From the Orlando Sentinel:

Towns offer tax breaks to lure Darden restaurants

How much is it worth to bring an Olive Garden to your town?

In Decatur, Ala., the answer is almost half a million dollars. In Bristol, Va., it’s $350,000.

Expanding in a shaky economy, Orlando-based Darden Restaurants is pursuing tax incentives from cities and counties to build new Olive Gardens, Red Lobsters and LongHorn Steakhouses.

This is an interesting trend.  I’m unaware of any such incentives in West Central Florida, but there could be some municipalities interested.  From a global perspective, this quote is correct:

“More people aren’t going to eat out if Darden gets this tax credit,” said Randall Holcombe, a Florida State University economics professor. “The result will be giving the Darden restaurants a competitive advantage over other restaurants.”

There’s no real economic development associated with a restaurant–it’s a nonbasic good at the community or regional level.  But, and here’s the crux of the matter, it may actually be a basic good at the level of the municipality!  And if that’s the case, it might make good fiscal sense to give the incentives.

Let’s take a step back and define the terms:  a basic good is one which is exported from the region, or one which brings dollars into the region; a nonbasic good is one which is paid for by locals.  So, typically, a manufacturing plant is basic:  it exports its output, bringing cash into the community.  The bar outside the plant is nonbasic:  once the employees get paid from the exports, they go across the street and waste their earnings on booze and loose women.

What is “basic” and what is an “export” varies with the scale of the community:  what is “nonbasic” to the State of Florida might be “basic” to a community–the University of Florida, for instance, is nonbasic to Florida, but basic to Gainesville.  The same is true at the county level and the municipality level.

So, a new LongHorn Steakhouse might be a nonbasic good to Lake County, and I would think the Lake County Economic Development staff would think you daft if you asked for a subsidy for one.  However, the specific site location of the new LongHorn could be anywhere along US 441 and it is a basic good for whichever municipality it winds up in.  Whether Leesburg or Tavares or wherever gets that tax revenue and those dollars being spent is relevant to those city councils.  I think it could be rational for Tavares to offer a tax refund for a restaurant in such a case.

Still, it sort of sticks in my craw as a concept.  This just cannibalizes neighboring communities, leading to no new economic activity in the end, really.  Good economic development needs to be a regional effort and shouldn’t lead to disagreements within your Chamber of Commerce.  Economic Development is different than business boosterism, but it should also be complementary.

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