The city of Indianapolis’ plan to award Rolls-Royce Corp. $22 million in tax abatements—even though it is not committing to add a single worker—has rekindled the age-old debate over corporate welfare.
To be sure, that’s a debate worth having. We wish communities and states didn’t dole out incentives like candy—a practice so prevalent that company executives and boards almost feel derelict in their duty if they don’t chase the maximum handout.
But despite Rolls’ lack of job commitments, we don’t see the London-based aircraft engine-maker as a poster child for incentives gone awry. We think city officials have made a compelling case for stepping up big to secure the future of one of Indianapolis’ largest employers.
Here are the nuts and bolts of the deal, as reported by IBJ last week: Rolls this year plans to move 2,500 office workers from two World War II-era plants on the west side into the downtown Faris Campus formerly used by Eli Lilly and Co.
The worker exodus will pave the way for Rolls to move forward with $190 million in upgrades at the plants—improvements that are mandated under the company’s contracts with its customers.
Without the investment—and the move to make it happen—city officials say Indianapolis could have lost some or all of the company’s local employees.
We can’t know for sure that was a real risk. But if the city had bet it wasn’t and been wrong, the consequences would have been devastating. Rolls has more than 4,000 employees spread across about a dozen locations in the Indianapolis area—a concentration of good-paying jobs that would be almost impossible to replace if the company pulled out.
The city offered Rolls a 10-year, $1.2 million abatement to occupy the Faris Campus on South Meridian Street. As part of the move, Rolls will spend $20 million to retrofit the space. In return for investing $190 million into its west-side plants, Rolls will receive a 10-year, $21 million abatement.
We think the space shuffle is a net gain since it bolsters employment in the Mile Square—an area critical to the health of the entire region. But just as important, Rolls’ total investment of $210 million greatly enhances the likelihood that the company will continue to be a mainstay of the city’s economy for years to come.
Of course, if Rolls had moved forward on the downtown relocation and plant upgrades without a financial boost from the city, that would have been a far more desirable outcome.
And at first glance, $22 million in abatements over 10 years looks like a big sum. But it’s just half of the $44 million in additional tax revenue the improvements were projected to have generated had there been no tax break. And it’s a pittance compared with what the city would have to dangle to get an employer of that quality and scale to move here from another state.•
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