deeper into hock to build swanky new stadiums for billion-dollar sports teams and their millionaire owners and players. Often the teams wrangle such deals by threatening to pull up stakes, pitting cities against one another in a bidding war waged with public dollars—dollars the cities almost never recoup.

Reportedly, Stone considered 200 proposals from 20 states. Columbus, Ohio (another finalist city) offered a package that included $3.3 million in tax breaks and similar incentives. Norfolk wouldn't disclose what it offered. A Norfolk spokesman, applying free-market terminology to the circumvention of free-market economics, said doing so would hurt the city's "competitive advantage."

Yet according to a story in last week's Richmond Times-Dispatch, Stone executive Steve Wagner says other factors determined its final decision: water supply, wastewater capacity, and proximity to suppliers. If that's true, then Richmond should have been able to land the brewery without the handouts. It's bad enough to think officials felt they had no choice but to offer Stone public inducements. It's even worse to think the inducements were unnecessary.

The special favors conferred upon Stone must make central Virginia's longtime craft brewers gag. Companies like Legend Brewing Co., Hardywood Park, and Triple Crossing have not always gotten the red-carpet treatment from City Hall themselves. Now they will watch their hard-earned tax dollars help a competitor. If that leaves a bitter taste in their mouths, you could hardly blame them.

After all, craft brewing is one of the great entrepreneurial success stories of the past few decades. For the longest time, America's beer industry was dominated by a few big corporate brewers that produced little but watery swill. By the early 1980s the U.S. had only a few dozen breweries, owned by even fewer companies. It was a dishwater wasteland.

But a few small entrepreneurs who loved good beer thought there might be a market for it. By fits and starts, the craft brewing industry got off the ground. Slowly it grew. Now the U.S. boasts more than 1,500 breweries that lovingly produce everything from sturdy eisbocks to thick, chewy porters that look—but certainly do not taste—like pints of used motor oil.

Stone Brewing is a proud part of that inspiring story. All of which makes it rather too bad that an appropriate inscription over its new brewery might be one of Barack Obama's more infamous lines: "You didn't build that."