Surprise: "Tax Breaks for Jobs: Half Fall Short"
From the Cincinnati Enquirer, which studied big tax breaks given to southern Ohio and northern Kentucky companies who got all sorts of special tax deals to "invest" in the area and create jobs:
An Enquirer analysis of the region's 40 largest tax-incentive deals over the past decade found that only half created the number of jobs they promised, yet the companies claimed tens of millions in tax breaks and grants.
In Southwest Ohio, 12 of the 20 largest projects failed to meet hiring commitments – four even closed down and moved out. Only 4,804 jobs were created out of 6,534 promised. In return, Ohio has awarded tax breaks worth at least $19 million to the 20.
In Northern Kentucky, eight of the 20 largest job-creation projects failed to meet hiring commitments. The state won't disclose the amount of tax dollars paid to companies that signed incentive deals before 2009, citing confidentiality of tax returns….
Meanwhile, pols in Ohio and Kentucky are swapping companies by offering them tax breaks to move across the Ohio River. The Enquirer finds that the two states have offered more than $61 million in incentives to change locations from one side to the other. Particularly startling is a company called Omnicare, which has moved its headquarters a mile back and forth a couple of times for these reasons. Says Ohio Gov. John Kasich, who says he believes in small government that gets out of the way of business and successfully lured Omnicare back to the Buckeye State:
When asked about that at the Omnicare announcement, Kasich replied: "I'm the governor of Ohio; I'm not the governor of the region. We're creating an environment here where things are happening. You get rewarded for doing good things."
Kasich has made it known that he's eyeing Kentucky as a recruiting ground for Ohio. Omnicare was the first company his administration began negotiating with after taking office in January 2011.
Kasich may be thinking it's payback time. "In the past, everybody was coming to take our jobs out of the state," he says.
Back in 2007, John Sugg explored "The Folly of Southern Hospitality" for Reason. The South has long led the country in public incentives dished out for corporate relocations. Yet far from increasing jobs and economic growth, such effects have the opposite outcome. They suck money out of the economy and screw over other businesses and taxpayers (who have to pick up the tab). Read the whole story for a detailed explanation of why such bids fail to ensure long-term growth, result in fewer jobs than promised, and create a culture of corruption to boot. Here's a snippet:
Imagine a local economy of $100 million in 2000. A new business relocates to the area that year and directly spends $10 million. Economic development boosters claim that for every dollar spent another three are generated indirectly, as the relocation draws more businesses. (Manufacturers of automotive parts, for example, will establish plants or distribution facilities near a new car assembly plant.) So in 2001, the economy should be pumping along at $140 million—the original $100 million plus $10 million in direct spending plus $30 million from the multiplier effect.
"It never happens," says Phil Porter, an economist at the University of South Florida. Porter has looked at several cities where the multiplier effect was promised and checked to see if it worked as predicted. His method is to take the current economy and work backward—in the case of our hypothetical city, subtracting both the $10 million spent by the enterprise and the $30 million allegedly generated by the multiplier effect. If the effect worked as promised, he'd arrive at $100 million. Instead, he invariably gets less.
For example, local boosters in Tampa, Florida, claimed the 2001 Super Bowl brought $300 million in economic impact to the area. But according to sales tax receipts, sales in Hillsborough County (where Tampa is located) for January 2001 were about $1.44 billion, compared to $1.4 billion for a year earlier. There was growth, sure, but no more than is seen in many year-to-year comparisons when the Super Bowl wasn't a factor; in fact, it was less than the average growth, and far less than what was predicted.