A crusader against tax incentives gives up the fight

This week, Mark Baker resigned as CEO of Gander Mountain Co., the St. Paul-based retailer of outdoor gear and apparel. Last quarter Gander Mountain reported a larger-than-expected 11.7 percent drop in same-store sales with net losses of nearly $5 million.

Times are tough for retailers all over, so that's not what pricked my ears about the news.

Baker was also outspoken about unfair competition in his industry — specifically, "corporate welfare" given by state and local governments offering tax incentives to Cabela's and Bass Pro Shops. These retailers promote their outsized stores as "destination retail" that will draw millions of tourists, their dollars and additional tax revenues to the communities.

Two years ago, the Heartland Institute did an interview with Baker that laid out how the game works. Various forms government assistance can amount to about one-third of the cost of building new stores, Baker said, citing a tax increment financing package worth $40 million to build a giant 180,000-square-foot Cabela's in Kansas City, Kansas.

Such subsidies give the big stores a substantial advantage over other retailers. What's more, the hoped for paybacks don't always materialize, said Baker.

Resources that could be used for education or true economic development are being wasted on private retail developments. Communities have been paying big money to bring in low-paying retail jobs. Buda, Texas, for instance, gave Cabela's subsidies worth $61 million, or about $271,000 for every full-time job, according to our estimates. Reno, Nevada spent $54 million, or $208,000 for every job.

Good Jobs First has written extensively about the issue, and David Cay Johnston reports in his book Free Lunch that Cabela’s made more money in its first three years by reeling in subsidies than it did from selling sporting goods.

Local officials in Wisconsin and Rogers, Minnesota, are among those who've had a change of heart about such subsidies.

Now Baker is off to run Scott's Miracle-Gro, which just announced it will close two of its three Twin Cities-area Smith & Hawken garden supply stores at the end of this year. It remains to be seen how he'll perform in a new retail environment, but I'd say he made a positive impact in helping to expose problems with public incentives to attract private businesses.

— Charlie Quimby

Comments

[Craig Westover]

Charlie --

Here is something we both agree on, but for different reasons. I don't think government should be in the business of handing out subsidies; you don't think government should be in the business of handing out subsidies for things you don't think government should be handing out subsidies for.

In principle, why is handing out a subsidy to a private business with the objective of creating jobs (but really, as Baker says, taking money from other parts of the economy) different than handing out a subsidy for light rail to (as Peter McLaughlin says) “guide development”? Both efforts aim to create jobs and promote the common good; both provide a private benefit to a few with public money from many. Both pick winners and create losers by directing money to areas where people would not freely choose to spend it. Both end up costing more in the long run than they deliver in benefits.

So what are you praising or knocking, here Charlie? The outcome or the process?

[CommonSenseRambler]

Ditto for Craig's comment.

Subsidies distort the market, are inherintly unfair and interfere with the ability for natural corrective measures to take place in a sustainable, competitive free market economy that is the true secret of success of the United States of America.

[jim]

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