Family businesses are often the backbones of small towns. Besides providing necessary jobs and services, family businesses support their local communities through sponsorships like the little league baseball team and donations like helping to build a new children’s hospital. This dedication to community is the product of strong businesses that treat their employees like family, and collectively sacrifice when the economy is down. By contributing to society, family businesses help cities to thrive, but when city management hurts the future of a community, those same family businesses could be forced to abandon the towns they call home.
There are examples from towns from Maine to Colorado of cities making bad business decision that affect the lives of local businesses. The city of Lamar, Colorado is just one case in point that has made it into the national news lately. According to reports, the town is risking its future and the future of family businesses that call it home by deciding to back out of debt payments it is legally obligated to pay. In addition to making future investment in the city costlier for taxpayers, it suggests that Lamar is unwilling to make responsible spending and borrowing decisions, making the city an unpredictable place to do business.
Lamar is one of six members of the Arkansas River Power Authority, or ARPA, which exists to provide electrical power to its members. In the early 2000’s Lamar joined with its fellow ARPA members to invest in upgrading a power plant, transitioning the plant from natural gas to coal. The process, known as the Lamar Repowering Project (LRP), suffered setbacks both in terms of financial viability and environmental safety. ARPA decided to issue more debt to finance the project. Lamar voted in favor of each round of debt – totaling $155 million in borrowing – only to see the project ultimately fail after a lawsuit by environmental activists sidelined the LRP for good.
Despite the failure of the project, ARPA members are on the hook for the debt service they committed to repay. They aren’t happy about it, but five of the six cities ultimately settled a lawsuit with ARPA over debt repayment. Lamar, on the other hand, is suing to avoid paying back the bonds they helped issue. By refusing to pay back their debt, the city council is setting a questionable precedent for their future investors, which in turn hurts the residents and businesses of Lamar.
In addition to hurting the city of Lamar and its residents, the lawsuit is hurting the towns they partnered with. Holly, La Junta, Las Animas, Springfield and Trinidad are currently weighed down by a non-functioning power plant worth millions in scrap that cannot be torn down while Lamar continues to shirk its duty to the investors.
As a coalition supporting family businesses for the nation, we hear from business owners across the country about policy issues large and small. One consistent theme is the need for responsible government and a simple tax code – main street businesses want to be free to conduct business with a predictable tax system and be left alone to prosper otherwise. Businesses that are the backbones of communities face enough problems without the added cost and aggravation of more taxes caused by decisions of their home city governments.
A predictable tax code will lower the burden on all businesses, make federal and state taxes simpler to navigate, and hold cities not tax payers accountable for poor decisions. A simple tax code will help family businesses continue to create the majority of jobs in the country. As it stands now, according to the Harvard Business Review, family-owned or -controlled businesses in the U.S. employ 60 percent of workers and create 78 percent of new jobs.
What’s more is that small businesses don’t make decisions based on maximizing their share prices, they make the hard decisions for themselves and the best decisions for their customers and workers. Public corporations become insulted from what it means to be part of a community. As advocates for small businesses it is important for individual business owners to stand up and continue to call for a sensible tax and political system that allows them to continue to be job machines. The case of Lamar provides a good cautionary tale of why small businesses should care about the decision makers in their home cities and their growing tax codes.
Palmer Schoening is chairman of the Family Business Coalition in Washington D.C. – a diverse collection of organizations and industry groups united for the common purpose of protecting America’s family businesses across the country.