Editorial from The Aegis
3:43 PM EDT, May 21, 2013
Once again, the Harford County government, like many county and municipal governments around the state and nation, has perpetuated the practice of running a taxpayer-subsidized business banking system.
Most recently, the Harford County Council approved a loan of up to $160,000 to HP White Laboratory in Street, an honorable business that has been in operation for more than 50 years. HP White plans to spend $4 million to expand its operation and add 50 new employees to its workforce of 34. This has the potential to add substantially to one of Harford County's most respected military contracting test operations.
There are a few minor issues with this particular county loan to HP White, namely that it doesn't seem to make sense for the county government to be giving a loan to a company whose primary customer is the federal government, and also the $160,000 low-interest loan is a drop in the bucket on a $4 million project.
On the whole, though, HP White is at least as deserving of government subsidized financing as any business, and more deserving than most.
The problem is, as dissenting County Councilman Jim McMahan pointed out last week, governments ought not to be in the loan business, especially a loan business where, as McMahan puts it, the loans essentially turn into grants.
Though banks certainly have their faults, as painfully came to light in the financial crisis of 2008, they are in the business of making loans to businesses and other private concerns, and are geared up to administer financing and evaluation of would-be borrowers. The county government is not.
The county could well end up giving business loans that are bad risks, and the people who end up paying are the taxpayers, though often in a rather roundabout way. On the other hand, if the county is giving a loan to a sound business with a bright future, it is essentially taking business away from an established bank or other financial institution.
Either way, it's a bad deal.
As for how the taxpayers end up footing the bill, in many cases loans given out by county and municipal governments come from allocations from the federal government that are funneled through the state and eventually to the local government. To the local government, it's free money, having no effect on the local tax rates. To the state, it's just a pass through. To the federal government, it's generally an opportunity for U.S. Representatives and Senators to take credit for a program that benefits businesses in their districts, even as such spending ends up being of little or no value to those local businesses.
This is not to say government has no role in banking and finance. If anything, the 2008 financial crisis, an economic disaster the effects of which continue to pinch the nation, showed government regulation to ensure a level of stability is absolutely necessary. Such regulations, however, are difficult to write and easy targets for those in the finance business to criticize as the acts of overbearing governments.
Meanwhile, there are few in the private sector who will criticize low interest loans to businesses, even if the real economic impact of such loans is inconsequential.
It's fair to say HP White is expanding not because of a $160,000 low interest loan on a $4 million project, but because of the expanded government contracting opportunities afforded by changes and expansions at Aberdeen Proving Ground. It's just good business to expand when business opportunities expand.
It's also fair to say that, Councilman McMahan's very reasonable protests notwithstanding, such government largesse is likely to continue for the foreseeable future. Businesses get what amounts to a handout. Pols at the federal, state and local level can claim to have had a hand in pro-business government spending. And for every Councilman McMahan, who complains about such unnecessary spending, there are two (in this case Councilmen Chad Shrodes and Dion Guthrie) who are all to happy to say what a wonderful thing is being done.
Unfortunately, it's just a well-entrenched instance of government doing badly what need not be done at all.
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