Let’s Have More Red Tape—for Local Development Corporations

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerI hate red tape. Years of contracting with government has nurtured a hearty dislike for intricate rules imposed by tinpot dictators in legislatures and administrative offices. Here at CGR we recently executed a contract with New York City that was the size of Rochester’s White Pages (not Manhattan’s, thank goodness). The number of schedules, promises, clauses and conditions we had to complete was a project in itself. Not that I’m one to condone the harvesting of tropical hardwoods. And I’m as big a fan of peace in Northern Ireland as the next guy. We had to address both issues in the contract. But is all this really necessary?

That’s why it feels rather odd to be urging more red tape for local development corporations (LDCs). But that’s what is needed.

LDCs can stimulate innovative public-private partnerships to accomplish initiatives great and small in the public’s interest. Local governments use LDCs as vehicles to get directly involved in economic development efforts, influence how land is developed, promote tourism, generate new revenue for their communities, and get assets off the books of local government while maintaining control over what happens to them.

What’s not to like?

Bluntly, some LDCs may be created simply because they let local governments navigate around things like the Open Meetings Law and the Freedom of Information Act. Again, I’m no fan of costly, confusing, complicating rules. But we create such rules for a purpose.

By eluding the restrictions we place on governments, LDCs can potentially operate almost entirely outside the view of the public. Without routine public disclosure, individuals who control these entities, both elected officials with appointment powers and board members, are not always fully accountable. Despite the fact that they can control public assets and contracts worth millions of dollars, LDCs are not uniformly required to disclose information about their finances, operations and decisions.

LDCs are a varied lot, let me assure you. Many perform all their duties in the public eye and comply fully with every open government law. But not all must and not all do.

I’m not making any accusations here, but the potential for abuse and corruption is real. There is little to stop LDC officials from awarding contracts, jobs, property or other favors to friends, relatives or campaign contributors or from spending money wastefully and inappropriately.

In partnership with the League of Women Voters of Metropolitan Rochester (through the Beatrice Bibby Endowment at the Center for Governmental Research), we recently completed a study of local development corporations (you can find the study on our website at http://www.cgr.org).

Locally, LDCs were in the news recently when the public learned that bidding for county tax liens included a new LDC with a director who was also a Monroe County Finance staff member. In fact, he was responsible for evaluating the financials of the bidders. OK, the Monroe Tax Certificate Corporation didn’t get the nod—they were outbid by American Tax Funding Services of Florida for the nearly $24 million in delinquent property taxes. But the problem is summed up neatly by a County official’s comment, as quoted by the Democrat and Chronicle: “I think it speaks well of our ability to be objective that the LDC was not the successful bidder,” he said.

Economists are a religious lot: We believe in original sin. We expect that people, when left to their own devices, will generally act in their own self interest. That’s where the red tape comes in. We shouldn’t have to rely on the “objectivity” of county staff to get the “right” decision.

Frankly, a “captive” LDC might have done quite well by the taxpayers. American Tax Funding bid $22 million for $23.6 million in delinquent taxes—that’s not a bad price. Had there been no Monroe Tax Certificate Corporation in the bidding, might the Florida company have won the bid for only $20 million? Or $18 million?

But we learned in our study that LDCs do not always operate in the full light of day and do not necessarily reveal all of their activities to the public. Even with public bodies who DO have an obligation to comply with all of these “open government” laws, stuff happens. Even with the best of intentions.