Saturday, September 16, 2006

The Banana Republic of Polk County

Starting and running a small business is hard. There's a lot more to it than just selling something people want to buy. You have to pay and keep good employees and figure out how to get rid of bad ones without getting sued. You have to comply with nightmarishly complex tax laws. And it seems like everytime you need to do anything new, you need to get a permit from the city or the county.

What would you say if same county that holds the power to destroy your business by inspecting you to death or dragging its feet on a needed permit has decided to go into business as your competitor?

You could say, "Welcome to Polk County, Iowa."

DES MOINES MAKES A $1.9 MILLION EQUITY INVESTMENT IN A GLORIFIED SPORTS BAR

A company called inPlay wants to set up an "entertainment center" in the old General Growth building off Second Avenue in downtown Des Moines. They have an unusual equity partner. From the September 12 Des Moines Register:

To make the inPlay project work financially, City Councilman Chris Coleman said, the city and county came up with an unusual incentive package that would work as follows:

- Polk County would make an interest-free loan of $1,875,000 to the city, and the city would make a grant of that amount to Nelson Development for the inPlay project.

- The city would repay the loan in 10 annual installments of $187,500, using new property tax revenue from the project to make the payments.

The most unusual part of the agreement is a profit-sharing plan.

"When inPlay's percentage rent reaches a predetermined amount, the county, city and Nelson will split every dollar above that amount equally," according to the proposal presented Monday night. "Exact details of this structure will be clearly identified in the final loan documents," which will be presented later, the proposal said.

What a great deal. The city and county combine to give a business almost $2 million to compete with every other recreational business in Polk County. Meanwhile Larry Smithson, the Hunter family, the Coppolas and all of the other entrepreneurs who spent years hustling and scraping to keep downtown Des Moines from dying entirely now find the same government that can shut them down by pulling their liquor licenses is now going into business against them. If you think the government would never abuse its power like that, remember how Archie Brooks crudely threatened ZZZ Records with condemnation so that the developers favored by the city could take its building. The rest of the city council and county board may have better manners than the Civic Thug, but don't count on them having better souls.

HOW THE CITY TREATS LESS-FAVORED BUSINESSES

A story in the Des Moines Business Record gives a taste of how the county treats the businesses that it doesn't buy into:

Schaffer's owner Kari Smith would have to sell a lot of $3 cups of coffee at the café she wants to include in her new store to cover an expense created by a recent ordinance change in Greater Des Moines.

Recently, Smith learned that she is required to install a large grease catcher that could cost up to $75,000 for the 20-seat café at the building she plans to share with Boesen the Florist in the West Glen Town Center.

It's a cost she hadn't anticipated, and one that may cause her and her partners to change their plans.


Downtown a new coffee chain, Amici, is getting ready to open an espresso bar in the old Midland Building:

Greg Tornberg, president of Mille Miglia Caffe LLC, which owns the Amici locations, said his company is waiting to hear back from the WRA if the coffeehouse falls under the classification of a food service establishment and would be required to comply with the ordinance. He estimates that the cost to install the underground unit at the new store would be over $50,000.

Tornberg is hopeful that Amici will be excluded from the ordinance because the coffeehouses only prepare beverages, not food. The baked goods sold at Amici are bought from an outside vendor and baked offsite.


Bill Stowe, the bureaucrat in charge of the grease-trap police, doesn't sound eager to help:

"From our experience, a food service establishment can quickly expand from being just a coffee shop to a larger grease producer by adding items like croissants, sandwiches and French fries," Stowe said. "This is our method to be proactive with preventing sewerage overflows while meeting the EPA's requirements for keeping grease and contaminants out of the water."


If a bureaucrat can be this difficult just by being his usual official self, imagine how much fun he could be if he was one of your competitors.

The best that can come out of this deal is that existing businesses are paying taxes to lure and subsidize their competitors. If the government decides to squeeze its new competitors, things could get far worse.

Anytime a government looks ready to dump money into a business, two simple rules should apply:

1. If the business were sound, it could line up private equity and debt financing.

2. If it's not a sound business, the government shouldn't pour our tax money down the rathole.

But in the Banana Republic of Polk County, your government may soon be your competitor, too.

4 comments:

Brent said...

I'm not sure why, but Polk County and the city of Des Moines seem to do everything possible to prevent businesses from opening or expanding. Your post just confirms my belief. Somehow I get the feeling that if you were related to a Polk County Supervisor or a Des Moines City Councilman you wouldn't have any problem at all.

James E-J said...

Hey, the Banana Republic of Polk County still sounds better than the People's Republic of Johnson County.

jamese-j said...

Hey, the Banana Republic of Polk County still sounds better than the People's Republic of Johnson County.

Peggy said...

I wonder who owns the company that sells grease traps in Central Iowa. . . . . The Banana Republic of Polk County has always had strong links with The People's Democratic Republic of Linn County.