In the wake of the Mississippi Business Journal story this week that Mississippi and 28 other states are making no effort to determine the true returns their states are gaining from tax incentives granted businesses in exchange for promises of jobs and capital investments, it’s important to remember if you google “economic development benefits,” you’ll find a plethora of critics who say there’s no way so-called economic development pays off.
In the MBJ story written by Ted Carter, the Pew Center on the States in a new study that categorizes the 29 states as those “trailing behind.” It puts 12 states in the “mixed results” category and 10 — among them Washington, Oregon, Arizona and Iowa — as ‘leading the way.”
The Mississippi Development Authority, predictably, questions the depth of research the Pew Center on the States did in deciding Mississippi’s ranking for the report, but the Center insists it made a thorough review of the state’s policies on monitoring the effectiveness of tax incentives.
Even the phrase “economic development” conjures up images of complete amateurs using the words to get elected. In reality, they have absolutely no grasp of what it means, how it is used and, most of all, whether it actually is effective in improving the local (or state) economy.
In other words, politicians stand up and declare, in stentorian tones, they they are 100 percent in favor of economic development, and in a superficial way, that’s really a very attractive position. But because those politicians do not really know enough about what “economic development” entails, they really cannot explain their position. They just use it the way I might say, in a bar drinking beer and watching a ball game with friends, “Wow, that’s a good-looking woman,” even though: (1) I am very married, thank you; (2) at my age, and with my diminished capacity to make sparkling conversation with anyone, let alone a good-looking woman, I would get nowhere with her; (3) and did I mention how married I am?
In other words, those politicians are taking zero risk, just as I am taking zero risk in ranking the beauty of women in a bar. The politicians may as well say, “I am in favor of America,” that’s how profound, “I am 100% in favor of economic development.”
So, in interviewing so-called “experts” on the subject, I would ask: “Do you think people who run for political office actually know what ‘economic development’ entails? Do they have a real plan for ‘economic development,’ or are they simply saying it to get elected?”
In terms of politicians and economic development, the truth is that when it comes time to pay for the incentives offered to businesses, those politicians almost certainly will not be around to face angry taxpayers who have seen at least some of their money wasted.
Some politicians stay in one spot forever, but that’s rare. What usually happens with politicians is that they run for each office as a stepping-stone to the next. Thus, a state representative who ran in 1985 on the economic-development platform probably has ended up, in 2012, in one of two places: (1) a higher office or (2) out of politics because the voters said, “Why would we want that loser in higher office?” (NOTE: (2) includes the possibility of being dead, but I will include that under the blanket description “out of politics.”)
So, that state representative who pushed for economic development will never get the blame for a failed effort at economic development.
Then, there is the whole morality issue, which takes on several forms:
1. Why is it moral (or ethical, or worthy of an elected official) to try to steal a company from another state? Yeah, if you’re an alum of Ole Miss, you definitely want your football team to whip Alabama’s butt, but mostly because it’ll make you feel better in some intangible way. Your life, really, will be no better or worse if Ole Miss beats Alabama, but you’ll feel better.
However, if Mississippi lures a company away from Alabama, granted, Mississippians will gain (jobs, tax revenue, other tangible assets), but Alabama will lose those assets.
And the cost of that luring also is tangible: tax breaks, construction of roads, sewers, etc., other incentives including what must be considered bribes (or at least borderline bribes).
Yes, Mississippians will feel better temporarily, but pretty soon, lawmakers in Montgomery are going to say, “We are getting (bleeped) by Mississippi, so we need to offer incentives that are better than the ones Mississippi offers, and before long, Alabama is stealing a company from you, or from Missouri, or from Colorado, wherever.
Is that defensible? Should we cause pain in another state so we can have (temporary) euphoria in our state?
Wouldn’t it be a hell of a lot more moral to take all that incentive money (etc.) and spend it on better schools, better recreational facilities, better roads, so that companies will want, without our recruiting, to move to a state that is progressive, forward thinking, attractive? Along the way, those better schools, roads, parks, etc., make much better lives for the people who already live here, so we’re actually offering quality both to current residents and others who may be looking at us.
Bribing a company to move to Mississippi proves one thing: If that company gets a better bribe somewhere else, it’ll move again.
Investing in a better state is not a bribe; it’s what we should be doing anyway.
Finally, under the morality argument, think of this: Ted Carter owns the fictitious Carter Sporting Goods, which has been a tradition in Jackson since 1935, when his daddy built the place.
But Big Box Sporting Goods is hunting for a good location, and Mississippi offers it incentives.
You’ve been a good Mississippi business forever, and the state has given you nothing; now Big Box comes in and gets great gifts (bribes) you can’t get, and you have to compete with BPS.
Tax breaks sound great, but the reason we pay taxes is for services. If a new company moves in and employs 2,000 people, the area in and around the new company’s buildings require services: cops, public transportation, schools, etc. But the tax breaks go to the new company, so what happens? Either services get cut, or everybody else pays higher taxes.
In the tax increment financing process, the projected increase in taxes the company would pay goes to pay for roads, bridges, sewers, whatever, that the new company will need. In a lot of places, the schools and other taxing districts get no revenue from that money; it all goes for roads, bridges, whatever.
In a story written by Amy Gillentine of the Colorado Springs Business Journal, it seems the economic development counci keeps two sets of books on the number of jobs created by the council: (1) One set is for public consumption. It is the number of jobs the new companies promised to create. (2) The other set is kept privately by the EDC. It is the actual number of jobs created, not merely the number promised.
Why would the EDC do that, except to cover up that the number of jobs actually created is fewer than the number of jobs promised?
As soon as State A offers Incentive X, State B offers Incentive Y, which is higher than Incentive X. Then, State C offers Incentive Z, which is higher than either Incentive X or Incentive Y. It’s a vicious cycle, as every state has to constantly be one-upping every other until all states are giving away everything, in which case …
… in which case, companies are going to decide the old-fashioned way: Which state has the best schools? Which state has the best roads? Which state has the best parks and recreation?