Would you support the parker deal or not

Reference no: EM132200742

Question: Economic Development or Crony Capitalism?

Some business-to-business firms are interested in pursuing arrangements with governmental authorities, which can provide financial benefits to the firm. It may be incentives for a manufacturing company to move to a particular area. For example, Gardner Denver, a global manufacturer of industrial products (such as compressors and pumps), received financial inducements from the State of Louisiana and the City of Monroe to move some of its manufacturing operations to Monroe. Gardner Denver has good paying jobs and does not compete against any other company in the area.

These arrangements are sometimes done through an industrial development board. Many areas have established an industrial development board to help increase economic activity. The Directors on these industrial development boards are appointed by elected officials (such as by the City Council). Over the years the types of arrangements made with businesses have expanded. The following scenario is designed to give a general overview of a situation that occurred in one of Louisiana's major cities (it will be referred to as Jacksonville, Louisiana). The details and numbers are approximates.

The Jacksonville Industrial Development Board (JIDB) voted to support a project in Jacksonville that was presented by a company named Parker Properties (not its real name). The Jacksonville City Council voted 6 to 3 to endorse the deal; it was only a show of support because council approval was not required. Parker Properties is a successful, reputable commercial real estate company that is based in another one of Louisiana's major cities. They are real estate developers; for example, they develop shopping centers and office buildings and lease the space to other businesses.

As a result of a deal with the JIDB, Parker Properties built a $100 million retail shopping development, anchored by Costco, on a track of land that is one of the best locations in Jacksonville for commercial real estate. Parker leased space to many different companies, including Dick's Sporting Goods, several restaurants, and other retailers. Parker and the companies that lease space from Parker are competing against other companies in Jacksonville. The deal between the JIDB and Parker Properties is a complex arrangement in which $240 million tax-free bonds can be sold that will help finance the deal for Parker. The estimated property taxes on the development are $640,000 per year. Parker will have until 2026 to use this property tax to pay off about $11.5 million in debt. Generally, local governments use the money collected from property taxes to help fund many public services, such as the local school district, police department, street maintenance, etc. In this deal between the JIDB and Parker Properties, the local government of Jacksonville will not receive these property taxes until after 2026.

Please do some research and answer the following questions. You should list your references.

1. Define economic development, and define crony capitalism.

2. Do you see the Parker Properties deal as the same or different from the Gardner Denver deal? Explain your thinking.

3. In this type of scenario, there are winners and losers. For example, Parker Properties and attorneys that handle the legal documents are winners, and local retailers already in Jacksonville (that are competitors to the retailers that will be located in the new project) are losers. Explain why these firms are being labeled as winners and losers. Name another winner and another loser, and explain why.

4. Assume that you want to build an extremely large warehouse building in Jacksonville and believe that you can attract several oil field service companies to be tenants in the building. Should you be able to get the same type of deal from the JIDB as Parker did? Explain.

5. Do you think that the Parker Properties deal is a case of government picking winners and losers in the marketplace? Explain.

6. If you were on the Jacksonville Industrial Development Board, would you support the Parker deal or not? Explain why.

Reference no: EM132200742

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