Cincinnti Business Enviroment Continued

This post if a follow up to yesterday's post on how a better business climate leads to growth. This isn't always an obvious relationship. Increasing taxes and regulation don’t necessarily have a huge impact on growth right away. Proctor and Gamble will not move suddenly because of poor government, even if state taxes increase 30% tomorrow. But, they may start to shift jobs out of town. Yet, in the short-run, bad policies really tend to stifle innovation and make it harder for entrepreneurs who are competing nationally and internationally. Remember when there used to be a bunch of tech start-ups in Over the Rhine? Not any more; the business environment in Cincinnati is becoming less conducive to that type of start-up.

...When people get angry about offices moving to West Chester, they should stop and consider why that's taking place - economic policies more encouraging of growth. Why else would you move out to the boondocks?


In the long-run, bad tax and regulatory policies will also have a big effect when companies are making strategic decisions. NCR’s recent move from Dayton to Georgia was based on expected improved productivity in their new location. When companies are merging you can see this also. Cinergy/Duke and Star Bank/US Bank both decided during mergers to move their headquarters out of Cincinnati. They've both moved to states with better business and regulatory environments. Fifth Third is often mentioned as a merger target. Cincinnati should be very worried about that possibility and potential job shock. Better yet, they should try to turn Cincinnati into the obvious choice for new headquarters. Unfortunately, local policies are causing a significant loss of good jobs and talented workers in Cincinnati, contributing to a brain drain.

Ohio is stuck with some institutions that will continue to be a drag on growth (legacy unions and the labor laws they have pushed through). No doubt also contributing to Ohio's poor business climate, was the 2006 election of Ted Strickland (who favors the U.S. leaving the World Trade Organization) as governor, and the perceived anti-market attitude of his administration. However, stuck though it is in Ohio, Cincinnati can do some things to improve competitiveness.

According to Chief Executive Magazine, business leaders most highly prize low tax rates and perceived attitudes toward business, followed by living environment considerations, such as real estate costs and education. These are considerations that ultimately lead to better business productivity. In the long-term, more productive companies are more successful, grow, and hire more people. This is how a region grows economically.

Based on the concern of this study (and also my biased perspective), if the city wants to grow, it's priorities should be:

1.) Improve local education
2.) Reduce and improve regulation (UrbanCincy has a great post on this today)
3.) Rationalize the transportation system
4.) Improve public safety and perceptions of safety
5.) Improved the perceived attitude of city council towards business
6.) Maybe even reduce taxes.


I would say the top three issues handled by Cincinnati City Council in recents years have been:
1.) The police layoffs.
2.) The issuance of significant debt to pay for a 3.9-mile streetcar system / cuts in bus service.
3.) Kroger executives being yelled at by city council for the seemingly obvious business decision of closing an unprofitable store.

It's simple to set the right goals on what the city should be doing. The politics of making it happen is the tough part. The general move right now appears to be further in the wrong direction, contributing to Cincinnati's relative decline along with the state.

Friday Links

Here's my semi-regular post on a few notable links that I've flagged but decided not to turn into full posts:

1. As Cincinnati is now dealing with these regulations, here's Flex Salmon on Why do minimum parking requirements still exist? He's at a loss to come up with a good reason. But, here's a good quote from Tom Vandebilt:

“[I]f all of the vehicles in the county were removed from garages, driveways, and all of the roads and residential streets and they were parked in parking lots at the same time, there would still be 83,000 unused spaces throughout the county.”

We don't see all the costs on these parking regulation, but "everyone, even those who don’t drive, pays for it in one form or another, whether the invisible parking surcharge is built into retail prices or the various costs associated with parking-lot storm-water runoff" and also worse architecture... This is a needless and destructive regulation. Cincinnati is wisely rolling it back, but thus far only for those who are lucky enough to own land within 600 feet of the proposed streetcar route.

2. An underreported but very important ongoing development - "The most recent survey by the Consumer Reports National Research Center found that five-year-old vehicles had about one-third fewer problems than the five-year-old vehicles we studied in April 2005." The rate of problems in cars falling by a third in five years in huge. Robin Hanson comments:

"Most people are surprised to hear that the world economy doubles roughly every fifteen years; when they think back fifteen years, the world doesn’t seem that different. Besides a few big changes, most things seem pretty similar. But this is illusory – most change happens behind the scenes. In fact, one of the reasons why change can be so fast is that most of it happens behind the scenes."

I view this as a relevant point for Cincinnati's streetcar plans. Streetcars are less efficient than auto alternatives right now. But, technology also keeps improving and at a faster rate than we realize. So, it's a mistake to lock in a bad 30 year transportation plan. And, this will become much more 5-10 years from now when we are still paying the bill for the streetcar capital investment, while buses are increasingly more reliable and efficient.

3. Our Conservative Democratic Governor Ted Strickland signed new casino rules legislation. The simple thing to do on gambling would have been for the state just to legalize it with certain regulations. Then anyone could conceivably open a casino if they met certain requires. We would have equal rights and an efficient allocation of casinos. Instead, there are by legislation exactly four pieces of land in the state that can house a casino and certain people granted the privileges to develop that land - A rather questionable set up. So, it's not entirely unexpected that the government created Casino special interests, slipped into the rules an income tax deduction for gambling losses. This is expected to cost the state $60 to $80 million in taxes per year.

To put it another way, the state just passed a $60 to $80 million gambling subsidy. ...This is just bad government. Try to remember it when you vote this November.

4. Reason Magazine has a rather hackish post on the Cincinnati Streetcar, which I nonetheless link to. An outsider's opinion is valuable. They don't see the streetcar turning Cincinnati into another Portland. ...Maybe another Cleveland.

5. The Business Courier informs us that Washington Park was apparently built on top of a cemetery. They include a list of people who are still buried under the park, incuding William Lytle and James Findley. Creepy...

Update 7/6 - Quimbob informs that at least some people have been relocated. No need to fear being haunted by early Cincinnatians now.

Enjoy your 4th of July Weekend.

New Cincinnati Streetcar Poll

There's a new poll out by SurveyUSA on support for the Streetcar within the city of Cincinnati. The Key findings are:

48% Cincinnati residents believe the streetcar is a "waste of taxpayer money".
7% are unsure
20% say it's a risky project
and just 27% say is will "Revitalize Cincinnati's core"

51% say most of the ongoing funding for the streetcar should come from fares. In reality, even supporters' ridership assumption will pay for much less than half. If all voters were aware of this, I suspect support would fall further.

When it comes to actually paying for the project: 61% disapprove of the city borrowing of $64 million to pay for the Streetcar, and only 31% approve.

So, there is overwhelming opposition within the city to the streetcar plan just passed. It seems the majority correctly see the project as an unnecessary burden and hindrance to future growth in the city. This poll should be devastating to the Streetcar project. So, why is it being pushed through, if not in response to the wishes of voters? Once again, I suspect it might have something to do with support for the streetcar among certain special interests (landowners and businesses along the route) who see a large profit opportunity.

I believe this issue should not be decided by elected officials, who are more easily influenced by the small group who will benefit from the project (like pork legislation). This is essentially a special interest project and given it's size should be put to an up/down vote on the ballot. The city and the taxpayers should be allowed to decide this one. Tom Luken has said he will circulate petitions to place the streetcar on the November ballot. That would be very good for the city of Cincinnati.

Friday Links

Here are a few things notable things from this week that I flagged but didn’t turn into full blog posts:

1. For those voting in the Republican primary, Donald of Cincinnati Blog says Ghiz over Monzel:

The contrast between Ghiz and Monzel was clear. Ghiz offered nuanced answers, the kind that you'd expect from someone who has thought about how to address development, budget, and public safety issues. Monzel, on the other hand, offered nothing but bits of his stump speech. His campaign strategy seemed clear: do nothing but throw out "red meat" to the base, and hope that the voters don't catch on.

2. The Cincinnati Enquirer had a story on how Chris Bortz ignored the Ohio Ethics Commission’s decision on his obvious massive conflict of interest in the Streetcar project.

3. Bortz responds today:

It is well known that Vice Mayor Roxanne Qualls owns a condo a block away from the proposed route. Mayor Mallory's father owns a home less than three blocks away from a proposed connector to Uptown. Former Vice Mayor Jim Tarbell, who voted on the streetcar while a member of Council, owned a business along the proposed route. Under the staff attorney's reasoning, none of these dedicated and committed public servants would be able to participate in the streetcar debate. … So a member of council who lives near a park can't vote on the Parks Department budget?

Obviously those are not the same as the Bortz family’s significant holding along the route. …But actually I’d be okay with Bortz’s rule.

4. The Enquirer’s Politics Blog has a list of companies giving money to Issue 1 “The Third Frontier” …Surely, they not giving just for influence over the $700 million in grants the program is giving out. The Enquirer repeats a line about the initial program “Ohio voters approved spending $500 million in 2005 … generating an estimated $6.6 billion in economic benefits.” If a hack economist gave them those numbers, they should be fired. …Or let's increase the program 100x and we’ll all be rich.

5. Tyler Cowen presents it as a Dutch peculiarity, but this sounds like a really good idea:

Potholes, stray garbage, broken street lamps? Citizens of Eindhoven can now report local issues by iPhone, using the BuitenBeter app that was launched today. After spotting something that needs to be fixed, residents can use the app to take a picture, select an appropriate category and send their complaint directly through to the city council. A combination of GPS and maps lets users pinpoint the exact location of the problem, providing city workers with all the information they need to identify and resolve the problem.

Enjoy your weekend

Angry to What End?

Many Cincinnati City Council members are to paraphrase Megan McArdle "Angry, Very angry, Do you understand Roselawn voters? They're very very angry at Kroger for closing its store."

This is one of those stories that gets a thousand crazy comments on Cincinnati.com, so I'm hesitant to wade in. ...But, I'm not sure there was much point to city council's hearing yesterday, except to express that city council doesn't like the economic reality that companies sometimes have to close stores. I don't know for sure, but I suspect that Kroger is not closing their store because they hate Roselawn, but because the store has not made a profit in ten years and it didn't make sense to have a location there anymore.

I suspect that the more important message that Council is sending to businesses is this: When you open a store in Cincinnati, you should understand that if things do not go as planned and the store is unprofitable (or loses a million dollars a year) you could be hauled in front of city council and berated if you decide to close it.

City Council is putting a burden on businesses that want to operate in the city, and it's something any company should consider when it opens a significant store in the city. They will be publicly badmouthed by the government if it doesn't work and they need to back out. On the margins, some businesses could be less likely to take a chance investing in Cincinnati with this risk. This risk factor might not be big enough to have a noticeable effect. But, all else equal this means fewer companies taking chances to invest in Cincinnati and perhaps fewer grocery stores.

It might make sense to create a tax break for operating a grocery is an underserved area. But, what Council is doing doesn't improve anything. So, it's just bad for the city.

File under: Bad Government

A Desire Named Cincy Streetcar

The Cincinnati City Council is expected to approve some funding today for streetcars. the Streetcar movement is popular in the Cincinnati blogosphere (They’re way more hip than riding a bus, right?). And there are some points to be made by activists in favor of streetcars. However, I think the streetcar effort is primarily driven by the big property owners along the proposed route (some of whom are on city council). The project takes tax dollars from everyone across the city and spends them to improve transportation along a certain 3.9 mile stretch. This will certainly improve the land values for those who are fortunate enough to own property along the chosen route. The area will gentrify. But, these improved property values will be paid for by the taxes of everyone else in the city. It’s a classic case of concentrated benefits and diffuse costs. In other words, I would say it’s pork for a certain group of Cincinnati elites.

This is not to say the streetcar is a bad idea. I’m undecided, but certainly not convinced.

The relevant question is - is this the best use of the taxpayers’ money? Chris Bortz today argued that it was and said it would have a 14 to 1 return (!!!). Yet, there’s another form of public transportation, which the city has been cutting recently, which appears to be a better investment - buses. They’re more flexible to respond to changing demand, require no major capital investment, and help people from the suburbs gets to their jobs downtown (i.e. a big economic return for the region). Streetcar backers have not been able to put together a convincing argument on why a small streetcar is better than additional busses. I suspect the city will move forward with this project anyway, not because of the debate, but because the streetcar has important support from relevant special interests in Cincinnati. This is unfortunate.

Update 4/20:
I don't want to give the impression that I'm alleging some conspiracy emanating from a smoked filled room. The supporters who would benefit are pretty visible - Besides the activists who spoke at the city council hearing, many of the other speakers were various business/land owners who would benefit from a streetcar. I've read Tom Luken also made this point at the hearings (not that I necessarily want to be associated with him). They probably genuinely believe it's a good project, but they are lobbying for tax dollars to help themselves. So, it's a classic case of a small group of people who would benefit and a large group who will pay the cost (city taxpayers). I don't think the streetcar will be a disaster, I just think it's probably not the right investment decision, and may be being made for the wrong reasons. Could be worse...