Increasingly, companies expect incentives and subsidies.
WHEN IT COMES to government, what businesses want is to be left alone to pursue the challenges and rewards of private enterprise without the hassle of dealing with bureaucrats and red tape.
Except, of course, when businesses have their hand out trolling for taxpayer-financed freebies.
Across America, nearly every community and every state competes against each other to dole out the money — some call it incentives, others say it’s corporate welfare — in the hunt for job creation or retention.
But does it work? Is the investment paying off for states and communities?
A MAJOR PROJECT by The New York Times reveals just how difficult it is to answer those questions. The eye-popping numbers found by the Times: Local governments shell out more than $9 million per hour in America in direct taxpayer-financed incentives to businesses, totaling more than $80 billion a year. The Times estimates federal and state governments provide more than $170 billion more.
Yet few officials can say definitively whether the payouts result in a net gain or a net loss, because precious little accounting takes place once the deals are done. Promises made may be promises kept. Or not. And short-term wins — having a site selected by a business — based on lucrative incentives may not translate to long-term gains.
Here in Wisconsin this is not just an academic question. It appears to be a question of competence. With great fanfare last year the former Department of Commerce — widely believed to be weak and ineffective — was transformed into a public-private hybrid called the Wisconsin Economic Development Corporation, charged with dealing directly with businesses to manage incentives for the purpose of creating expansion and jobs. But it has been documented the agency doled out at least $12 million of taxpayer money while utterly failing to track what it was used for or whether the payouts produced the agreed-upon results.
The Times report says Wisconsin provides more than $1.5 billion annually in business incentives — 10% of the state budget, and about $268 per citizen.
Obviously, the taxpayers who ante up that money deserve a return on investment. When governments can’t even keep track of the money once it’s handed out, taxpayers lose.
PERHAPS THE MOST SERIOUS question raised by the Times’ study is this one: Do incentives really create new American jobs, or are jobs just being shuffled from one state to another?
The first pothole on the road to answering that question is the virtual impossibility of knowing whether a given set of jobs would have been created with or without incentives. Instinctively, it seems logical to assume no company adds jobs just to get taxpayer money. The Times also interviewed top corporate leaders, who said as much. A former General Motors executive put it this way: “The management owes it to their stockholders to try to get the best economic deal that they can.” GM was good at it, scoring billions in incentives at its far-flung plants across America before going under and claiming billions more in a federal bailout. Wisconsin, for example, offered more than $150 million in the vain attempt to keep the Janesville plant operating.
EQUALLY CONCERNING is the practice of pitting states and communities against each other in a bidding war with taxpayer dollars. The Times cites the example of Kansas and Missouri, which have poured millions into a border war that has resulted in several companies moving just a few miles across the state line. One state or the other then claims the development “win,” but the same jobs just move from one building to another.
To some degree Beloit saw a similar example when FatWallet moved from Rockton to a downtown site here, a choice touted statewide by the Walker administration as a huge victory. Though one can celebrate that FatWallet stayed local rather than moving operations halfway across the country, it’s also true the net result was not a windfall in terms of new jobs.
Still, so long as nearly every community and every state is ponying up in aggregate billions of dollars to hand out to private enterprise, the incentive arms war will continue. Unilateral disarmament — a decision by a community or state to stop taxpayer handouts — carries the real likelihood of being bypassed for any growth whatsoever as companies speed down the highway to where the grease awaits them.
THERE WAS A TIME when companies didn’t expect that. They did expect — and rightly so — good roads, accessible utilities, an educated workforce and a friendly system of permitting and licensing. Then they wanted the freedom to pursue success without the burden of oppressive government oversight.
Logic suggests you can’t have one without the other. If taxpayers are expected to shell out, then taxpayers have the right to serious accounting, measurable results and consequences for breaking promises.
And if the private sector wants government bureaucrats to step back, it should stop demanding billions of taxpayer dollars as the price of admission.
As federal, state and local governments struggle with tight budgets this is part of the philosophical question about what kind of country we want. Where is the line between public and private? What should taxpayers fund? And when should taxpayers keep their wallets in their pockets?