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Are "Job Creation" Giveaways Money Well Spent?

by: mooncat

Tue Jul 31, 2012 at 09:54:15 AM CDT

Every year Alabama spends millions on subsidies to businesses.  Are they worth it in terms of creating jobs?

Yesterday countrycat noted that Toyota is receiving millions in giveaways and incentives -- ultimately paid for by the rest of us -- to help them expand and, so the story goes, create jobs.  Among those incentives is a break on utility rates:

In addition, the city will seek a $150,000 state site development grant and ask Huntsville Utilities to give Toyota an "investment initiative" credit worth $974,000.

Is anybody measuring the effectiveness of these giveaways in terms of creating jobs?  How much public and communal money are we spending per job created?  Is it worth it or are we getting taken to the cleaners?  And when did utilities get involved?

OK, when the state spends millions on roads for a company or gives them a multi-million dollar property for free, we know it's taxpayers who are picking up the tab.  The money trail is less clear when utility providers start giving away money to "create jobs." 

If Huntsville Utilities gives Toyota a million dollar credit on their bill, it isn't because Toyota's expansion suddenly saves them a million dollars on the cost of generating and distributing that power.  The million dollars has to come from somewhere and I suspect it comes from the other ratepayers who don't get such preferential treatment.

Turns out the Alabama Public Service Commission has also negotiated special rates with Alabama Power to encourage job creation.  Part of the PSC's scheme to create jobs increases the upper demand limit for businesses to qualify for special small business rates.  The savings amounts to about $25 a month, which doesn't seem like enough to encourage a business to create even one more job. 

Another part of the PSC scheme is to give a rate discount to businesses that open or expand in a building that's been vacant for 6 months or more.  This amounts to 10.5% to 12.5% off the total bill, which could be quite a substantial amount.  Unfortunately, the example given in this report is of a chiropractor who moved to Alabama, but admits he didn't even know about the discount program when he decided to locate his practice in a vacant strip mall.

Reimann said Monday he learned about the program from one of his patients who works for Alabama Power, and he qualified because he opened his practice, Absolute Health Solutions, in strip mall space that had been vacant for months.

Reimann said he's awaiting his first bill since signing up, so it's too early to know the financial impact.

In other words, he would have located (did!) his business here without the incentive -- the utility incentive was just serindipitous free money, it didn't bring the jobs to Alabama.  As job creation money goes, it was wasted. 

The third part of the PSC's job creation scheme is to give discounts -- 10% the first year and 5% the second year -- to businesses who meet the state's criteria for Capital Investment Tax Credits (CITC). Here's a small bright spot.  There is a requirement for new employees in order to qualify for the CITC ... but it seems kind of low for the amount of money they're handing out.

  • At least 50 new employees at headquarters facilities or data processing centers;
  • At least 20 new employees at all projects except utility owned projects, small business additions and projects located in favored geographic areas;
  • At least 15 new employees at small business addition projects;
  • At least 5 new employees at projects located in favored geographic areas*
  • New employees must meet the statutory definition of new employees, found in Section 40-18-190, Code of Alabama 1975. “New employees” cannot have worked at the site before, and cannot have worked for the project entity in Alabama before. Required jobs must be provided by the date that is not later than one (1) year after the project is placed in service, continuing each year thereafter.

I'd like to see more (any?) payback math on these utility giveaways, because $6 to $10 million seems like a lot to spend to get 20 new jobs -- or 5 in a disadvantaged area.  On top of that, how many of these expansions and new businesses would locate here anyway, even without the giveaways?

In fact, Alabama taxpayers ought to be shown the payback math on all these business subsidies and other schemes to stimulate the economy -- like sales tax holidays, which apparently aren't the miracle our Legislature imagined they would be.  Unfortunately, for the most part the data doesn't exist.  A recent Pew Research Center report indicates that most states, including Alabama, don't have programs in place to evaluate the effectiveness of tax incentives and other "job creation" giveaways.  

This is important.  Every dollar spent on tax incentives, infrastructure or other giveaways to attract business and jobs is a dollar local and state governments can't spend on education, health care, transportation for the rest of us and critical government services.  Alabama doesn't have any dollars to spare.  Incentive programs ought to be monitored to make sure taxpayers are getting a good deal, not just giving good deals to big corporations.

mooncat :: Are "Job Creation" Giveaways Money Well Spent?
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redistribution of (infrastructure) wealth (4.00 / 1)

There's no such thing as a free lunch (or utility connection, or property development). Someone is paying for this, which means that it amounts to a redistribution of wealth to the businesses. 

I think you hit on it in a previous comment (0.00 / 0)

Mooncat - corporate socialism!

Desperately waiting for Mitt Romney to show up at the Mercedes plant, Toyota, Airbus construction site, etc. and give his "you didn't build that" line.

Which he'd probably be happy to do since he has no shame or even - it seems - contact with reality at times.

So many things amaze me about Alabama politics, but one of the biggest issues I have is the total disregard for metrics and evaluation abefore legislaton is voted on and after it's implemented.

Hey, if they found out that these incentives don't work, they might be forced to stop doling out public money to their private business contributors...

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness."  - John Kenneth Galbraith



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