pinion Public Incentives to Businesses Need to be Carefully Considered and Evaluated

A report published by the New York Times this week claimed that states, counties and municipalities are spending in excess of $80 billion each year to incentivize companies in the hope of creating much-needed jobs. However, the investigation found a stunning lack of oversight tracking the success of those investments, as well as questionable results when a closer look was taken. No public official wants to be seen as anti-job creation in our current economic climate, but more care must be taken to ensure that such massive taxpayer investments are sound.

There are certainly arguments for creating a climate conducive to job growth. Things like tax incentives and public/private partnerships are ways to do that, though I'm always surprised to hear so many self-proclaimed “free market” advocates supporting incentives that clearly tilt the economic playing field. Nonetheless, if a state or local government can lure a business that will create many jobs in the area, there is a multiplier effect in terms of economic activity that can boost their revenues – future corporate tax receipts from that business and its supporting industries, property tax revenue from development growth caused by migrating employees, state and local income taxes if applicable, increased corporate and sales taxes from the economic activity new employees create in the economy, etc.

But if no one is doing a thorough job of analyzing the change in revenues against the investment made, then how can we evaluate whether or not such incentives are netting a gain? One of the problems governments face is the lack of a level playing field at the bargaining table. When a county or city government – especially a smaller one – sits across the table from a multi-billion dollar international conglomerate armed with teams of attorneys and troves of supportive data, they are unlikely to be in a position to skillfully negotiate.

They also have to weigh the greater fool factor. With so many areas of the country desperate for jobs, that big corporation can count on someone else agreeing to their terms if you don't. Will constituents buy the argument that it wasn't a good deal for taxpayers if a government balks at that big company's terms? Will they care that the math didn't add up when news breaks of the jobs and economic activity being promoted in whatever other area the company goes instead?

An inherent problem is the fact that public officials are acting as an intermediary. They're doing the negotiating, but with taxpayer money, not their own. For them, the political value of being able to claim X number of jobs added will almost certainly trump concerns over whether incentives were negotiated wisely, especially if a good measurement tool doesn't exist. 

In Florida, there is plenty of evidence that we are not getting the best value on our investment. A long-term study of 15 years worth of such incentives in Florida showed that only about 1/3 of the promised jobs ultimately materialized. More recently, a three-month investigation by the Tampa Tribune this summer showed that at least 4 in every 10 companies that won grants from Florida's Quick Action Closing Fund through the end of the state’s 2011 fiscal year have failed to meet their performance obligations.

According to the New York Times report, Florida spends about $4 billion each year, or more than $200 per Floridian, on various forms of such incentives, routinely awarding packages to well-known Fortune 500 companies worth tens of millions of dollars per project. Considering the cuts to education and various healthcare programs that have occurred over the same time, it would seem wise to ensure that such investments are transparent, closely scrutinized and negotiated in a manner that considers their propensity for failure.

If that same lost money is thought of in terms of new teachers, public health workers and emergency responders versus money doled out for companies that soon go bust, or up and leave when the when the next state or city offers a sweeter deal, we might end up reconsidering our investments. After all, a healthier, safer and better-educated community creates a significant economic multiplier as well.

Dennis Maley's column appears every Thursday and Sunday in The Bradenton Times. He can be reached at dennis.maley@thebradentontimes.com. Click here to visit his column archive. You can also follow Dennis on Facebook. Sign up for a free email subscription and get The Bradenton Times' Thursday Weekly Recap and Sunday Edition delivered to your email box each week at no cost.