Imagine that your mayor has called a community meeting. It is an important meeting. It’s so important that businesses are requested to close for two hours so that a public discussion can be held about an important matter that will affect everyone in town.
Someone says that this meeting is about economic development. Someone else says that it is about a proposal to raise taxes. Others say they do not know what it is about, but that they have reliable information that it is big. The air is rife with anticipation.
As the hour approaches, a crowd converges around city hall, and then swells. Television cameras move into place as producers in remote trucks prepare to broadcast the event live on local television. As the chimes on the local church ring the top of the hour the mayor steps out from the double doors and walks to the microphone. The crowd quiets.
“Ladies and gentlemen, today is an important day in the history of our town. A manufacturer of a product that has worldwide demand has expressed a strong interest in locating a new factory in our community. This enterprise will create 300 new jobs right away, and will increase that number to over 700 in three years. As a result, the unemployment rate in our county will go from 18% to near zero.”
Applause and cheers erupt as men high-five each other and shake hands. The mayor continues…
“But along with this opportunity comes a responsibility on us. In order for this to happen, we must provide the company with a facility — a manufacturing plant. It will cost us $12 million.”
A murmur spread through the crowd.
“As most of you know, the State of Mississippi has no money to help us. We must do this on our own if it is to be done. In a moment I will go through more details about the project and then pass out a pledge form. We have found a bank that will loan the town the $12 million. We don’t feel like property taxes can be raised any higher, and we can’t increase sales taxes without permission from the state. So what I am asking you to do is to consider how much of this $12-million loan you could cover in the event of default by the city. Yes, I am asking you to make a personal pledge. Some of you can make a $100 pledge; some of you can make a $100,000 pledge. If the project is successful, which I believe it will be, you will never have to pay that pledge.”
Would never happen, but what if…?
The above event is fictional of course. And it would not happen in today’s Mississippi because local communities look to the state to bring new manufacturing plants to town. The people in town read and hear about the projects, and hope that they will get jobs or that the project will benefit the community. There is nothing inherently wrong with that. It is an efficient way to do economic development.
But something like the above did happen in Mississippi. It was in Columbia in 1929. Here’s how the story is told in Mississippi History Now (an online publication of the Mississippi Department of Archives and History — http://mshistory.k12.ms.us/features/feature52/economic.htm):
Rather than asking a few prominent businessmen to pledge the necessary funds for building the factory, Mayor White declared a two-hour holiday to hold a community meeting and decide the matter. After discussing the proposition, businessmen, secretaries, clerks, schoolteachers and farmers signed promissory notes, payable over several months, to guarantee the funding. With the pledges in hand, White obtained a loan from New Orleans bankers for the full amount needed to start construction of the factory. The modern brick building Reliance Manufacturing soon occupied belonged to the people and represented their expectations for future prosperity.
Making those pledges
In today’s world, we don’t vote on every bond and loan anymore. We leave it to local and state leaders to obligate us. But what if today the local people had to sign a personal pledge to cover a part of the loan or the bond that was going to be issued? Would they treat projects in their communities differently? Would they be more interested? Would they pledge to pay a loan for a community in another part of the state?
Ironically, we really do pledge to pay back those bonds. We just don’t do it personally by signing a promissory note.
Perhaps that is why we do not realize that the bonds issued for all kinds of projects are our debt — for we citizens are really the State of Mississippi. It is our personal pledge. The current state bonded indebtedness is more than $3 billion. One way to look at it is that each of us has pledged to guarantee that debt.
Oh, in case you are wondering about what happened in Columbia, here is the rest of the story:
The Reliance plant opened in July 1932 and within four years, the factory met the employment and wage promises it expected to fulfill over a decade.
The wages paid by Reliance benefited farm families and local merchants. The Columbia Plan was all the more impressive because it succeeded during a period of national economic failure.
Phil Hardwick’s column on Mississippi Business appears regularly in the Mississippi Business Journal. His e-mail address is email@example.com.