Detroit Mayor Dave Bing heralded the anticipated move of 3,000 Blue Cross Blue Shield (BCBS) employees from Southfield to the General Motors Renaissance Center and other downtown locations, as “a great day in the city of Detroit.”
“The relocation saves Blue Cross $30 million in long-term real estate costs,” proclaimed BCBS CEO and President Daniel Loepp.
Deputy Mayor Saul Green subsequently made a pitch to the Downtown Development Authority (DDA) – created to stimulate growth — urging the agency to approve an “incentive to entice BCBS to relocate certain of its employees to the Downtown District by making an annual payment (to Blue Cross) of up to $3 million per year for 10 years….”
The request means BCBS is not moving to the city because Detroit is a great place to do business. Taxpayers are picking up the $30 million, $10,000 per employee tab. The city mortgages its future with extraordinarily generous incentives because it can’t otherwise compete with the suburbs for jobs.
BCBS can’t be faulted for taking advantage of the “sweetheart” deal. The company probably wouldn’t be interested in expanding its Detroit operations without major inducements. And this company is one among many to feed at this trough.
For 30 years or more, Detroit has tried to lure businesses by offering millions of dollars through an array of enticements to a few handpicked companies. Early this year, Mayor Bing convinced GM to keep its headquarters at the RenCen with a multi-year $35 million incentive package. The premise is that once a strong economic base is established, other development and people would follow.
However, Detroit’s job-subsidizing venture has been a classic case of diminishing returns. Stimulus packages have generated few, if any, real financial benefits.
Private expansion and large-scale economic growth minus incentives never materialized. Increased tax revenue, or an explosion of meaningful jobs for city dwellers, is still fantasy. To the contrary, business and population flight from the city has turned into a stampede. Detroit simply has no talent for picking economic winners and losers.
Absent too is any credible record that city officials aggressively monitor compliance records of recipient companies to track whether the promised jobs are actually created and maintained. At best, the incentives produce an occasional short-term bump for the reigning political figure, but no long-term public benefit.
Government-directed job-creation tools create disparities — a payoff to mega-corporations at the expense of companies without connections. Since competing firms are placed at a disadvantage, it sends the wrong message to those that lack political clout. Small businesses and entrepreneurs – who need relief the most — see the city as inhospitable and tend to relocate to more friendly environs.
Spending pubic money to entice private dollars might be justified in some cases if Detroiters didn’t have to cope with a nearly $300 million budget deficit, cuts in police and fire services, sky high income and property taxes and homeowners and auto insurance rates. The city administration claims it can’t afford to contribute more of its dwindling resources to essential services. So residents can’t be expected to find comfort in BCBS receiving incentives at their expense. It’s like a reverse Robin Hood — taking from the poor to give to the rich.
City officials need to revisit the logic of levying some of the highest taxes in the nation, delivering some of the worst services in America and granting extraordinary special breaks to a select group of businesses. The very existence of these tools suggests Detroit is doing something wrong.
Studies have persuasively documented that economic growth springs from reducing general tax rates, not from granting exceptional advantages that allow a chosen few to escape the full weight of Detroit’s extreme tax burden.
So hold off on the applause for a BCBS coronation. The greatest cause for celebration will be when the mayor announces that a well-to-do corporation is coming to Detroit without taxpayers picking up the major share of the investment tab.