As a site consultant for over eight years, I worked for those “footloose businesses that could locate anywhere” Michael Hicks talks about in his [March 17] column “Focus on real job creation.” We helped these companies choose the best states and communities for their expansion projects.
Hicks’ suggestion that at the local level there is an incentive to “over-predict” job creation to secure tax abatement or infrastructure through tax-increment financing is wrong, based on my experience.
He suggests the state is doing things right while the communities are doing things wrong. When it comes to economic incentives—and who is right or wrong—I would suggest starting with the basis for the incentives programs and the related policies used to administer the programs.
On the occasion that Cassidy Turley did a project in Indiana, we recommended to our clients that they be very conservative with the numbers associated with tax abatement or TIF. The basis for tax abatement is capital investment in buildings and equipment. In this case the primary measure is: Did they live up to their investment commitment?
Let’s say a company in its abatement application proposes a $50 million investment in plant and equipment. If the company, for whatever reason, ends up only investing $25 million, the abatement applies only to the amount it invested. This would appear to be a pay-for-performance program much like the state level Hicks is not worried about.
Infrastructure is another matter because it requires a community to make an upfront investment before the company makes a capital investment. In most cases, a community’s financial advisor—if prudent—recommends a borrowing level that takes into account a potential shortfall in private capital investment.
On the other hand, Cassidy Turley did find that because of policies related to the state-level incentives there is an advantage to “over-predict.” State incentives require a company to predict future job growth, but once the company states a number—such as 200 jobs—the state incentives are capped at the corresponding amount.
Other states do not cap jobs and corresponding incentives. This gives the company an incentive to stretch beyond the predicted 200 jobs used in this example in order to claim more incentives.
While I agree with Hicks’ premise that “the success and failure of our economic development efforts should be measured simply by how much better our economy [state or local] becomes,” to suggest that locals don’t weigh other factors is absurd.
He is not giving credit to county and municipal leadership.
president, Hamilton County Economic Development Corp.; former site consultant, Cassidy Turley; former executive director, Indiana Department of Commerce