Government Picking Losers

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Posted on : 4/06/2013 07:00:00 AM | By : Dann | In : , ,

One local downtown eatery closed recently.  The owner had not been paying all of the taxes that he should have paid.  But there was more to the story.

Darryl Hoskins is an Army veteran that refined his culinary skills to the point that he was running one of the best restaurants in a nearby town.  So he decided to take a shot at owning and running his own restaurant.  Until this recent demise, I considered Darryl's Downtown to be one of the two best places to eat in the county.

Not that we are a center for culinary excellence, but that ain't exactly a bad rating given the competition.

Darryl prepared a selection of tasty dishes and presented them in a tasteful environment.  I had a chance to meet him a couple times.  He is a genuinely nice guy and a talented chef.  I hope he comes back from this setback with further culinary success.

But there is more to the story.

As a part of setting up shop, he took out a loan to by the building.  He didn't have enough money to cover the rest of the purchase, so the guy that owned the building gave him a small-ish loan to cover the gap.  Then the city of Jackson gave him an US$80,000 loan for renovations.

They have decided to forgive that loan.  The justification for that action is two fold.  First, the money actually came from the US government as part of a HUD block grant.  So the city didn't lose anything.  HUD has indicated that they do not care if the money is ever recovered.  If HUD ever recovered the money, they would simply recycle it back to Jackson as part of a future grant anyways.  The second reason is that the city is third in line to be repaid and thus it is highly unlikely that they will ever see a dime.  So why should they spend money on lawyers when they never expect to see any money back?

The loan from the city was contingent upon a couple of conditions.  One was that it be used for renovations.  Darryl was required to spend US$600,000 of his own money with the HUD funding covering the gap.  We have no idea if that condition was met, but a lot of renovation work was done with someone's money.  Also, he was supposed to create 16 low-to-medium income positions.  At the peak, he had 14 such positions.

He never re-paid a single dime of the money.


So the city of Jackson ended up spending money that was collected from other area restaurants (and other taxpayers) to subsidize their competition.  It is precisely this sort of government created market distortion that we really need to avoid.  But it is the sort of distortion that government excels at creating precisely because government agents are not impacted by the success or failure of their decisions. 

They will not have their pay cut as a result of their poor decision.  They will not lose their jobs.  They will go on blithely moving other people's money around.

Just one more area where we could cut spending and improve our economy by not burdening successful businesses with the responsibility of subsidizing their competitors.

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