The next time you have a family discussion to decide on a restaurant for dinner, imagine whether you were instructed to consult a city bureaucrat, a specialist at the Winston-Salem Office of Small Business and Economic-Development, on which restaurant you should patronize.
Far fetched? Not really. As reported recently in the Winston Salem-Journal, the city is in the business of attempting to pick winners and losers in the Winston-Salem restaurant market by granting favored eateries low-interest government loans of about $90,000. Which restaurants are favored with these loans? They are new ones in the city’s redevelopment area on Restaurant Row.
Now, if you think that the city government has no business in the restaurant business, you are right — and its track record proves it. Two of four Winston-Salem restaurants that should be repaying taxpayer-funded loans have closed, defaulting on more than $176,000 of a total of $282,000 loaned.
Let’s follow the logic. City bureaucrats loan tax money to restaurants, a risky proposition from the start. When the restaurants go broke, taxpayers are left holding the bag. How does the city defend this? Mayor Allen Joines points out that this is not city money, but that the program is financed under a federal grant. As a federal taxpayer — as are all residents of Winston-Salem — that makes me feel a lot better.
Does the city official who made the bad loans suffer any consequences? No. The city official administering the loan program is quoted as saying, “You cannot put a price tag on the revitalization of downtown Winston-Salem.” That’s an alarming statement. Would this official’s loan decisions be different if his salary were cut a certain percentage for every default? That’s how many banks work. A loan officer with a 62 percent default rate would likely have a pay cut or perhaps be fired.
What about restaurants already in the redevelopment area? They are not eligible for $90,000-plus grants, but they must compete with new restaurants that get grants. Obviously, having that kind of startup capital would give any new restaurant a competitive advantage (though just as obviously the advantage can’t guarantee success for a flawed restaurant model or poor execution). It seems that the city government is not as concerned about existing restaurants as it is in new restaurants. Restaurants that make it on their own by satisfying customers are less-deserving of government’s attention, apparently, for reasons that are hard to fathom.
When I was a student in grade school, I learned that local government provided essential services such as police and fire protection. But now we live in the “brave new world” of urban redevelopment. A city can take your house, demolish it, and give the land to a multimillion-dollar corporation. As long as whatever that corporation builds on the property — a new hotel, an industrial park, etc. — would pay more property tax than yours did, many government officials would justify such pilferage as in the public interest.
In this case, the same mentality has led a city to loan taxpayer money to a new restaurant that may either drive Uncle Harry’s restaurant out of business or squander scarce funds on establishments doomed to fail. If Winston-Salem is going to invest in certain restaurants in certain neighborhoods, it would not seem to be much of a leap for city officials to offer an opinion about where you should eat tonight. Is that really what we have local government for?
Dr. Michael Sanera is research director at the John Locke Foundation, a public policy think tank.