San Francisco’s Proposition J: A really bad idea

Every time I get discouraged about city government in LA, I can depend on San Francisco to do something so crazy as to make LA look like it’s run by philosopher kings (or Michael Bloomberg; same thing).

To wit, here’s an absolutely crazy proposition being put to the San Francisco voters:

“Proposition J would create a Legacy Business Historic Preservation Fund, which would give grants to businesses listed in the Registry and to building owners who lease property to those businesses for at least 10 years. Legacy Businesses could receive an annual grant of up to $500 per full-time equivalent employee in San Francisco. Building owners who lease space in San Francisco buildings to Legacy Businesses for terms of at least 10 years could receive an annual grant of up to $4.50 per square foot of leased space.”

Now, I love old-time businesses (particularly restaurants) as much as anyone. But this idea is nuts, for several reasons:

  1. The program transfers public money, obtained by taxing citizens (including very poor citizens) to private businesses. Why should someone making minimum wage subsidize the rent of a prosperous business owner?!
  2. The definition of “legacy business” is totally arbitrary; why should a 30 year old business get money denied a 19 year old business? In fact, why should the taxes paid by that 19 year old business go to subsidize its competition?
  3. Real estate is a productive asset; by using public funds to subsidize suboptimal uses, the government is distorting the market (in other words, making it harder for young, vigorous businesses to find space!)

Of the arguments above, I find #3 the most outrageous. Incumbent players have enormous advantages over new businesses (brand equity, cashflow, etc.). By subsidizing the rent of incumbent players, the city is making it that much harder for young businesses to compete.

And, whether you like it or not, competition is the single most important factor in generating the wonderful rewards we all experience from capitalism (innovation, price reductions, wealth creation, etc.)