Friday, June 1, 2018

Handouts for Billionaires: Dan Gilbert's $600 Million Deal

Some people make a strong argument for government intervention, whether in the form of tax breaks, incentives, subsidies, or outright cash transfers to help poor or middle class people get on their feet, get job training, start a business, get an education, buy a house or (ahem) get some health care. 

The devil is in the details of course but if you're living paycheck to paycheck and/or can't immediately put your hands on $1 million in cash, then I won't begrudge you some form of government assistance. There but for the grace of God go I and yada yada yada. If you are a rich person with regards to income or more importantly in regards to wealth (the top 1% households had a little over $10 million in net worth in 2016then I will suggest that you don't need much assistance from any level of government. You likely work for yourself but even if you don't it's rare that the loss of your job will have you sweating and panicking over a missed paycheck in two weeks. There are some people for whom $10 million is nothing special. They might drop that much on weekend gambling ventures, jewelry for their wife or mistress, rare cars, vacation homes or child support.

A billion is one thousand million. That's ONE THOUSAND MILLION. If you are worth one billion then you or yours don't want for much. Dan Gilbert owns Quicken Loans, Rock Financial, a few casinos and of course the Cleveland Cavaliers. Dan Gilbert is Michigan's richest resident, and likely Ohio's as well when he's in that state. In 2017 Gilbert was number 91 on the Forbes 400 list. Only a few Americans have more money than Gilbert. Dan Gilbert's net worth is approximately 6.3 Billion dollars or to put it another way, 6300 million. There's little that Gilbert couldn't buy or invest in if he so chose. Money is not a limiting factor for Gilbert. So I'm having trouble understanding why the State of Michigan has decided to give a $600 million subsidy to Gilbert for a real estate deal.

Dan Gilbert, the billionaire who has overhauled downtown Detroit by resurrecting historic buildings, sealed one of his biggest Motor City deals yet by getting final approval Tuesday for a $618 million tax incentive plan.

The largest tax subsidy ever awarded in Michigan will fuel Gilbert's $2.2 billion plan to create the tallest building in the city on the empty Hudson’s block on Woodward Avenue; develop 3 acres of mainly vacant space on the Monroe Block; renovate the equivalent of seven football fields of interior space at the long-dormant Book Tower and Building on Washington Boulevard; and add an 11-story annex to the One Campus Martius building.

In Detroit, various community groups have been critical of the tax subsidies. At the December 2017 groundbreaking of the Hudson's site development, about 15 people with a group called the Detroit People’s Platform showed up to speak out against the deal. The group's main concern is that Gilbert and Bedrock did not provide a specific plan on how the developers will hire 51 percent of Detroit residents to work on the project.

The transformational brownfield plan uses a public financing method called tax increment financing, commonly called TIF. Through the use of TIF, municipalities typically divert future property tax revenue increases from a defined area or district toward a development or public improvement project in the community. TIF subsidies are not taken directly from a city's budget, but the city incurs loss through foregone tax revenue. A Quicken Loan executive said it was too soon to tell whether Bedrock or other Gilbert affiliate might pursue any of the remaining incentives from the brownfield legislation – about $500 million – for other Detroit projects. 

These deals almost never work out for the city's tax base in general or the city's population in particular. If the deal makes sense to Gilbert then let him pursue it. That's what the free market is supposed to be about. It's not supposed to be about giving tax breaks and gub'mint cheese to billionaires.

If I had $600 million to help the City of Detroit I would be more interested in using that money to improve public schools, cleaning up local grocery stores, putting more cops on neighborhood beats, helping local prosecutors prosecute more gun crimes, tearing down homes with lead or asbestos, and pursuing a  number of other incentives that by themselves don't sound like a lot but in concert improve the quality of life for residents across the entire city instead of just helping one capitalist trying to make a buck. This is just supply side economics at the local level. It hasn't worked. Previous projects to improve downtown Detroit have pretty consistently locked out Blacks as contractors or employees. 

I don't want to argue that Gilbert and similar local billionaires like the Ilitches have been categorically bad for the city. Far from it. The truth is more nuanced. Some suburban residents and political leaders, long used to cheerleading Detroit's decline and offering to help dig its grave, view Gilbert with disdain for his involvement in a slow and fitful Detroit rebirth. Some people in the suburbs don't believe that a rising tide lifts all boats. They are invested in the idea of Detroit as a hellhole. They don't like Gilbert moving businesses from the suburbs to the city. Gilbert's not a devil. But he's also no saint. Gilbert has a growing reputation for being a scofflaw or bad actor, whether it's assisting tenants and business partners to avoid Detroit insurance and taxes or ripping people off via fraudulent loans.

I can't speak to the last. It is difficult to stay morally pristine in some industries or at some levels of wealth. But I can say that (1) there's no evidence that previous government assistance to Gilbert has made a great difference in the life of the average Detroit citizen and (2) a billionaire, unlike the disabled single father driving a 92' Dodge Spirit, doesn't need any taxpayer help. There are more effective uses of government resources. I appreciate the good that Gilbert has done. But like this candidate, I'd rather see government assistance go to the man in the street or the small business, not the billionaire.
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