February 17, 2020; The Hill
“State and local governments are reconsidering their efforts to use tax incentives to attract major corporations after a decade of mega-deals handed billions of dollars to some of the wealthiest companies in America,” reports Reid Wilson in The Hill.
Recently, we profiled one state, Connecticut, that was changing its tune. But, as Wilson indicates, Connecticut is not the only one asking whether money spent on corporate tax abatements might be better spent on, say, public education or nonprofit-provided social services.
Wilson recalls some of the larger megadeals: “Washington State approved an incentive package worth $8.7 billion to keep Boeing jobs in the Seattle area. New York offered Alcoa a package worth $5.6 billion in 2007. Nevada handed Tesla a $1.3 billion package in exchange for a high-tech Gigafactory.” Foxconn got $4.8 million to build a factory in Wisconsin. Most recently, Amazon extracted $750 million in state money for the siting of its “second headquarters in Arlington, Virginia, as well as another $1 billion in related infrastructure spending.”
But while we won’t get too optimistic, perhaps economic research data is slowly seeping into the decision-making process of state and local government leaders. Wilson cites yet another study that once again shows that “many of those deals rarely work out, either because the company does not deliver the promised jobs or because the promised residual economic growth never materializes.”
The study in question was coauthored by Columbia Business School professor Cailin Slattery and Princeton economist Owen Zidar. Slattery and Zidar found that state and local governments pay an average of $119,000 in tax incentives per job created.
Their findings are summarized here. Among these are the following:
- For the full sample of states, per capita [corporate tax incentive] spending amounted to 23 percent of public safety spending, 13 percent of health and hospital spending, 11 percent of transportation spending, and less than five percent of education spending.
- Top per-capita spenders include Michigan, West Virginia, New York, Vermont, and New Hampshire. In 2014, the per-capita spending in these states amounted to 56 percent of public safety expenditures, 40 percent of spending on health and hospital spending, 30 percent of transportation spending, and 12 percent of education spending.
- Five states—Nevada, South Dakota, Texas, Washington, and Wyoming—which have zero corporate income tax revenue spend about $44 per capita on incentives.
- The cost-per-job of firm-specific subsidies has increased over time, with the average cost per job per-year amounting to about $12,000.
- Counties with an average wage of less than $40,000 pay over $400,000 per job in the average subsidy deal. Meanwhile, counties with average wages over $100,000 pay less than $100,000 per job in a given subsidy.
- More than 30 percent of all firms opening offices in new locations with over 1,000 employees receive firm-specific subsidies, while the percentage is less than 0.2 percent for establishments with under 250 employees.
Slowly, policymakers have begun to respond. Earlier this month in New Jersey, the state’s Economic Development Authority asked the Philadelphia ’76ers basketball team to repay $400,000 in incentives awarded when the team moved a practice facility to Camden in 2016.
“Their reports have been ugly, including people who were gaming the system,” New Jersey governor Phil Murphy (D) tells Wilson. “We were throwing money hand over fist at companies, and we were not generating results.” Wisconsin governor Tony Evers (D) says he wants to renegotiate with Foxconn, because Foxconn has fallen short on its commitments.
“Even in states where projects have hewed more closely to the original plan, lawmakers are reprioritizing, spending more on quality of life issues that would attract a trained and talented workforce rather than on the incentives meant to lure the companies.” For instance, Tesla did build a factory in Nevada, but governor Steve Sisolak (D) expresses caution going forward. “Every dollar that we have to put towards education is hard to find. Every single dollar. And to abate those dollars is really, really tough,” Sisolak tells Wilson. “I’m not interested in attracting real minimum wage jobs. I’m interested in attracting career-type jobs.”
All told, “At least ten states are considering legislation to rein in their government’s ability to offer incentive packages. The bills they are considering, sponsored by both Democratic and Republican legislators, would create an interstate compact in which states agree not to woo businesses from other states with tax incentives,” Wilson explains.
Could such an agreement really get approved? It remains questionable, but one positive sign is that last August, as NPQ covered, governors Laura Kelly (D) of Kansas and Mike Parson (R) of Missouri agreed to stop subsidizing companies to move between Kansas City, Missouri, and Kansas City, Kansas.
Such a dynamic really does “become a race to the bottom,” observes Montana governor Steve Bullock (D). It can also, he adds, “mean gutting long-term tax revenues.”—Steve Dubb