Phase 2: We're From the Government, and We're Here to Help

Dear Boss,

I’m glad to report that Hillsdale Renaissance has finally acquired the last building necessary to begin Phase 2 of our project: applying for government grants, tax credits, and building out our capital stack before we begin Phase 3: execution. This means that, for around the next 12 months, Hillsdale Renaissance will be a duck, gliding quietly over the water but all the while the legs are furiously kicking underwater, where nobody can see them. Some commercial spaces will remain empty, and additional spaces will empty out as tenants decide to move on. In the immediate future, we won’t be filling those spaces as we prepare for a full-scale renovation of our downtown buildings.

What does Phase 2 require? Hillsdale Renaissance will be soliciting future tenants while applying for government grants, tax credits, and also hunting down some debt and private capital. This will be a dance of shooting at several moving targets, filling out paperwork, and hitting deadlines. Most, if not all, of this will be invisible to the general public, but it is necessary for the project to be completed. Modern building regulations, labor costs, and the state of Hillsdale’s downtown buildings result in a terribly high price tag for proper, historic renovations. This high price tag requires us to solicit these funds to ensure the future health of downtown Hillsdale’s infrastructure.

As I’ve detailed in a previous post, one of the main sources of funding we will be hunting is the New Market Tax Credit. The reality of modern government is that the government taxes the people, creates programs like these, and then relays your money to people like me. This system has resulted in thousands of jobs that are focused on applying for, distributing, and utilizing these tax dollars, primarily to the benefit of developers.

We will also be applying for federal and state historic tax credits. These programs were created to ensure that the beautiful construction of yesteryear can be restored and preserved for current and future generations. This is a seemingly noble goal, as much of what was built in the past was substantially more beautiful than what is commonly built today, but the programs also create their own issues.

Depending on the regulator who is overseeing the historic renovation project, these tax credits can result in needless preservation of materials and construction that no longer make sense today. It can wildly overcomplicate a restoration as regulators decide which facets of a building can go, and which facets have to stay. Depending on what has to stay, the proposed plan will have to change substantially in order to adapt to the regulator’s whims. Sometimes this results in the preservation of designs and materials that are not actually pleasing or useful, but which fall into the relevant period of time that the regulator is attempting to preserve.

For example, an investor is working to restore a historic downtown hotel. The building was originally a hotel with ~60 rooms. The investor is proposing to restore the building and host ~35 rooms. The reduction in room number is a result of modern expectations. The old hotel featured small rooms and community bathrooms. Today, tourists expect to have a relatively large hotel room and private bathrooms in each unit. These modern expectations make it impossible to fit the original 60 units into the same building. Despite this change in consumer use and expectations, the historic regulator is still requiring that the hotel hallways look precisely as they did in its original state, meaning that the hallways should feature 60 doors for 35 rooms. To accomplish this, the investor is simply installing false doors in the hallway to ensure that a picture taken today will match a picture taken of the original hotel hallway. Obviously, this is an instance of historic preservation gone awry. In an ideal world, we would be able to effectively preserve the pleasing and beneficial historic facets of a building and remove those facets which might be historic but are not good or no longer make sense, but instead this investor has to jump through these needless hoops which increase the cost and complication of their project.

I don’t blame anyone in the private sector for participating in these programs and helping to bring these funds back to the local level. The reality is that these programs exist and the government is going to spend the money, so it might as well be used to benefit the people of Hillsdale. The real problem is that the system exists in the first place. These programs raise your taxes, making it harder for your average family to live on a single income. The regulations raise the price of construction, making it prohibitive to do large scale renovations like mine using purely private dollars. They also complicate the construction process, making it more difficult for the average investor to pull off meaningful renovations and building projects. Both these programs and the regulations encourage the growth of government, which desires to take credit for economic development that would be better left to the private sector.

In the November 2024 issue of Imprimis, Dr. Larry Arnn properly identifies one of the main issues facing America today: the growth of the federal government and its domination of state and local life. Dr. Arnn states:

Look what it has done to America since the swamp began to fill in the 1930s, and especially since the 1960s.

In 1930, government consumed twelve percent of the gross domestic product of the nation. That was about how it had been from the beginning. Today, government handles a little over 50 percent of the nation’s wealth. This is a gigantic transfer of resources from the private to the public sector, which defies the meaning of a free society. To quote again Churchill, a champion of the free society, “money should fructify [bear fruit] in the pockets of the people.”

Here in the United States, between the presidencies of George Washington and Abraham Lincoln, the government owned the biggest asset any government ever owned: the western lands, most of the area of the country. The Homestead Act, signed by Lincoln in 1862, gave away ten percent of the land of the United States to anyone who would live on it and work it. That is the spirit of free government at its best.

Over the past century, the transfer of assets has been moving the other way. Somehow, we have come to think that the fruited plains bear more fruit when the government owns them. Certainly, we should have national and state parks and open expanses. But to enjoy them, we must make a living. We must farm, mine, travel, and work as we please. We must act on our own initiative and by our own efforts. We need resources to live on and use, readily available to anyone who wants to work. That is the spirit of a free people.

Another significant change has been the centralization of government. In 1930, more than 60 percent of the money in government was raised and spent in counties, cities, and towns. The public money was held near the people who contributed it. The federal government controlled less than 20 percent. Now those numbers are reversed. [HR: emphasis mine] Through a long and steady process, we have moved money out of the pockets of the people and into a treasury far, far away. We have converted America from a bottom-up to a top-down country. Rules proliferate. Expense piles up. Anything dependent upon the government moves like molasses on a winter day, except when an interest of the government is at stake.

How we allowed this to happen is a very long story. Early progressive policies were presented as common-sense adjustments to a government that needed not revolution, but reform. Increasingly, problems were presented as emergencies that had to be fixed no matter what. Then the news was orchestrated to produce new emergencies, requiring new regulations to solve them and new agencies to manage and enforce the regulations. Each step increased the size and reach of government.

Dr. Arnn is correct: the public wealth is no longer held near the people who created it, resulting in a world which requires us to go all the way to Washington to apply to have our money back so that we can use it to benefit our communities. This is, almost tautologically, an inefficient system. The government takes our wealth and then filters it back down to us through a series of third-parties and consultants who, justly, keep significant portions of that money for themselves in return for their work. Don’t get me wrong: I am exceedingly grateful for the people who are helping me secure these resources, they are doing important work and they are dedicated, passionate people, but it is a shame that their talents are being used in this inefficient system.