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Austin's Citizens Cry Foul on Big-Business Breaks

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A cautionary tale for government intervenion in markets?

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It's not the Alamo -- at least not yet -- but voters in Austin are asking a basic question: Why should government help major companies while ignoring the little guy?

Owners of mom-and-pop stores want the City of Austin to revoke tax breaks for shopping malls that include major retailers such as Neiman Marcus and Nordstrom (JWN).

The small business owners say independently owned bookstores, boutiques and restaurants give Austin its character; these shops are endangered by tax breaks that favor the big guys. Homogenization by off-the-shelf architecture and marketing plans is the danger, they warn. Then come the empty storefronts downtown.

Small shop owners ask the voters to set aside $64 million in sales tax rebates and $12 million in city bonds for Simon Property Group's (SPG) planned redevelopment of an old airport into a shopping mall. The measure, appearing as Proposition 2 on Tuesday's ballot, would prohibit most tax abatement deals in the future.

But populism isn't free. Breaking the deal is almost certain to result in lawsuits, and everyone knows lawyers eat money, even when they lose. If passed, the measure would almost certainly damage the city's bond rating, making future capital projects, including parks and roads, more expensive to complete.

Cities routinely use such incentives and backing out of the deal now would almost certainly damage Austin's image as a good place to do business. Developers would ask: if a deal isn't a deal, why do I want to go through the time and expense of trying to do business in Austin?

The shopping mall will create jobs, but small businesses are the backbone of employment. The mall also will generate millions in sales and property-tax revenue. But the small business owners raise a basic point: Why should their money be used to help the competition?

It's a question that can be raised in the wake of Uncle Sam's $700 billion rescue package, even if the situations aren't exactly analogous: Why save major banks and allow the locally owned bank to fail? Why bail out General Motors (GM)? Or why shovel money to American International Group (AIG), when top executives use a portion of the money for retreats to exotic places?

Economic incentives intended to spur the rebuilding of blighted areas can be misused and can create urban sprawl. Austin's ballot measure is backed by the Republican Club of Austin, Travis County Democratic Party, Libertarian Party, Green Party and dozes of community and labor groups.

Arguing the greatest good for the greatest number won't cut it with small business owners, especially those struggling to keep the doors open during the economic downturn. You can bet that colloquies on the city's bond rating will create a near-terminal case of MEGO -- My Eyes Glaze Over -- among most community groups. In short, this looks like a real fight.

The taxpayers' revolt should be a cautionary tale for governmental intervention in the market, but it won't. No doubt there are some campaign contributions in this somewhere, now or in the future. If some folks get stepped on as politicians climb the ladder to higher office, most upwardly mobile pols won't even say, "Thanks for the tax dollars, Citizen."
No positions in stocks mentioned.
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