Return on Investment

I've been following a proposed hotel development here in Milwaukee. It's a $50 million Marriott on Wisconsin Ave and Broadway. The site includes some buildings designated as historic, and the developer would prefer to raze them. There are many smart and articulate voices on both sides of the issue: historic preservation vs. economic development.

It's a good discussion and an interesting one. When someone buys a building designated as historic, or in a historic district, they should buy it understanding the impact the designation will have on their bundle of rights associated with ownership. What they pay should contemplate those conditions. In those cases, if they wish to develop they should be subjected to the applicable expectations and standards.

Even in some of those cases, though, there are other interests. I do believe there should be some flexibility in the system to allow for appropriate development and growth. Therein lies the problem: who is the arbiter of appropriate? How does that work? I don't have even proposed answers for that question. But I do think we need to avoid dogmatic positions.

Back to the hotel... I think the Historic Preservation Commission made a fair decision. They said if the developer could keep the facade of the buildings intact, they could tear down the balance of the building. Is that harder? Yes. Will it be more expensive? Likely. But, it is consistent with some important objectives: honor our history; preserve our character; produce our present; and, invest in our future.

If preservation had equal costs and equal value to the alternative, the conversation would be short. Most everyone would preserve as a matter of course. But, preservation has costs. It's not always the cheapest option. It doesn't always result in greater objective value. As a result of these basic financial conditions, the financial market would not necessarily choose preservation if given a choice.

Because preservation is important, there are mechanisms out there to help cover those incremental costs. There are state and federal historic tax credits. There are New Market Tax Credits. Municipalities have TIF, and loan guarantees, and other financial mechanisms available. In some way shape or form, each of these are taxpayer supported programs. There's always vicious discussion about the merits of using those tools. Some people think there's simply not a high enough return on investment.

Let's assume the conversation about higher vs. lower taxes is solved by fixing taxes at this year's number for the next 4 years. About 60% of the budget goes to Defense, Social Security and Medicare/Medicaid/CHIP. Then, there's another 6%ish to pay interest on the debt. So that leaves, call it, 30%.

Let's say that the government let us pick where to invest a portion of our taxes. For each of the four years of frozen revenues the feds would create a different pool of programs from the 30% remaining that consume a total of 7.5% of the total revenues.

Then, each year each federal taxpayer could direct 7.5% of their tax obligation to the programs identified. Each program would be required to manage their budget with the understanding that they would need to be investment-worthy for a portion of their revenues. We would expect them to deliver a return on investment.

What if this was the list?:

1. Food Stamps
2. Historic Preservation
3. Urban Public Education
4. Medical Research
5. Veteran Benefits
6. Small Business Administration
7. Corps of Engineers (infrastructure)
8. Various real estate development tax credits
9. Job Training Incentives
10. Environmental Protection

Now your tax dollars are available to you as an investment. You can produce our present. You can invest in our future. You can preserve our character. You can honor our history. But, each dollar you put in one program isn't going into another.

So, where would you invest?