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Investment in future or corporate welfare? Time will tell, but for now it

Economic development incentives remain a debatable issue

Are economic incentives to attract new industries and help existing businesses expand a sound investment in Mississippi’s future? Or corporate welfare that enriches a select few at the expense of the rest of the state’s taxpayers?

Wyatt Emmerich, publisher of the Northside Sun in Jackson and president of Emmerich Newspapers Inc., has been an outspoken critic of the state’s incentive programs.

“Corporate welfare is really what it is,” Emmerich said. “I’m amazed that the public is not outraged about this. Here the governor is taking taxpayer dollars and giving it to very affluent industrialists. Apparently people think it will create jobs for economic development. But if you look at the studies, that is not the case. It impedes economic development and job growth.”

Emmerich points to a 25-state study done by East Tennessee State University professor Paul Trogen, which concluded that tax breaks for new industry have a 2% negative impact on economic growth. Emmerich said incentives for industry are coming at the expense of funding for state education and other programs.

“You’re robbing Peter to pay Paul,” he said. “You’re playing favorites here. Whenever you play favorites, there are losers as well as winners. What no one sees are the losers. When the state government gives one company $40 to $50 million, that money has to come from somewhere. The State of Mississippi can’t print up its own money. So where does the money come from? You and me, and that hurts our economic growth.”

Emmerich said economic incentives are in the same place tort reform was five or six years ago. People didn’t understand then how they are hurt by large jury verdicts. And he says the average voter hasn’t realized yet that money for economic incentives is coming out of his or her pocket.

Emmerich has challenged the economic studies done to justify the Nissan deal, saying that he got a copy of the four-page study done by economic development consultants in Hattiesburg on the second Nissan deal approved in a special session, and that he “did more number crunching when I bought my last house.”

“A private company would be laughed out of the office if it went to a bank to ask for that much financing with only the report Gov. Musgrove presented to the legislature,” Emmerich said. “This study was very clumsy and superficial.”

Dr. Ron Swager, a private consultant in Hattiesburg who worked on the study done by the Goodman Group on the Nissan deal, said the four-page study presented to the legislature was an executive summary of a 50-page report. Swager said that report concluded that the rate of return to the state over a 25-year period is “very favorable.”

One of Emmerich’s strongest criticisms of the report is that the study bases its 2008 break-even analysis on gross tax revenues generated from the multiplier effect.

“It’s like making your household budget, including all your income, but leaving out all your expenses,” Emmerich said. “In the never, never land of Mississippi economic planning, there are no costs, there are no expenses.”

Swager says, though, that the taxes paid by Nissan are taxes the state would not have received without the project.

“At some point around 2013 or 2014, the state will have paid everything back and the tax returns will all be gravy,” Swager said. “They will be total net positives to the state budget, which will allow the state to make investments in infrastructure and other kinds of things.”

Swager, who is a professor of economic development at the University of Southern Mississippi, said the Nissan deal will have many intangible benefits that can’t be quantified. And he says that if Mississippi wants growth and better paying jobs for its residents, it has to offer significant economic incentive packages.

“Many of us don’t like government involvement in business,” Swager said. “But strong companies are able to ask for and receive this kind of financial assistance. Unless and until no state does any of this, that is going to be the case. Strong companies are in the position to at least ask for the kind of financial assistance that Nissan got. If financial assistance isn’t a possibility, then the state won’t get considered in the first place.”

Those opposed to government involvement say that if you just get the government out of the picture, the capital would flow just where the private sector wants it to go. “But that is not the real world,” Swager said. “The fact is that government is involved in the process. If you accept that fact, then what we need to do is help the government make informed decisions. And that was the purpose of this study.”

Sherry Vance, director of communications, Mississippi Development Authority, points out that Nissan is investing $1.4 billion of its own dollars. And she adds that the investment in infrastructure done by the state will not only benefit Nissan, but other companies looking to locate or expand in Mississippi.

“We have made an investment in training people in very high skilled jobs for the recent projects we have had, and we think that is a sound investment,” Vance said. “On all of the recent projects that we have announced, the incentives have been an investment in our communities through infrastructure development, and an investment in our people through training.”

“Some people have a misconception that incentives are a cash payment to the company,” said Jerry G. Acy, executive director of the Madison County Economic Development Authority. “Obviously, they are not. There are some obvious direct benefits to the company. But a tremendous amount of those incentives and dollars spent under that project go towards infrastructure improvements such as new interchanges, access roads, and water and sewer systems. Much of that provides for infrastructure for other companies, businesses and developments to take place that otherwise couldn’t take place.”

Acy said a number of other businesses are locating in Madison County and elsewhere in the state in order to supply the Nissan plant in Canton. Twelve suppliers are locating in Madison County, and he estimates they will be investing in the range of $136 million.

“The multiple effect, which has to do with the other support-type jobs created in the state, is significant,” Acy said. “The fact that a lot of incentives go towards infrastructure that goes for other development and are not strictly for a company itself is something everyone should be aware of.”

Economic incentives are a necessity if the state is going to compete for major projects as the other states all have significant incentives packages.

“If Mississippi is going to be a player in the big project arena, we have to compete with other states,” Acy said. “In my opinion, there is economic justification looking at the multiples of jobs that will be created, the additional taxes that will be created, and the improved infrastructure especially in and around the major site.”

He adds that incentives are not limited to large projects, and that existing industry both large and small in the state can also take advantage of incentives. “The goal is to create better paying jobs for the citizens of the state and the local communities, and create opportunities for those who may not have a job,” Acy said.

Dr. Charles Campbell, a Mississippi State University professor of economics who lectures to students about the pros and cons of incentives, said the mainstream view is any amount of incentives offered are fine because eventually the public will get something out of it.

“But in my view you need to look at costs and benefits very closely over the entire life of th
e pr
oject,” Campbell said. “And the problem we get into is a lot of time the costs are not really completely entered into the equation. You bring in a large plant, and you bring in people from the outside who have children. You need more sch

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