Ending Job Piracy, Building Regional Prosperity by Leigh McIlvaine with Greg LeRoy July 2014 www.goodjobsfirst.org 1616 P Street NW Suite 210 Washington, DC 20036 202-232-1616 ©copyright 2014 Good Jobs First. All rights reserved. Executive Summary Among the most wasteful uses of Those that do address it have had economic development funds are various degrees of success cultivating subsidies used by local governments to a regional economic development pirate jobs from nearby communities culture. Commonly used elements within the same metropolitan area. of successful region-based economic However, two metro areas—Denver, development agreements are tax-base Colorado and Dayton, Ohio— have sharing, transparency policies related to developed successful strategies to business inquiries, education programs, curb intra-regional job piracy. Using retention strategies, and shared access explicit anti-piracy agreements focused to community economic development on procedural aspects of economic funds. development practice, the two metropolitan regions have successfully In Denver, Colorado, the Metro Denver halted such abuses. Through these Economic Development Corporation agreements, they have also managed to (EDC), employs a Code of Ethics that is develop a culture of regionalism. binding upon participating jurisdictions. The Code requires transparency, The use of subsidies to shift jobs around respect, and cooperation by member a metro area carries the cost of lost tax localities that work together for revenues and reduced services. But the regional prosperity. In the Dayton, Ohio full costs of intra-regional job piracy metropolitan region, the Montgomery go beyond the development subsidies: County ED/GE and Business First! because business relocations are so programs allow member jurisdictions often moves from central metropolitan to participate in a tax-base sharing locations to fringe suburban areas, they program, while also providing access create externalities associated with to a shared economic development sprawl and regional inequality. fund for region-focused projects. Like the Metro Denver EDC Code of Ethics, Although many metropolitan areas the Montgomery County programs struggle with the challenge of intra- emphasize transparency, cooperation, regional job piracy, few have attempted and mutual respect among member to proactively remedy the problem. communities. Both of these metros www.goodjobsfirst.org Ending Job Piracy credit successful region-based economic • practicing transparency development strategies for helping win (especially when an incumbent major job creation projects. employer signals a possible In sharp contrast to these regions are the Twin Cities in Minnesota and • relocation); the Kansas City metro, which spans counties in both Kansas and Missouri. building flexibility into • emphasizing and embedding In their attempts to address intra- agreements; regional job piracy, neither region has emphasized the procedural aspects of • processesreforming ofstate cooperation; economic and such agreements. In the Twin Cities, development program rules the Fiscal Disparities Act has failed to that a) pressure localities to curb local job piracy by simply sharing match state incentives, b) some tax-base growth. The Kansas City allow companies to receive area has a bitter, costly jobs war that the state subsidies for intra-metro two states have so far been unable to relocations that lack the blessing resolve. However, in June 2014, Missouri of the “losing” community, and enacted a law which, if reciprocated by Kansas within two years, will end the (TIF) to be used for intra-metro use of state subsidies for interstate job relocations.c) allow tax increment financing piracy there. Enacted at the insistence of a group of bi-state business interests, the pioneering Missouri legislation has metro areas such as New York, Memphis andthe potential Charlotte. to inspire similar efforts in Policy takeaways from these successful regional systems include: • focusing on economic development practitioners • (rathereducating than key elected community officials); members; www.goodjobsfirst.org Introduction Good Jobs First has written extensively on the problems created by job piracy, employees’ commuting patterns. and especially on the wasteful use of figure packages to merely change their economic development subsidies when Job poaching is especially corrosive they aren’t incentivizing the creation of because it undermines local tax any new jobs. In our 2013 study The Job revenues. Local job subsidies are Creation Shell Game, we detailed how primarily derived from property taxes states use subsidies to pirate jobs across – revenues that would otherwise state lines—sometimes very short distances in multi-state metro areas like protection, and road, water and sewer Kansas City or Memphis—at great cost infrastructure.fund school budgets, When fire local and governments police to taxpayers. forego property taxes from businesses in the name of economic development, While this “economic war among the they still must provide services to those states” has been recognized and decried companies. That means higher taxes on for decades, far more common are job everyone else, degraded public services, wars among suburbs and between or some of both. cities and suburbs in the same metro areas. Indeed, such moves are far more But intra-regional job piracy also creates common than long-distance relocations costs for an entire region. Good Jobs across state lines. Using powers they First has demonstrated in numerous derive from state law, localities use analyses that subsidized business business incentives to poach jobs from relocations are decidedly sprawling.2 their neighbors. When subsidies Overwhelmingly outward-bound, such are used to lure businesses from one relocations shortchange communities community to another, claims that of color, areas with high unemployment “new jobs” are being created are truly and poverty, and neighborhoods hardest fraudulent.1 The waste is especially egregious when the move occurs they also make more jobs inaccessible within the same labor market, with the viahit bypublic plant transit. closings and mass layoffs; result that companies receive eight- www.goodjobsfirst.org Ending Job Piracy In addition to the direct costs of jobs from neighboring communities within a metropolitan region is worse than a zero-sum game: it is a net- fringefinancing also new brings infrastructure indirect costs: to serve tax- loss game because overall it reduces basegreenfields, strain in development those localities on the that the amount of funding available for education and infrastructure and other congestion and lower air quality, and lossare abandoned; of arable land. increased Cheaper commuter land, the Managing the use of subsidies by many smallpublic jurisdictions goods that benefit to control all employers. beggar- development sites, and room to expand thy-neighbor practices is a challenge makeappeal the of less-complicatedfringe of many metro greenfield areas overcome by only a couple of metros. innately attractive for many businesses. The problem seems so intractable that So why pay companies to go there? few even attempt to address it. Or, as a Minnesota wag once put it: “Subsidizing economic development in Our report highlights the small number the suburbs is like paying teenagers to of metropolitan areas with various think about sex.” approaches intended to halt the wasteful practice of subsidizing businesses to The use of property tax abatements and simply shift jobs around within a region at taxpayer expense. tax increment financing (TIF) to pirate www.goodjobsfirst.org Failing Models in Regions with Piracy Minneapolis/St. Paul, Minnesota metropolitan area, and even though one of its six stated objectives was, as Balkanized metropolitan areas face a scholars have summarized, “to establish special challenge when communities incentives for all parts of the area to pirate nearby jobs. Minnesota’s work for the growth of the area as sprawling Twin Cities region now a whole,”4 it has failed to engender encompasses 13 counties and hundreds a culture of regional cooperation in of cities and towns in both Minnesota participating communities. Local job and Wisconsin. Faced with central city piracy remains a problem. Through decline in the 1960s and 70s, the state an analysis of 86 intra-metro business responded with the Fiscal Disparities relocations in the Twin Cities region Act (colloquially known as the Weaver during the early 2000s, Good Jobs Act for its lead sponsor, Rep. Charles Weaver of Anoka), a tax base-sharing relocations were outbound, with more program that includes the seven thanFirst adetermined quarter moving that four-fifths 10 miles or of Minnesota counties that then comprised more farther away from the urban the Twin Cities metropolitan region. core. Three-quarters of the relocations were5 subsidized through tax increment all included communities to share 40 percentThe Act, ofin theeffect subsequent since 1975, growth requires in future growth in property tax revenues. their commercial-industrial tax base. financing, a subsidy derived from the That revenue is redistributed among Interviews with “winning” local jurisdictions in the region according to population. As of 2011, 37 percent some actively solicited businesses of the seven counties’ commercial- throughdevelopment a variety officials of methods, found that from industrial property tax base and 11 percent of the total property tax base pitches to