The city of Somerset has become just the latest local government to go into business in competition with some of its own taxpayers. What makes Somerset's venture unique is the area of competition it has chosen - gasoline.
The city has opened up its fueling station to the public as a no-frills gas station and is selling fuel basically at cost. It's unethical of course. But it serves the populist purposes of the city's mayor, Eddie Girdler.
Girdler says he is taking the action because fuel prices are just too darn high. That he says is hurting tourism in his community of 11,000 for which nearby Lake Cumberland is a major draw.
We don't think that thesis stands up to scrutiny. Most people with business backgrounds know that retail gas stations sell fuel on the thinnest of margins. They make most of their profit when the person who fills up with gas comes inside to buy a bag of ice and a couple of sodas in their convenience store.
The Somerset city gas station began selling gas at a price of $3.36 a gallon. Four local gas stations nearby were selling gas at $3.39 a gallon. The difference isn't going to make any consumers rich. It's 45 cents on a 15-gallon fill-up. But the city's venture is going to hurt local retailers by reducing the volume on which their fuel sales depend and more significantly, reducing the foot traffic in their convenience stores, where they make the bulk of their profits.
If the city of Somerset was selling gas at a savings of 25 cents a gallon it might have an argument that the local market was out of whack and deserved intervention. But at 3 cents a gallon, the move is not justified.
It's also unfair. The city doesn't have the same costs as the retail stations do, and it doesn't pay the same fees and taxes. It doesn't have to buy insurance for its gas station, because it already has it, courtesy of the taxpayers. It doesn't have to hire employees to operate the station, because it already has those as well, again courtesy of the taxpayers. Workers comp insurance? The taxpayers have them covered. Utility costs? The taxpayers are on the hook for that too.
All the city of Somerset is really accomplishing with this undertaking is to use taxpayer subsidies to try to drive all of the profit out of fuel sales by local commercial gas stations. That's just wrong.
Most communities don't use gas sales as the vehicle for intrusion into the private sector. Rather, the most common route is for city-owned utilities to get into the cable TV business. All of the same principles apply in terms of the unfairness of cities using tax money (or utility rates) to subsidize their labor and infrastructure costs while taxing and - in the case of cable - exacting tens of thousands in franchise fees from their private competitors.
It's bad enough when cities go after cable TV. Cable companies are, after all, big boys with a lot of resources with which to fight. But when cities start to get into operations that can be more of the mom and pop variety, like gas stations and, who knows, tire or repair services eventually, they've gotten pretty far out of their cage.
The interesting thing about Somerset is that politically it tends to be a conservative stronghold. Its fuel station undertaking is decidedly not conservative. In fact it's anti-business. And when it comes to future business recruitment efforts, we're not sure this is something Somerset really wants on its resume.
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