Capitalism works.
Better than any other system devised by man, capitalism provides the most opportunity to the most people. It creates wealth, and produces a cleaner environment, better health, outcomes, stronger education, and more individual freedom than the alternatives.
Despite recent flirtations with socialism on the left and by young people, generations of human experience proves that capitalism offers more, to more people, than does anything other system.
But capitalism has its downsides. Those of us in government who praise capitalism and want to see it robustly defended must guard against those downsides.
On Tuesday, December 2, the Board of Supervisors has a chance to defend against an increasingly common abuse of capitalism.
Crony capitalism — the picking of winners and losers by government instead of letting the market decide — is on the agenda as a result of a scheme proposed by one of John Wayne Airport’s tenants. Unfortunately, this scheme looks set to pass, to the detriment of the general public.
The tenant with the lucrative deal for itself is Clay Lacy Aviation (CLA), one of the airport’s Fixed Base Operators (FBOs) handling private jets. Under the terms of CLA’s lease with the county, it is required to invest substantially in upgrading its rental facilities. The company bid on those facilities when it first came to the airport, won the bid in part on the promise of making necessary upgrades, and now wants to change the deal. Its lawyers and bankers have come up with a clever way to get rich investors to instead fund those upgrades for CLA, and to do so without them paying taxes on the money they make.
The neat trick for CLA is tax free bonds. Despite not being a government entity, it wants the Board of Supervisors to allow it to issue tax free bonds as though it were. In short, if the Board approves the scheme, CLA, a private, for profit business, will be granted the right to float tax free bonds, a right that most private companies can never have, a right that is reserved to government entities.
There are good reasons why governments are authorized to issue tax free bonds. For example, they reduce the costs to the public of capital projects and, given the nature of government entities, allow very low risk, long term investment opportunities to the public.
None of those reasons apply here. CLA asks the County of Orange to allow it, a private company, to borrow our authority, to pretend that it is a government entity, to sell tax free bonds, to build its own capital project with other people’s money. Furthermore, it asks the county to also allow its private investors in its own private business to avoid paying public taxes.
Now that is a sweet deal for CLA. Of course, nowhere in these financial arrangements is any mention made of potential noise impacts on the surrounding communities with these grandiose expansion plans. But that is an entirely separate flaw in the deal.
By allowing CLA to do this, Orange County would authorize CLA literally to compete in the tax free bond market against ourselves and against every other public agency attempting to bond actual public capital improvement projects. The municipal bond market is large and the competition is admittedly minor. But it certainly threatens to open floodgates that do not benefit the public.
Specifically, if the Board approves CLA’s scheme, we will have no principled reason to reject the next request to borrow our tax free bonding authority. CLA’s competitors at the airport no doubt would also like to have other people pay for their contractually required capital improvements in exchange for avoiding taxes. And this is without considering the additional noise impacts when each of the other FBOs finagle the same tax avoidance scheme. We can’t say no to any of them.
Indeed, the problem of crony capitalism is made worse unless the Board of Supervisors allows every business at the airport — and potentially every other lessee of ours, whether at the airport, or in our parks, or in a county owned building — to get in on the same sweet deal. Every lessee would get to use other people to pay for capital projects and lessen their tax burden at the expense of the public.
Crony capitalism runs amuck.
Government should ensure a fair playing field for every business. It should not pick winners and losers.
Don Wagner serves on the Orange County Board of Supervisors.