Prediction: States Will Lose Trying to Lure Corporations

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Status: Occurring

Prediction: States will lose trying to lure corporations

“Think I’m exaggerating? Kansas offered AMC Theaters a 10­ year tax abatement to relocate from neighboring Missouri. This is a zero­ sum game for the United States and ultimately, a race to the bottom. A better use of resources (and the only good use of stimulus dollars) would be to offer foreign manufacturers deals to produce here. Ideal targets would be companies with sales growth, high complexity products, a supplier ecosystem, and high global demand potential.”

Econovation, 2011, p.60

What Happened

Literally our EXACT wording over 7 years later!!

The Amazon Debacle

Each year, local governments spend nearly $100 billion to move headquarters and factories between states. It’s a wasteful exercise that requires a national solution.

What these enterprises generally have in common—along with projects undertaken by scores of state and municipal economic-development agencies and authorities—is that they seek partially to transfer both the risk and the cost of investment from the private-sector companies that stand directly to profit from new business to taxpayers who, at best, will see secondhand benefits. From the taxpayers’ perspective, to say nothing of left-leaning ideologues, the Amazon deal is particularly irksome. It calls for substantial subsidies for one of the most successful companies in the history of American commerce—Amazon flirted with a $1 trillion capitalization in September—at a time when New York can’t hope fully to fund its infrastructure, public education, and social-welfare obligations.

Why should public money be used to build sports stadiums? Jul 2016

GE: The lessons of a corporate giant’s decline, Oct 2018

We can all learn from this giant’s troubles, said Rob Cox at Reuters. In 2016, Boston dangled juicy inducements — tax breaks, infrastructure investment, private jet parking — to get GE to relocate from Fairfield, Connecticut, to Beantown. For all that effort, Boston is getting a GE that’s shedding value fast, $200 billion in the past two years alone. Now 20 cities are competing to host Amazon’s second headquarters, wooing the firm with similar perks. Boston’s experience with GE should serve “as a reminder that the biggest, most profitable companies don’t always remain that way.”

How much does a tech bro cost?, Jul 2018

Apple: $321m in subsidies for a North Carolina data center
Jobs created 50
Cost per job $6.4m

United Technology: $400m in tax credits to stay put in Connecticut
Jobs 18,000
Cost per job $22.2k

Tesla: $1.3bn in subsidies for its “Gigafactory” in Nevada
Jobs created 6,500
Cost per job $198k

Cerner: $1.6bn in tax incentives by Kansas City council
Jobs created 15,000
Cost per job $109k

one contender, Newark, a city with an appalling crime rate and poor schools and public transportation, has reportedly offered $7bn – which would be the largest deal to date.

Cuomo’s Job Creation Program Is Slow to Take Hold 2015

He poured tens of millions of dollars into advertising to push the program, Start-Up New York.

In its first full year of operation, the effort created fewer than 100 jobs. 

The Foxconn Mess

“Depending on how many jobs are actually created, taxpayers will be paying between two hundred and twenty thousand dollars and more than a million dollars per job…the earliest citizens might see a return on their Foxconn investment is in 2042.”

“In an op-ed last Friday in the Milwaukee Journal Sentinel, Walker said the agreement reached with Foxconn would be “transformational” for Wisconsin, creating 13,000 new high-tech jobs on a factory site the size of 11 football stadiums. Employees would manufacture liquid crystal display (LCD) panels and other electronic components.”

Economic Development: Last Week Tonight with John Oliver 2017

“State and local governments offer large financial incentives to attract employers to their part of the country.”

What’s Next?

What states should do is negotiate like they’re in a sports league, with rules of engagement.

Here are some good examples of how this can be done. Doesn’t mean that it will. If competence hasn’t seeped in by now…

Amazon HQ2 Tax Incentives: There Ought To Be A Law… Or Something, Nov 2018

The federal government could take a page from the state playbook and try encouraging cooperation among localities instead of competition between them. Ohio created a mechanism that makes it easier for cities and towns to come together to woo firms like FedEx and then share the resulting tax revenues. New York offers technical assistance and competitive grants for municipalities that pursue joint development projects.

Others say the federal government could do what some states have done and cut economic development funds or limit access to certain types of bonds and public private partnerships P(3s) for cities that try to poach jobs from their in-state neighbors. The advocacy group Good Jobs First maintains an inventory of 40 states that limit tax incentive eligibility for intrastate relocation. These limits might be easier to impose at the state level where cities are subordinate entities of the state, a relationship which isn’t the same between the federal and state governments.

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Provocative predictions & prescriptions on where innovation, economics & culture will take us. Fearless. Funny.