The News & Observer
September 22, 1995
Smarter on incentives?
Copyright © 1995, The News & Observer
Those who worry about the practice among states of attracting new industry
with tax breaks and other costly giveaways may find reason for optimism
in a report in the Financial World publication Corporate Finance. The report
doesn't just detail how incentives have gotten out of hand but also indicates
that many governments and businesses are beginning to have misgivings. That
news deserves a cautious welcome.Used with permission.
To be sure, the problems with incentives are far from licked. The publication
calls the competition among states an "open arms race" in which
unilateral disarmament is impossible. But there are grounds to hope that
good sense is beginning to creep into the picture.
Executives who were surveyed said that while states have become more
aggressive in the past five years about luring business with handouts, the
trend has begun to slow over the last 12 months. That may be because the
pitfalls for all concerned are becoming too obvious to gloss over.
For example, industries looking to relocate play states against each
other to drive up the value of incentive packages. Recruiters, their eyes
fixed on the creation of new jobs, offer deals that may turn out to be bad
investments of public tax dollars.
Existing businesses justifiably resent the largess that states extend
to newcomers. And as Watts Carr, former industrial recruiter for North Carolina,
points out, the practice can backfire on recipients. Their decisions may
be colored by the size of incentives rather than more traditional and reliable
factors such as quality of the work force, transportation and wage rates.
In a ranking of states based on the generosity of their incentives,
North Carolina comes out 16th from the bottom, a sign that it has managed
to avoid becoming too swept up in this expensive game. Though it wasn't
taken into account in the report, the use of incentives by the state and
its localities also faces a serious court challenge that may lead to severe
There is little sign that states are about to ditch recruitment tools
altogether, and it's doubtful that they should. Done right, the competition
can be healthy.
For instance, everyone benefits if states are driven to improve schools
and job training so that workers have more to offer prospective employers.
The same goes for strong environmental policies and public services such
as transportation and parks, which are important to responsible executives
concerned about quality-of-life issues.
The goal should be to design incentives that don't just favor a particular
company but instead lift entire communities. Otherwise the deals that state
and local governments strike with private industry are likely to be bad
bargains for everyone else.
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reproduced, translated, or transmitted in any form or by any means without
permission in writing from The News & Observer.
Copyright © 1995, The News & Observer.
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