"Economic Development" Projects Shouldn't Worsen Inequality

If there’s one thing I think we can all agree on with regards to Cleveland, it’s that too many of the city’s residents are poor. That may even be our biggest problem, anyway that would be my choice.

And I don’t think the powers that be disagree with that, necessarily. I think that’s a big part of the reason there’s so much emphasis on “economic development” in our region. But something that troubles me is when our “economic development” efforts actually make life more difficult for poor people, or expand inequality in our region. It’s actually kind of striking how often in our region we ask poorer people to foot the bill for “economic development” efforts that offer the most direct benefits to rich people.

I think we should not do this. Like there should be an actual test when it comes to “economic development” projects in which the public is being asked to foot the bill (which is all of them). Here’s the test: Will this “economic development” project worsen inequality in our region?

How will we be able to tell? It’s a simple two-question process!

Question 1: Do the costs for this “economic development” effort come mainly from poor people? For example, the Cleveland Browns stadium is paid for by a “sin tax” on all Cuyahoga County residents. The “sin tax” is a notoriously regressive tax, in that poor people — who spend more of their incomes on cigarettes and alcohol than rich people — pay a disproportionate share of the costs. So Browns Stadium-as-public-economic-development-project would fail the first part of our test.

Another example is the Medical Mart. This $500 million convention center scheme is paid for by a half-percent sales tax on Cuyahoga County residents. The sales tax is another notoriously regressive tax, because poor people spend a much greater share of their income than rich people, who have the luxury of saving a lot more. So right away these two “economic development” expenses should be suspect because they are financed disproportionately by poor people and making poor people poorer worsens the problem we are all trying to solve.

But let’s move on. Because projects like this are justified by the idea that they will make the economy better and thus improve poor people’s lots indirectly.

Question 2: Does this “economic development” project confer any direct benefits to poor people at all? It is amazing to me — despite wide recognition that poverty is a big problem in our region — how many of our “economic development” projects seem to benefit very rich people the most, at least directly. The idea behind them is that their benefits will “trickle down” to poor people.

For example, Cleveland Browns owner Jimmy Halsam, who lives in a mansion in Bratenahl (the family’s second home), is one of the major beneficiaries of the sin tax in that he gets a free venue to host his perennially terrible football team that nonetheless makes him really rich. Now, theoretically we accept this clear injustice because of the argument that poor people will benefit from the Browns (not as much as rich guy Jimmy Halsam, of course) because the Browns will attract suburbanites to the city eight times a year and they will spend money at restaurants in which poor people are dishwashers, or something, and thus everyone benefits.

But I sorta think that’s not really a good enough deal. Is taking money from poor people and giving it to people like Jimmy Halsam just so they have the possibility of maybe some extra dishwashing jobs really “economic development?” Do the Browns’ benefits to poor people outweigh the costs to poor people? I think it’s difficult to say, but it’s probably just a bad idea in practice to ask poor people to foot the bill for projects in which they enjoy no direct benefits. So this would fail the test of increasing inequality.

Let’s try this with another project I just was thrilled to learn about. According to Cleveland Scene, Cuyahoga County has just entered into a deal with Hilton Hotels to publicly finance a $290 million project to bring a Hilton to downtown Cleveland. Here, quite clearly, is a project that has zero direct benefits to poor people. Poor people don’t stay at Hilton hotels and poor people don’t own, or invest in, Hilton Hotels, rich people do. Rich people are clearly the only direct beneficiaries of this deal. Now again, the idea is that this $290 million investment will “trickle down” and poor people will get jobs cleaning hotel rooms. But, come on. It seems pretty clear in this case that poor people’s money is being transferred upward. This project will worsen inequality in our region, and thus could worsen our economy, which is, in fact, the opposite of “economic development.”

Now, let’s hold up a project that doesn’t fail this test just for fun. About five years ago, the region’s transit authority, RTA, received a federal grant for a transit project called the Euclid Corridor. More than $200 million was invested in redesigning and updating the city’s main thoroughfare, Euclid Avenue. The project also added 24/7 rapid bus service along a six-mile route. So here, money is flowing mainly from the federal government, but also from local sources. But none of these sources raise a red flag for being regressive, or especially costly for poor people. The federal government draws much of its revenue from the income tax, in which rich people pay more than poor people. But even better, FTA is funded by U.S. DOT, which gets a lot of its money from the gas tax. And guess who pays the gas tax? Well rich and poor people, but more rich people more on balance, because about the poorest fifth of all Americans don’t drive at all.

On the other hand, this is a project in which poor people enjoy some pretty clear direct benefits in the form of expanded transit service. The road also includes bike lanes and traffic calming measures that promote biking and walking which is another direct benefit to poor people. This project passes and seems likely to promote more equality in our region. If greater equality in our region, less poverty, is the aim, this seems like a sound investment, at least compared with the competition.

Really what “economic development” projects do is give government agencies license to spend money on things that otherwise would be wholly outside the realm of government: investing in hotels, or building venues for profitable private entertainment enterprises. So these activities really deserve extra scrutiny.

Now we all agree that there are economic problems in the Cleveland region that need to be solved, no doubt. But that doesn’t mean any project packaged as “economic development” is a worthwhile pursuit for our region. I think as taxpayers, we really need to be more skeptical so that we do not fall prey to “economic development” projects that amount to little more than financial self-dealing by the region’s economic elites.

When someone says this public expenditure is “going to fix the economy,” it’s incumbent on us as good public citizens to examine those claims critically. Is what’s good for Paris Hilton really good for single mothers in a depressed economy trying to keep their kid in diapers? In some cases — like the case of Cuyahoga County’s sales tax — there is sort of a direct tension, there, I think it’s important to understand.

Anyway, what do you guys think of this test? How do you think the Opportunity Corridor, or some other project in a different city, would score?

–A.S.

 

 

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