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Reason Foundation

Bacon's Rebellion

Public Options Are Ill-Conceived

Government should leave commercial activities to the private sector

John Palatiello and Leonard Gilroy
August 26, 2009

The CONNECTION newspaper ran an editorial, "Public Options" in its August 19-25 edition. John Palatiello and Leonard Gilroy wrote the following rebuttal:

Imagine for a moment the Fairfax County government deciding to get into the weekly newspaper business. The Board of Supervisors determines that the advertising rates of The CONNECTION are out of reach for many and jumps in to offer the opportunity for businesses and individuals to advertise at greatly reduced prices, making it available to almost everyone.

After all, the county already has plenty of staff members in public affairs positions who are prolific writers. Through the magisterial offices, police department, tax assessments and other agencies it has a built-in infrastructure for news gathering and reporting, already paid for in staff salaries, so the new county newspaper won't cost the taxpayers any money. There are already printing presses used for a variety of county publications, so that will keep costs low. There is no charge for office space, electricity, water, heat and other utilities, because they are already being paid for by taxpayers.

Since it is the county government, it doesn’t have to pay taxes. And since the staff already has offices, there is no rent or other overhead costs. And, since it is government, it doesn’t have to build a profit into its cost structure.

So the new Fairfax CORRECTION weekly county newspaper begins publication, offering advertising space at a 90 percent reduction below the rates charged by The CONNECTION.

How would the editors, staff and investors of The CONNECTION like such unfair government competition?

But that is exactly what The CONNECTION's editor, Mary Kimm, endorsed in her editorial "Public Options," published in the August 19-25 edition of The CONNECTION.

Every time the federal government has convened a White House Conference on Small Business, combating unfair government competition is always one of the top issues cited by America's entrepreneurs. One agenda of small business concerns said, "Government at all levels has failed to protect small business from damaging levels of unfair competition. At the federal, state and local levels, therefore, laws, regulations and policies should … prohibit direct, government created competition in which government organizations perform commercial services."

Surprisingly, in many states and local governments, those commercial services extend to taxpayer-subsidized golf courses, what Governing magazine once called "perhaps the most non-essential of the non-essential public services."

And what's even more disturbing than the notion that there's an inherent public interest in low green fees is the fact that governments aren't very good at running golf courses. Many municipal golf courses are running huge deficits, are in poor condition, and face competition from better-maintained privately owned public courses. For example, the Freedom Foundation of Minnesota published a report earlier this year estimating that municipal golf enterprise funds throughout Minnesota combined for approximately $2 million in operating losses in 2007, and earlier this year South Carolina state legislature rejected a budget proposal to privatize two state-run golf courses currently operating at an estimated $500,000 annual deficit.

In fact, government-run courses rarely turn a profit, thus requiring a subsidy from taxpayers at large. In other words, non-golfers subsidize those who play the public links. Advocates like Kim see no problem with such inequity, arguing that government golf will "hold down prices" and offer links "at a cost well below private options."

But this is a false illusion and ignores the myriad of hidden costs. When a fully allocated cost is applied to public golf courses—including land acquisition, interest on bonds, operation and maintenance, labor costs, liability, retiree benefits and tax revenue foregone—it becomes clear that the "public option" is a bad deal for taxpayers.

Luckily some policymakers are paying attention, and over 25 percent of all municipal golf courses have been privatized over the last several decades. Governments from New York City to El Paso to Los Angeles County have either sold or contracted out the management of their golf courses to private operators, who have a natural incentive to focus on reinvesting in the quality of the golf course to attract more players, host more tournaments, sell more merchandise, and generally increase golf revenues. By getting out of the way, these governments turned these liabilities into revenue generating assets.

There's a lesson here. Whether it is golf courses, miniature golf, water parks—or newspapers or health insurance—government should leave commercial activities to the private sector. Governments at all levels are running deficits and lack the funds needed to carrying out inherently governmental functions. It should forsake the "government competition option." It is not in the public interest.

John Palatiello is President of the Business Coalition for Fair Competition (www.governmentcompetition.org) and a former Fairfax County Planning Commissioner. Leonard Gilroy is Director of Government Reform at Reason Foundation and Senior Fellow for Government Reform at the Thomas Jefferson Institute for Public Policy.


Leonard Gilroy is Director of Government Reform


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