The news release below (from the non-profit Good Jobs First) describes a positive step towards what I hope will become a national trend. As I’ve long-described in my books, articles, and talks, the practice of cities’ poaching employers from each other and calling it “economic development” is–at the state and nationals levels–an economic fraud.
When an employer is wooed from one city to another (via tax breaks) within the same state, there is no “economic development” at the state level. Just the opposite, in fact: the tax revenues in that state have now been reduced, thus reducing the ability of its cities to rebuild their infrastructure or provide basic services.
The same is true of the national economy, when an employer moves across state lines, enticed by the freebies offered by another desperate city or county. If the tax revenues remained the same, this would merely be a zero-sum game: simply a reshuffling of the deck chairs. Certainly not economic growth. But since the net tax revenues usually go down, it’s less than a zero-sum game.
Sure, the “winning” city enjoys some more jobs, but at the cost of another community’s jobs. If a city attracts an employer from another place via superior quality of life, or by revitalizing and being seen as a “cool” place that’s on the rise, that’s a positive form of competition. Everyone wins when places compete on quality of life.
But competing by giving away the life blood of the local government, taxes, is often self-destructive. Business marketers have long acknowledged that lowering prices is the weakest form of salesmanship. It’s time for cities to stop being weak. Greg LeRoy of Good Jobs First is on the front lines of the effort to end this economically destructive practice. – Storm Cunningham, Publisher, REVITALIZATION
Good Jobs First applauds the State of Kansas for its progress towards accepting Missouri’s offer of a legally binding cease-fire to end the Kansas City-area problem of so-called “interstate job fraud,” or the payment of huge tax breaks for companies to relocate short distances across the region’s state line.
On Friday, April 15, Kansas Gov. Sam Brownback released a statement and directive memo to his commerce secretary laying out Kansas’s counter-offer for Missouri to meet before its legislative session ends. The modifications, if accepted, will make the cease-fire somewhat less rigorous. The biggest concession would be to allow Kansas to apply its most generous subsidy to interstate moves if the company commits to spending $10 million or more for the construction of new building.
However, the overall structure of the deal is wholly unprecedented. Nine counties in the two states would no longer see active job-piracy recruitment and most state-hopping relocations would not qualify for tax-break subsidy deals.
“Thanks to the leadership of Hallmark and 16 other Kansas City-area employers, for the first time in U.S. history, two states are close to entering a legally binding cease-fire on jobs,” said Greg LeRoy, executive director of Good Jobs First. “For five years, these 17 companies have been publicly calling the two states out and privately advocating for real action. They are the real heroes behind this news.”
The 17 companies issued a powerful statement in April 2011 calling upon the two states to stop allowing companies to jump the state line and be declared creators of “new jobs” for purposes of subsidy awards. They wrote in part:
At a time of severe fiscal constraint the effect to the states is that one state loses tax revenue, while the other forgives it. The states are being pitted against each other and the only real winner is the business who is “incentive shopping” to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.
Following up on that, the businesses lobbied in Jefferson City and in July 2014 they won the enactment of Missouri’s offer of a binding two-state deal. Kansas state and local officials had 24 months before the offer expired and have been honing their counter-offer, especially the past six months.
“There have been sporadic anti-piracy handshake deals between governors since the 1980s, but none has ever lasted and we pay them no attention,” said LeRoy. “Repeatedly, governors have copped out, saying ‘How can you expect my state to unilaterally disarm?’ That’s why Missouri’s offer of half of a bi-lateral deal was so savvy, and why Kansas’s acceptance will be so significant,” said LeRoy.
Good Jobs First issued a January 2013 study highlighting Kansas City and numerous other “hot spot” metro areas that include two or three states and suffer the same problem (including Memphis, Charlotte, New York, and Boston) as well as states like Texas and Georgia that have aggressively pirated jobs from more distant states. It pointed out that 40 states already prohibit companies from calling jobs “new” when they merely relocate intrastate, so they could easily disqualify interstate moves, too. All that is lacking is political will like that provided by Kansas City business leaders.
“Taxpayers in other hot spots will be keen to hear about this common-sense precedent,” said LeRoy. “From Albany and Trenton to Nashville and Jackson, it’s time states stop wasting money paying companies to merely change people’s commuting routes.”
“The last time the National Governors Association debated this issue was 1993, soon after the Mercedes deal,” LeRoy pointed out. “Things have gotten far worse since then, but the NGA has remained MIA. This outrage from Heartland business leaders is their wake-up call.”
Good Jobs First also pointed out that its 2015 survey of small business group leaders with 24,000 members found super-majorities believe that state incentive programs favor big businesses and are neglecting small businesses that seek to grow.
Good Jobs First is a non-profit, non-partisan research group promoting accountability in economic development subsidies. Founded in 1998, it is based in Washington DC. Greg LeRoy’s 2005 book, The Great American Jobs Scam, details in Chapter 3 how the “economic war among the states” evolved over decades. There has been no federal leadership on the issue, and a 2005-2006 Supreme Court case was dismissed for lack of standing.
Photo of Kansas City, Missouri by Hngrange via Wikipedia Commons.