Kansas and Missouri have long sought to woo employers with tax incentive packages, effectively locking the two states in a border war for jobs.
In 2011, the Missouri Department of Economic Development dished out more than $12 million in tax breaks for Applebee’s parent company DineEquity to move its headquarters across the state line. Last year, Kansas scored a victory of its own with a multimillion-dollar deal luring pharmaceutical firm Teva Neuroscience away from Kansas City, Mo.
This back and forth competition isn’t unique to Kansas and Missouri. A new report by Washington, D.C.-based advocacy group Good Jobs First examines high-profile bidding wars in recent years, showing how far some governments will go to secure jobs.
Greg LeRoy, the group’s executive director, said many incentive-laden deals aimed at out-of-state employers lead to little, if any, net job growth.
“It’s not a winner for the state, it’s economically irresponsible and it shortchanges the companies that really matter,” he said.
Some of the most intense battles for jobs occur across state lines within metropolitan regions. LeRoy cited Cincinnati, Ohio, and Covington, Ky., southern Michigan and northern Indiana, along with Portland, Ore., and Washington state as prime examples.
The group’s report identified the following states and metro areas (not ranked) as most aggressively targeting jobs in other states in recent years:
Charlotte Metro Area: The report describes how Charlotte-area local governments often reward companies with incentives to move short distances across the South Carolina state line.
Georgia: The state enticed NCR Corp. to move its corporate headquarters from Dayton, Ohio, to the Atlanta area with a deal reportedly worth more than $100 million in tax credits and other incentives. Chris Cummiskey, commissioner of the state Department of Economic Development, said last fall Georgia attracted 144 business relocations from outside the state in fiscal year 2012.
Illinois: In what the report dubs “job blackmail,” Illinois lawmakers approved a $275 million deal for Sears Holdings Corp. to stay put in the Chicago area after other states courted the retailer in late 2011. Shortly thereafter, the company cut positions and announced store closings.
Kansas City Metro Area: For years, Kansas and Missouri have engaged in bidding wars to entice businesses to move across state lines.
New Jersey: New Jersey awarded large subsidy packages to prominent financial firms and insurance companies based in New York City. The report also asserts Gov. Chris Christie launched a “poaching campaign” against Illinois after the state passed a temporary corporate tax increase in 2011.
Rhode Island: The study argues Rhode Island routinely lures jobs from neighboring Massachusetts, citing a $75 million loan to former Boston Red Sox pitcher Curt Shilling’s video game company before it filed for bankruptcy.
Texas: Gov. Rick Perry’s Texas Enterprise Fund has awarded $43 million in incentives to about 100 companies, many of which relocated from California and other states. The TexasOne program, also created by Perry, raises funds to recruit companies and pitch subsidies.
Tennessee: A FastTrack Job Training Assistance incentive is available to new and expanding businesses. The state’s multiple tax credits benefiting companies locating their headquarters within the state further help to drive Tennessee’s recruitment efforts for out-of-state employers, the report says. It’s important to note that not all companies receiving incentives simply close one facility and establish a new, similar worksite with the same number of jobs. In some cases, companies planning to add workers must decide between expanding an existing facility and opening a new location elsewhere.
Companies exploring potential sites often receive multiple offers from states. But employers looking to move within a state often can’t expect to command the same type of deals.
Good Jobs First found that in 40 states, companies are ineligible to participate in at least one major subsidy program for intrastate moves. In all, 96 of the 233 subsidy programs examined did not reward relocations within a state.
While the group advocates doing away with incentives for jobs moving across state lines, LeRoy, who co-authored the report, said other incentive programs can prove to be beneficial to a region’s economy.
Martin Romitti, senior vice president at the Center for Regional Economic Competitiveness, said tax incentive awards typically are not the most critical factor in a company’s decision to relocate. Rather, executives closely evaluate whether a region’s market, workforce and transportation infrastructure meet their needs.
Local officials must first convince potential employers that a region satisfies workforce requirements before discussing details of any incentive packages. Employers frequently demand specifics when it comes to numbers of qualified workers and available training.
“The tax incentives help them to give them leverage to talk to some companies,” Romitti said. “Ultimately, they have to sell the place,” Romitti said.
Subsidies can be effective, Romitti said, but governments must be more judicious in how they pursue employers. In particular, some states lack crucial metrics to evaluate the effectiveness of incentives. A recent survey of tax incentive program managers conducted by the center found only 55 percent collected regular, systematic data on existing programs.
“To make a good investment, we need more thoughtful administration of programs in place and some follow-up to ensure a region is benefiting from those jobs,” Romitti said.
If subsidies are properly targeted, many can, in fact, provide net benefits for states and regions, said Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research who has written extensively about tax incentive programs.
“You don't need many hits for a subsidy to a high-wage company that will hire local workers and has high multiplier effects to have a big bang for the buck,” he said.
Too often, states provide incentives to companies unlikely to hire locally or support other areas of local economic activity, Bartik said.
To limit unneeded tax incentives, Bartik said, the federal government should consider moving to limit some large-scale subsidies that don’t help small businesses, high tech companies or regions with weak economies. Any regulations should not discourage cost-effective business incentives, such as support for job training programs.
But pushing through federal regulation would be no easy task politically, a reality Bartik acknowledges.
The National Governors Association issued a nonbinding resolution in 1993 outlining guidelines for how states should award subsidies. The statement said public resources “should be used to encourage and foster development that otherwise would not occur, not merely to influence the location of private investment.”
LeRoy said the resolution was never taken seriously.
The report identified the following deals as some of the largest incentive packages awarded:
|38 Studios||2009||$75,000,000||Massachusetts||Rhode Island|
|Citigroup||2004||$57,000,000||New York||New Jersey|
|Depository Trust & Clearing Corp||2009||$90,200,000||New York||New Jersey|
|Goya Foods||2012||$82,000,000||New Jersey||Retention|
|Motorola Mobility (Google)||2012||$100,000,000||Illinois||Retention|
|Panasonic North America||2011||$102,000,000||New Jersey||Retention|
|Prudential Insurance||2011||$250,000,000||New Jersey||Retention|
|Sears Holding Corporation||2012||$275,000,000||Illinois||Retention|