State ownership of business is bad public policy

State ownership of business is bad public policy

by
Wayne Hoffman
October 30, 2010
Wayne Hoffman
Author Image
October 30, 2010

The state of Idaho recently spent $2.7 million to buy a self-storage business, which the state continues to own and operate as if it were just any other business in town, competing for its share of the market against similar businesses that pay taxes -- businesses owned by people like you and me.

The state justifies this business endeavor, saying the profits made by the storage business will be used to benefit schoolchildren, who are among the beneficiaries from the investments in the state's land and business holdings. The state contends it's a great deal for the kids, because when it was privately owned, the property taxes from the storage business brought in just $10,000 for the Boise School District. While state-owned land is exempt from property taxes, the Department of Lands estimates that the storage business will net $228,000-$260,000 a year in profit. When run through the school funding formula, that profit will yield around $20,000 for the Boise School District. And isn't it exciting how through the magic of a state investment in a business, the Boise School District will get double what it would have under private ownership?

In truth, all the taxing districts -- such as highway, mosquito and community college districts -- collected a total of $31,000 from property taxes when the storage units were under private ownership. Those districts will have to nudge their tax levies higher in order to make up for the loss of taxable value. Additionally, most businesses would have to pay income taxes on its profit. The state doesn't, and so that's another $20,000 annual loss (assuming the top marginal rate) to the state in possible income tax revenue. How's that for a deal?

There are also the opportunity losses we can never account for: Who might have bought the property had the state stayed out? What might those private owners and investors had done with the profits? Hire more workers? Invest in more properties? Expand the existing facility? Give to a charity? And what of the existing storage companies that are deprived of thousands of dollars in revenue now going to state coffers instead of to their own businesses? What raises might those private businesses have given if only the commerce had gone to them and not the government-owned storage center? What workers might these businesses have to lay off because they were unable to rent the storage units they needed to meet their cash flow?

And finally, if the state can jump into the storage unit business, what's to keep the state from jumping into any business -- including your competition? From opening a car dealership? A coffee shop? A grocery store? If it all pencils out for the government, it will.

In fact, this is not the state's first real estate endeavor. The state, as it turns out, holds millions of dollars in commercial property including business office space and parking lots, all of which the state is using to try and turn a profit. The state considers it an investment in schoolchildren. In reality, it is an investment the subtle destruction of free enterprise in Idaho.

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