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  • | 5:00 a.m. January 27, 2011
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“We come to the conclusion … for states to justify allocating scarce state funding toward economic development incentives, a clearer understanding of the actual returns to these incentives needs to be obtained. Without better ways to measure state development incentive outcomes, the economic success of such initiatives remains uncertain.”
The State of Economic Development Incentives
     Wells Fargo Securities Economics Group

The above paragraph comes from an eight-page report released Monday. It’s the latest in a large, large library of academic and economic studies that essentially conclude that providing tax breaks in exchange for corporate locations or relocations is marginal at best, but mostly a losing proposition for taxpayers, states and local communities.

The timing of this report was fortuitous. It was released just as large groups of politicians, economic development agents and business proponents in Sarasota, Collier and Hillsborough counties, as well as in Tallahassee, are courting officials from Bar Harbor, Maine-based Jackson Laboratory.

The $160 million (annual revenues), not-for-profit genetics research organization is considering locating a new branch lab that would employ about 250 people. The catch is: It is seeking in the neighborhood of $260 million in taxpayer funding to build its Florida institute — with the money being split 50-50 at the local and state levels.

The noise in favor of this subsidization is rising, just as it is for the state taxpayers to subsidize a high-speed train.

Jobs! Think of all of the jobs, the proponents pant. Even some state economists who should know better — i.e. Sean Snaith of the University of Central Florida — are puffing in favor of these taxpayer subsidies.
Not only will this taxpayer funding help create construction jobs, it will lead to other economic spin-offs and ripples that will justify the “investment.”

The economists at Wells Fargo Securities’ Economics Group are not nearly as sanguine or giddy. Their eight-page report — with ample references to previous academic studies — concludes that states do a lousy job of tracking the return on investment of such subsidies. “As a result of these measurement deficiencies … there is not a clear evaluation of past programs for policy makers to make informed decisions about where to invest a state’s increasingly scarce funds,” the Wells Fargo economists write.

But let’s cut to the quick. The Wells Fargo report isn’t nearly as blunt on these subsidies as one of the country’s leading economists on this subject, Dr. Richard Vedder, distinguished professor of economics at Ohio University. Vedder has spent 30 years studying the field of public finance and economic incentives. As he told us this week:

“The evidence, as best as I can tell, is that states that put money into corporate food stamps don’t get a high pay-off.”

Get that? “Food stamps.” Corporate welfare.

Let’s go further with professor Vedder. “It’s a stealth kind of thing,” he says.

When, say, Jackson Laboratory builds and opens in Florida, we see the jobs that are created. “But what’s lost or not seen,” Vedder says, “are the jobs invisibly lost or that would have otherwise occurred.” What’s more, he says, “That $260 million doesn’t come out of thin air.” It comes from taxpayers.

And that $260 million could be used in a lot of different ways — as in tax relief, Vedder says. Or, as the late Nobel economist Milton Friedman once told us, what the politicians seldom take into consideration when giving big subsidies to corporations is how else that $260 million might be used if left in the hands of the taxpayers (who worked hard to earn it to begin with).

Few politicians consider that taxpayers likely would use that money for other economic activity that could create as many or more jobs and spin-offs as Jackson Laboratory. It’s wrong for a politician to think otherwise.

What’s more, Vedder adds, “Politicians make political decisions not on the basis of cold economic realities the way consumers and businesses do. Any time the government is spending $100 million, it is crowding out other spending that is more likely to be done more intelligently (by the private sector) because the private sector doesn’t have political influences.”

It’s alluring and sexy to be in the hunt for big elephants like Jackson Laboratory. But it is neither moral nor justified to take $260 million from taxpayers and give an unearned benefit to any corporation.



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