All Commentary
Thursday, November 1, 1990

The Myth of Public/Private Cooperative Enterprises

Barbara Hunter is an educational consultant in office automation living on Long Island.

Apopular term today for schemes that transfer money from the taxpayer’s pocket either to a private individual or to a private organization is “cooperation.” According to this notion, the government (which may be municipal, county, state, or federal) has the right to extract from the taxpayer any sum for any purpose, as long as those doing the extracting have determined that the taking is for a “good purpose.”

Strangely, once the money has been taken, it is no longer recognized as belonging to the taxpayer. Now it is instead “government funds,” and these funds are portrayed as a source of benevolence from that particular government to the recipient. A multiplicity of terminology may be used to mask the actual source of the alleged benevolence-“cooperative effort,” “synergy, . . . . assistance,” “aid,” “investment,” “joint effort,” “financial incentives,” “partnership,” to name a few. Not surprisingly, both the beneficiary and the local press are likely to portray this giving only in terms of the marvelous benefits the community will enjoy as a result of the influx of funds, without referring to the taking that made the giving possible.

Some of the fallacies of the notion of public/private cooperation may be seen in a recent example.

A Long Island, New York, company, long known for its high-technology contributions to the nation’s defense, discovered it was no longer doing well in the competitive quest for contracts. A thorough examination of its operations revealed several problems: (1) its physical plant, originally conceived as necessary for a growing company (which it no longer was), was too large, and consolidation was needed if it was ever to bring its costs into line with its competitors; (2) much of its equipment, and some of its major facilities, were obsolete and simply couldn’t be used for today’s more demanding technologies; and (3) a shortage of capital made it appear difficult, perhaps impossible, to remedy these problems. Interestingly, the company has a parent corporation, but the parent obviously didn’t consider it worthwhile to plow the needed funds into the company; otherwise, it would have decided the investment was a good one, and the money would have been provided.

But even though one’s own parent company determines that such an investment won’t be beneficial, such technicalities don’t stop those who hope the government (that is, the taxpayer) will take a different view of the merits of the case. In the absence of the necessary money, the company decided to look for what it called “an innovative approach to funding.” Just how innovative it was became evident following a meeting between company representatives and the New York State Department of Economic Development. The Department’s rationale for supporting the company’s funding plan was that the state wanted the company to “continue contributing its impact on the state and local economies.”

Ironically, the company never said it planned to stop contributing that impact, and it never hinted it might take some other approach, such as moving out of state or dosing its doors. Nevertheless, over a six-month period, the company managed to get both the Department of Economic Development and Suffolk County officials to approve the plan and to commit money to the project. And this was no small sum: The state’s share will be $2.1 million in grants and loans, the county’s $2.5 million in “industrial development bonds,” in addition to real estate tax abatements on the projects and sales tax abatements on the capital purchases associated with the projects (neither of which is available to the company’s competitors).

Two factors need to be considered if the plaque presented by the county executive to the company president, inscribed “New York State—Suffolk County—(company name)—‘A Partnership for Progress’” is to be identified for what it is.

First, every dollar flowing from the state or county coffers to the company has to come from somewhere. In New York State, where both individual and corporate taxes are among the highest in the nation, these dollars can be traced back to numerous disadvantages that will accrue to those who are not the recipients of this largess: money out of the individual taxpayer’s pocket, money that this company’s competitors will not have for their own development or other purposes because they have been forced to hand it over to the various levels of government to benefit the favored company. If one doesn’t bother thinking through the full implications of a decision that takes money from one person or company and gives it to another, it might seem that some form of wealth or other value has been created in the process. The failure to look at the full picture is a likely reason why this action has been proudly announced by the company and hailed by the press.

Second, perhaps the ultimate irony of the scheme is that this is the year in which both New York State and Suffolk County are awash in red ink, the year in which Suffolk County taxpayers are facing real property tax increases of as much as 30 percent, and in which the governor has been searching for new ways to raise state taxes. One could easily ask just how many of the already beleaguered taxpayers would have agreed of their own volition to turn over as much as $4.6 million of their already imperiled incomes.