Opinion: Daily Journal

Separating the Public and Private Sectors

This week’s “Daily Journal” guest columnist is Dr. Michael Sanera, John Locke Foundation research director and local government analyst.

RALEIGH — There is at least one mayor in North Carolina who understands the important distinction between the public and private sectors. Benson Mayor William Massengill does not want the city to compete with the private sector. Specifically, a startup business producing pound cakes is currently receiving discounted rent on space in a city-owned building that was formerly a middle school.

The mayor considers this a temporary arrangement because it is in competition with private-sector commercial rental property. The mayor expects this business to move beyond the startup phase and then move out of the taxpayer-subsidized property.

I wish the other mayors in North Carolina had such a clear vision of the separation of the public and private sectors. It seems that in other cities the mayor and council believe that it is a fundamental purpose of government to use taxpayer funds to subsidize every narrow special-interest group with services that are readily available in the private sector, especially if the subsidy produces votes in the next election.

Raleigh provided a $1 million subsidy to the Mint, a white tablecloth restaurant on Fayetteville Street. Of course, there are plenty of expensive white tablecloth restaurants in Raleigh, but the city council wanted one on Fayetteville Street because visitors to the taxpayer-subsidized convention center and a taxpayer-subsidized hotel might think Raleigh is a hick town without one. Once the rental subsidy runs out, it is highly likely that this restaurant will fold.

Which brings us to this question: Why are most North Carolina cities in the convention center business when the privately owned Koury Center in Greensboro proves that the private sector is able to provide this service? Plus the Koury Center pays taxes; it doesn’t consume them. Our analysis of the initial bookings at the Raleigh convention center showed that in order to make it a “success” the staff had to offer almost $2.3 million in room discounts.

The list goes on and on. Our analysis of city-owned golf courses failed to find one that made a profit or even broke even. The losses at eight city-owned courses averaged more than $273,000 per year, with a high of more than $608,000 per year in Thomasville. Thus, taxpayers were footing the bill for a small group of golfers, most of whom had incomes higher than the average taxpayer. And again, these taxpayer-subsidized golf courses are in competition with private courses that pay taxes.

Mecklenburg and Gaston county and city politicians promised taxpayers that the U.S National Whitewater Center would turn a 20-percent profit in its first year. Instead, it lost $1.7 million. Now these cities and counties are on the hook because they have guaranteed the loans for the center for seven years. It is very likely that Mecklenburg County taxpayers will pay $1 million a year for the next seven years.

Unfortunately, politicians are not held responsible for their decisions. Rarely does a politician follow Mayor Massengill’s lead in raising the question of taxpayer-subsidized competition with the private sector. Rarely is an elected politician or career bureaucrat held responsible for losses incurred when the project goes sour and loses taxpayer money.

This brings me to two modest proposals: First, any time a city council or county commission considers a proposal that creates competition with the private sector, those in the private sector who will be harmed should be able to file a formal complaint. This complaint would trigger a requirement that the proposal must be passed by a three-fourths super majority of the body. This would mean that when the Raleigh City Council gave a $1 million subsidy to the Mint restaurant, it would require a vote of six of the eight council members.

Second, as an additional protection for taxpayers, any council member or county commissioner who votes for a subsidy and the city or county manager who recommends the subsidy must post a $50,000 personal bond. If after a year (or some designated period) the project loses taxpayer money, the bond is forfeited to the treasury to help compensate taxpayers for the loss.

If implemented, these two taxpayer protections would go a long way toward keeping city and county governments within their proper sphere.