The Job Creation Shell Game: Ending the Wasteful Practice of Subsidizing Companies That Move Jobs from One State to Another
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January 2013 The Job Creation Shell Game: Ending the Wasteful Practice of Subsidizing Companies that Move Jobs From One State to Another by Greg LeRoy, Kasia Tarczynska, Leigh McIlvaine, Thomas Cafcas and Philip Mattera A Publication of: Good Jobs First January 2013 © Copyright 2013 Good Jobs First. All Rights Reserved. Acknowledgements Good Jobs First gratefully acknowledges the assistance of various organiza- tions and individuals. Any errors or omissions are ours, not theirs. ThanksWe wish also to to:thank Noah the Berger state ofand the local Massachusetts economic development Budget and Policy officials Center; and Amythe staffers Blouin andof regional Traci Gleason business of theorganizations Missouri Budgetwho answered Project; Kateour queries.Brew- ster of the Center for Economic Progress in Rhode Island; Brett Bursey of - nomic Development Council; Allan Freyer of the North Carolina Budget and Taxthe SouthCenter; Carolina Bill Howell Progressive of Tennesseans Network; forJeff Fair Finkle Taxation; of the InternationalChad Johnson Eco of AFSCME Local 1733 in Memphis; Gordon MacInnes and Jon Whiten of New Jersey Policy Perspective; Craig McDonald of Texans for Public Justice; James Parrott of the Fiscal Policy Institute in New York; Zach Schiller of Policy Matters Ohio; Andria Signore of the Edward Lowe Foundation; Wesley Tharpe of the Georgia Budget and Policy Institute; Don Walls of Walls & Associates; and Angie Wei and Sara Flocks of the California Labor Federation. Finally, thanks to our own Good Jobs New York director Bettina Damiani. Table of Contents Executive Summary i Introduction: Why Interstate Job Piracy is Wasteful and Unfair 1 History of Economic Competition Among the States 9 Case Studies: Cowboy Industrial Policy: The Lone Star State’s Misguided Approach to Jobs 16 River Pirates: Jobs as Plunder in the Kansas City Metro Area 21 New Jersey Doubles Down with Relocation Subsides for Rich New York Firms 24 Georgia: The Poach State 27 Charlotte Metro: A Boom Town In-Fights over Growth Instead of Managing It 30 Tennessee and Memphis: Opposite Roads 33 Ocean State Lures Leave Rhode Island on the Hook 37 Job Blackmail: The Shadow Cast by Job Piracy 38 Policy Discussion and Recommendations: States Already Know How to De-Monetize Interstate Job Fraud 41 Appendix A: List of Major State Subsidy Programs with Restrictions on Intrastate Job Shifting 45 Appendix B: Examples of Rules Prohibiting Subsidies for Intrastate Job Relocations 48 Endnotes 51 Executive Summary With many states still grappling with which states can compete began declin- high unemployment and depressed tax ing sharply in the early 2000’s and has revenues, some have reverted to an eco- yet to recover to even half its peak. nomic development shell game: paying companies to jump state lines.1 This Combine depressed deal supply with beggar-thy-neighbor process, long ago - dubbed the “Second War Between the cials anxious to appear aggressive on States” is, unfortunately, raging again in jobs)increased and demandthe price (i.e., goes more up: publicbillions offi of many parts of the country. dollars of badly needed taxpayer funds intended for job creation are instead What states euphemistically call “busi- underwriting what amounts to job redis- ness recruitment” is often nothing more tribution. than the pirating of jobs by one state from another. This piracy is bankrolled Worse than zero-sum, this is a net loss by property, sales and income tax breaks, game, with footloose companies shrink- land and infrastructure subsidies, low- ing the tax base necessary for the interest loans, “deal-closing” grants, and education and infrastructure invest- 2 other subsidies to footloose companies. - mentsAt the corethat benefitof this shellall employers. game is what we For trophies such as corporate headquar ters, some states even offer per-job cash congratulate themselves for bringing call interstate job fraud. Public officials grants to finance executive relocations. “new jobs” to the state, even if all of the is “job blackmail,” politely called “reten- jobs already exist. This happens both for tionThe darkincentives.” flip side Withof subsidized subsidies job readily piracy long-distance moves and when the relo- available to any company that creates the cation takes place within a multi-state appearance of moving, states are more metro area—like Charlotte, Memphis, eager to pay companies to stay. New York or Kansas City—where many of the jobs are probably already held by Why is this happening more in recent residents of the new subsidizing state, or years? The Great Recession is a factor, of will remain held by residents of the old course. However, long-term data indicate state. that the number of major projects for www.goodjobsfirst.org The Job Creation Shell Game This interstate shell game is both waste- • New Jersey has doubled down on both ful and incredibly unfair to existing in-state employers, whose expansions and start-ups account for virtually all job piracy and job blackmail payoffs, of the job-creation action. The costs are thatcontinuing were likely to lure to firms come from anyway) New York and very high: we catalog numerous exam- City (many of them Wall Street firms packages for companies moving short packages in just a sampling of the states. distancesassembling intrastate. two nine-figure retention ples of eight- and nine-figure subsidy- ses from several states by researchers of • Georgia, which we rename the Poach diverseYet the benefits orientations, are extremely using a remarkably low: analy detailed business census called NETS, consistently conclude that interstate job NCRState, from stunned Dayton, officials where in theOhio company when it originallysuccessfully named lured National the headquarters Cash Regis of- state economies—positive or negative. ter had been for 125 years. It was one relocations have microscopic effects on of dozens lured from the Buckeye State After examining the big picture in our and others. introduction and then reviewing the history of economic competition among • Tennessee embodies all the policy con- the states, we examine current hot spots. tradictions. Its largest city, Memphis, Highlights include: bordering Mississippi. Indeed, the state • In the Kansas City metro area, com- is frequentlyringed with the multi-state victim of metropoaching areas. by subsidy packages to move from the co-top economic development prior- Missouripanies have side been to Kansas, getting or eight-figure vice versa. ity.Yet stateTennessee officials even say jobcreated piracy a iswhole their A group of prominent business leaders new subsidy program to lure the North spoke out publicly against the wasteful process, but still it continues. southern California. American headquarters of Nissan from • In Texas, the administration of Gov. • The booming Charlotte region has Rick Perry uses the “deal-closing” job growth most states would die for. Texas Enterprise Fund as well as a pri- Yet instead of managing their growth, the 16 counties in North Carolina and TexasOne to brazenly lure companies South Carolina routinely lure jobs fromvately many financed states, marketing including group California. called from each other, using both state and local subsidies. Private-sector inter- ests—site location, tax and real estate www.goodjobsfirst.org Good Jobs First moved within their own borders. While adopting a common-sense approach passive.firms—are driving the process even concerning intrastate relocations, most as public officials have grown more of these same states abandon all rigor • Rhode Island has long pirated jobs when it comes to jobs shifted from across from Massachusetts, but when it gave a their borders, even within the same labor very large package to lure video game market. maker 38 Studios, founded by retired Boston Red Sox star Curt Schilling, the We also recommend that states end their deal soon blew up and criminal pros- business recruitment activities that are ecutions are now under way. explicitly designed to pirate existing jobs from other states: no more direct • Huge job blackmail subsidies have left many taxpayers bitter in states billboards, ad campaigns, websites or such as Illinois and Ohio, and Sears solicitations, targeted relocation offers, Holding Corp. has continued to shed poach jobs. jobs despite getting a second nine- other efforts specifically designed to To give the states an incentive to take Gov. John Kasich—after bidding for these steps, we describe a possible role Searsfigure retentionand arranging deal from three Illinois. very largeOhio for Uncle Sam: to set aside a small portion retention deals—recently made a state- of one federal program’s aid to states ment suggesting he is having second as a “carrot” states would receive upon thoughts about bidding wars. amending their incentive codes to make existing jobs ineligible for subsidies, and To cool these job wars, we recommend certifying no more raiding. that states demonetize interstate job fraud. That is, the states need to stop sub- sidizing companies for existing jobs that are regarded as “new” simply because their location has changed. It turns out that the vast majority of states already know how to do this: four-fifths of the states already refuse to pay for intra- state job relocations. For at least one and sometimes most of their major incentive programs, 40 states disallow subsidies for existing jobs that are merely being www.goodjobsfirst.org Introduction: Why Interstate Job Piracy is Wasteful and Unfair As states grapple with how best to moving party, so to speak, but they have recover from the Great Recession, some - have turned again to a shell game. ble large subsidy packages that include callingno trouble existing finding jobs states “new.” eager to assem They have turned to what we call here “interstate job fraud.” That is, they actively try to lure existing jobs from other states, re-label them “new” (or perhaps tech- developmentThe net effect resourcesof these piracy away lures from and nically “new to the state”) and shower helpingblackmail companies payoffs isexpand to divert or starteconomic up, footloose companies with eight- and where virtually all the job-growth action is.