Growth & Justice Blog

Let the free market do it, not decide it

Tony Wikrent of Nation Builder Books spoke at Drinking Liberally in Minneapolis last week, and The Cucking Stool produced this video from the conversation that ensued.

His comments — on the respective roles of the free market, financial and industrial sectors and the political system — provide a critique of what happens when national goals are determined by theoretical economics and the free market, without enlightened guidance from the political system.

For example, he says, allowing the free market to set industrial policy — say, reducing national petroleum consumption — doesn't necessarily result in the best asset allocation to benefit society. The question, he says, is how do you re-regulate a financial system so that doing the important, productive work that needs to be done is what's profitable?

— Charlie Quimby

Infrastructure investment could raise its sights

A recent commentary by Chip Halbeck, executive director of the Minnesota Housing Partnership, asks: what is infrastructure?

If it means the basic physical makeup that enables a community to function, I argue that housing fits the definition. Fortunately, for the most part the free market has provided communities with the needed housing component of infrastructure. But there is a sizable and growing segment of the population for which the market cannot provide homes that are both affordable and safe.

Halbeck's piece suggests a new federal stimulus package that would fund local government grants to make low-income housing safe and more energy-efficient. He argues that such rehab work would also provide more low-skilled and entry-level jobs in more places than would large scale infrastructure projects. (Architecture 2030 has proposed a similar national stimulus buy-down program for residential buildings and an accelerated-depreciation program for commercial buildings.)

Whatever you think of his proposal, the larger point is apt.

The nation's financial woes are rooted in a housing catastrophe that has dumped thousands of foreclosed homes on the Twin Cities market alone. Vacancies and abandonments threaten the fabric of neighborhoods. Yet, instead of recognizing this impact, there's a transportation-centric coloring to our view of infrastructure spending. Roads, bridges, transit and auto companies dominate the discussions.

Moving people and goods more efficiently from place to place is a worthy economic goal — but we cannot ignore the condition of those places. And we know that more lanes and extensions into exurbia  can ultimately increase energy use and environmental impact.

What's more, transportation only consumes 29 percent of the nation's energy, while more than 51 percent goes to electricity generation and residential and commercial heat and power. Increasing the energy efficiency of our building infrastructure could provide long-term paybacks for building owners, renters and the environment.

It can also provide long-term savings for the public.

One recent example is the recently built Schaar's Bluff Gathering Center in Dakota County’s Spring Lake Park Reserve. The structure is 90-95 percent more energy efficient than comparable parks facilities, and ranks within the top 1 percent of all sustainable structures as compared to the U.S. Green Building Council's registered buildings.

It generates its own power with an onsite wind turbine, reuses rainwater to flush its toilets, and incorporates wood reclaimed from a sawmill that park employees once operated on the site.

The building is designed to react to current weather conditions. Its HVAC system is linked to operable windows so that the two don’t work against each other; automated shading devices react to the sun’s path. It even feeds local animals with its edible landscaping.

[design: MS&R photos: Andrea Rugg]

The designer, Meyer, Scherer & Rockcastle, was the first Minnesota architecture firm to sign on to Architecture 2030's standards for meeting fossil fuel, greenhouse gas emission and energy consumption goals.

The project began as a conventional building, but evolved through a design process that tapped  an inspiring site, a parks manager's passion for sustainability and the County Board's openness to a non-traditional approach.

Conventional procurement would have focused on managing the design/build budget and been leery of innovation. The major difference at Schaar's Bluff was a county staff dedicated to the environment who felt secure enough to encourage the unconventional and take it to the public for their input.

Starting from a carbon neutral "energy budget" helped lead to a building that stayed within the fiscal limits while delivering a long-term a balance of economic, aesthetic, environmental and social values.

In the desire to create economic stimulus, we should not labor only to lay rebar and concrete. Dakota County has shown how visionary government can render enduring beauty and public utility in difficult times.

— Charlie Quimby

Will tax breaks for green investment bring green jobs?

Gov. Tim Pawlenty introduced yesterday his proposed package to encourage green job creation in Minnesota. His "Green Jobs Investment Initiative," extending a variety of tax credits to businesses and investors, has been called "Green JOBZ." 

That nickname is unfortunate.

It's true, part of what he's offering is just JOBZ warmed over — not a concept that will excite JOBZ's many critics. But he's also suggested some other positive steps to encourage private capital investment, expand infrastructure for alternative energy, raise awareness of energy conservation and discourage greenhouse gas emissions.

It's good he's getting out front on the issues of jobs and clean technology development, but he also got out ahead of a legislature-sponsored Green Jobs Task Force that has been laying out how to tackle the green jobs issue. The bipartisan group, which includes legislators, executive branch agencies, business and environmental representatives, had scheduled to bring out a legislative action plan in December and a report in January.

This political maneuvering aside, our question is whether longer-term tax credits will actually have much impact on creating jobs today.

JOBZ's tax breaks were aimed at increasing employment in communities where economic growth was stagnating. It's debatable how many new jobs overall were created. As much as two-thirds were part of planned expansions or simply moved from one place to another.

Green JOBZ faces another hurdle. It's trying stimulate job creation in a relatively young sector that has already received a lot of venture capital scrutiny. Although investment in green industry has been growing, there have also been signs that venture funds have not found enough compelling opportunities to invest in green industry.

A 2007 study by New Energy Finance found that venture capitalists had spent only 73 percent of the funds that had been raised for green technology, and several green tech funds closed their doors that year. More recently, the research group calculated that global investment in clean-energy projects fell by almost 25 percent in the third quarter 2008, and it will likely fall further by year end.

Persuading those investors to put more money into clean technology is a laudable policy goal, but it's a very different challenge from getting a machine shop to locate its new facility in Long Prairie instead of Bloomington.

Gov. Pawlenty's plan offers tax incentives for regional investment funds to invest in Minnesota (only 50 percent of the credits will be targeted for green industry, however). Using tax breaks to boost expected investor returns seems like a good move, but it's also a move any state can duplicate.

Of the more than $13 billion in public and private investment in U.S. clean energy in 2007, nearly $9 billion was made in wind energy, a sector where Minnesota has some advantages. Venture capital funds favored solar energy development, though, with $1 billion of the $2.7 billion they invested in renewable energy technologies. By virtue of geography and technology base, Minnesota will be less competitive for these funds.

Green industry by any name will be good for Minnesota, and it seems churlish to question any well-intentioned effort to grow jobs and lessen our dependence on fossil fuels. But we also should look for the most effective role government can play in encouraging future industry — while addressing jobs today.

For the thousands of Minnesotans who are out of work or underemployed, "offer tax incentives and the jobs will come" won't offer much encouragement. Let's hope the Green Jobs Task Force has more about ideas about creating jobs than Green JOBZ.

Will low-tax Colorado drive away drill-baby-drillers?

I spend parts of the year in western Colorado, where the oil and gas boom is causing the local economy to behave in ways that don't always track the rest of the nation's. For example, the housing boom is only starting to tail off here, and local businesses have a hard time finding employees because the oil patch pays much higher salaries for minimally skilled positions.

But in one respect, Colorado is like everywhere else: It has businesses complaining that higher taxes will drive them to other states. And no one cries louder than... the high-paying energy industry!

Now, even in this "drill, baby, drill" age, it should be apparent that oil and gas producers are not going to pull up stakes and head for New Hampshire or Indiana. If they want to drill, they have to go where the resources are.

For now, those untapped oil and gas deposits are in Colorado, Wyoming, New Mexico, Utah and Montana. And guess what? Colorado has the lowest effective tax rates on energy production among those states.

According to a study by Montana-based Headwaters Economics, an independent nonprofit research group, as of 2006, the rates ranged from 6.2 percent in Colorado to 15.9 percent in Wyoming.

So in effect, the companies that have been flocking to Colorado to bid for new oil leases are saying, don't raise our taxes or we'll leave — for states with the same or higher tax rates. (The industry says wells in high-tax Wyoming are more efficient and productive, so they can still better afford to operate there.)

It remains to be seen whether the companies will pull their rigs if their taxes go up. But the impact is clear when states pursue low-tax policies to attract more energy development. It has been... well, it's been lower taxes and lower state revenues — not more drilling.

According to a news report on the Headwaters Economics study:

Wyoming considered reducing its production tax rate to attract more industry investment, but decided against it. Yet the state is experiencing an energy boom, and reaping the benefits of keeping its taxes higher, [Headwaters staff member Mark] Haggerty said.

Montana, in contrast, cut its energy taxes, but there’s no evidence that increased energy production resulted, and it gave up about half a billion dollars in tax revenues in the process, he said.

Meanwhile, the states pay higher costs — for schools, road maintenance, environmental impacts and law enforcement driven by the influx of energy development.

No state should discount the potential impact of taxes on economic development, but as the energy boom shows, taxes are only one factor in determining where businesses locate.

— Charlie Quimby