When Government Extorts Business

Public Officials Often View Businesses as Piggy Banks that Can Be Hit Up for Any Goodie. But that Just Drives Them Away.

Lime scooters were recently driven out of my hometown. Charlottesville, VA, had begun a 1-year pilot with the company, to see how scooters would work here. When the pilot ended last fall, the city needed to write long-term regulations. But the ones our council decided on proved too onerous, so Lime quickly left, with a company spokesman stating that “the reason we’re leaving in 2020 is due to regulation changes.”

Among the new regulations were the requirements that Lime would need to install an expensive geo-fencing system to limit usage in certain areas; cap the scooter number at 350; and ensure that for every 100 scooters provided, Lime would provide 50 e-bikes.

This final rule was what Lime blamed most for leaving the city, claiming bikes are more expensive to provide than scooters. It was also the strangest. If Lime was already providing a valuable, environmentally-friendly scooter service, why must it also provide bikes?

A city spokesman explained that council simply wanted more bikes in Charlottesville. One longtime city goal has been to make bikeshare ubiquitous, and council thought they could finally achieve this by forcing Lime to provide it. Instead, Lime was crushed by the obligation, and now we will get from them neither bikes nor scooters.

This story summarizes the problematic mindset many public officials have. They’ll enter office aware that there are certain shortfalls in their city. They’ll soon be consumed by public meetings, documents, and Comprehensive Plans that also describe these shortfalls, and how something “must be done” about them.

But oftentimes, there’s little appetite to solve these problems with taxpayer money. So, politicians look to the business community. They’ll view large companies—particularly those with national profiles—as entities that must be rolling in cash, and treat them like piggy banks, making any random demand. This soon becomes an exercise in extortion.

While Charlottesville’s treatment of Lime is one example, the most common kind I’ve found is Community Benefits Agreements (CBA). A developer will ask for a waiver to build more housing or other type of economic development not allowed by current zoning. In exchange, they’ll be told to enter a CBA with local “stakeholders” —planners, politicians, activists, residents, etc. The CBA demands often far exceed any impact the project will have, but are a request for various goodies that the public itself doesn’t want to fund.

For example, the CBA for Los Angeles’ Staples Center arena and entertainment district forced the developer to negotiate with over 30 organizations, who combined to form the Figueroa Corridor Coalition for Economic Justice. The coalition made the developer hire locally, donate $1 million for park improvements, and $125,000 to create a residential parking permit program. The CBA that Walmart signed with Washington, D.C. in 2011 forced the retailer to give money to a massive gamut of causes—low-income workforce development; minority-owned contractors; stations for buses, bikes, and electric car charging; and other “charitable partnerships.” And CBAs are common in other left-wing cities like New York, San Francisco, and Philadelphia.

Other frequently used business shakedowns are affordable housing mandates. To build market-rate units, developers must set aside a certain percentage of the units they build to be sold below-market. The implication is that developers should have to solve the larger housing affordability problem in the cities where they build.

It’s unsurprising that these shakedowns are popular; to the public they give off the whiff of “free money.” But as with most things in life, there is nothing free going on here.

In the worst case scenario—such as Charlottesville—the business leaves, and the city gets nothing. But even if the business stays, it’s being hit with a cost that it will pass onto customers. This means that the benefits being created—and enjoyed by society at large—are footed by the small number of people who happen to patronize that service.

And even when businesses can foot the cost, people should see the fundamental unfairness of it all. Many Americans run their own businesses, and all Americans rely on businesses. Would it be reasonable if the government ordered your local coffee shop to sell steak? What if they don’t have the money or equipment for that? And should that steak be sold at markdowns, to address the city’s food insecurity problem?

Here’s an alternate idea: businesses in general should be viewed as community benefactors who already provide jobs, tax revenue, and services people want. They shouldn’t have to double as charities that are expected to solve wider public problems or shortcomings. The more governments force that expectation, the more businesses they’ll drive out. The Lime fiasco in Charlottesville is the latest example.

Scott Beyer is a Catalyst Columnist Fellow on a 1.5-year research project through the Global South for Catalyst’s Market Urbanism Around the World series. He is the owner of Market Urbanism Report, a media company that advances free-market city policy. He is also an urban affairs journalist who writes regular columns for Forbes, Governing Magazine, HousingOnline.com, and Catalyst. Follow him on Twitter: @marketurbanist.
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