Archive for Monday, September 23, 2013

Report questions the effectiveness of tax incentives given by states to lure businesses

September 23, 2013


States are spending billions of dollars on tax incentives to lure businesses, but policymakers often don't know if the incentives work, according to a report released today.

The Council of State Governments report also said that funding education may be more important in trying to bring businesses to a state.

"Most states make significant investments in business incentives, but we've found most states don't have a good handle on what that investment is buying," said David Adkins, executive director and chief executive officer of CSG, a nonpartisan, nonprofit research group based in Lexington, Ky.

The report tracks on a national level what a state audit released earlier this month said of Kansas' business tax incentives.

That audit said it was difficult to assess the benefits of major economic development programs that are designed to lure businesses to Kansas, because the Kansas Department of Commerce had incomplete or inaccurate data. In addition, the audit said the state had exceeded the statutory cap on tax incentives.

The CSG report found similar problems in other states.

The report said state leaders often aren't familiar with the costs of tax incentives, and that solid evaluation of the programs is lacking. It also said bidding wars for businesses between states can have a negative impact.

"Far too often, states are competing for a business whose relocation decision is not significantly impacted by the business incentives offered," said Adkins, a former Kansas state legislator. "Investments in education and cultural resources may actually do more to influence the decisions of CEOs."

State Sen. Jay Scott Emler, R-Lindsborg, who was chair of CSG last year, created the working group that looked at how states are using business incentives.

"The working group hopes legislators, economic development practitioners and private sector companies make this a living document that provides guidance to everyone and helps to advance all economic development," Emler said.


optimist 4 years, 5 months ago

This doesn't even pass the logic test. There is no way to stop incentives because there is going to be a community somewhere in the country willing to give tax incentives to attract business. The benefits to the community should certainly be an issue of debate but their value as a tool to attract companies really isn’t. Taxes are a major factor in profitability and any business in a position to relocate is going to weigh the cost of doing business heavily in their decision on where to locate. Just look at the flow of businesses and taxpayers out of height tax states into lower tax states over just the last decade or more. That doesn't even account for those that have left major cities to locate just outside those cities in order to avoid high city taxes in many major US cities. Incentives should be selective and a means to measure their ROI should be in place. The citizens have a right to know and future leaders making these decisions need to know how best to use them.

William Weissbeck 4 years, 5 months ago

Tax considerations are not generally a major factor for profitability. Supply chain, access to resources, customer base, workforce, infrastructure, etc., come before taxes. Throw in cost of living and wage base. Many of the tax incentives are thrown at existing businesses relocating within the same area. And there is little a local government can do when the business "fails." Just look at Sears and Motorola in Illinois where both parties sent wheel barrows of tax incentives to these companies and have very little to show for it. The tax payers never see the bill. And as to relocating outside of towns - in the case of industrial companies, this is sometimes done to avoid EPA clean air regs as these tend to be geographically based. That combined with a low wage base are a major reason industrial plants that can, move to rural areas.

olddognewtrix 4 years, 5 months ago

Would optimist consider sharing the statistics that support his assertions?

Frank A Janzen 4 years, 5 months ago

He means "of high tax states" not "of height tax states"

tomatogrower 4 years, 5 months ago

It would be interesting to do a study. But just a personal observation - If tax incentives worked, wouldn't states like Kansas, which seems to be offering a lot, have lots of businesses relocating? Instead they go to places where they invest in education and culture, which is not important in Kansas.

Armstrong 4 years, 5 months ago

Ya know tomato you bring up a good point and one that ties in with another article here in the LJW. Lawrence/Douglas county doesn't see it but in the Lenexa, Shawnee and Gardner areas new business is growing, moving in and expanding at a rapid pace. Douglas County is known as an anti-business environment ( a prime example the pumpkin patch) hence nobody wants to locate here due to massive regulation and backwards mentallity. Johnson county on the other hand is seeing massive growth in manufacturing, wholesale and warehouse work far beyond what's seen around here.

Of course the author of this piece may only be sharing one side of the story as he is well known to do also.

mccabetherealtor 4 years, 5 months ago

There will always be businesses for sale - available to the highest bidder. The results for most cities is that they buy a bad company. Has the American Eagle plant transformed Ottawa? I don't think so.

A smart city invests in itself, in entrepreneurs, quality of life including parks, bike lanes, sidewalks, etc. and works on attracting aspiring talent. And it competes. It measures the impact of its efforts to develop home grown businesses. Once the word gets out that a community is smart, hot and ready for new ideas, then businesses will naturally grow and locate there.

For a fraction of the money used for business incentives, we could build a thriving and innovative business culture right here. Imagine if we took $1million per year and conducted our own in-house Shark Tank program? The city is full of good ideas just waiting to be developed, and though there would be some losers, the winners would be huge and the entire city would benefit.

Armstrong 4 years, 5 months ago

If that's true why hasn't it been done long ago, why isn't the Lawrence economy booming, where are all the jobs?

mccabetherealtor 4 years, 5 months ago

Usually because governments don't want to get directly involved in business investment, so they often use abatements, incentives, etc. to give money to businesses rather than outright, direct funding. Lack of courage, lack of leadership, lack of vision are all good reasons why this hasn't been done.

There's an old saying: if you don't stand for something then you don't stand for anything. Lawrence's primary issue isn't it hasn't decided what it wants to be in terms of job creation. The result is that there has been virtually none. At some point, you have to have the will to create a vision and then to follow it.

FarleyM 4 years, 5 months ago

It is ludicrous to think that a state, city or county, taking more money from a business than another state, city or county, is an incentive for a business to move there.

question4u 4 years, 5 months ago

Wow! Read the article. The report doesn't say that tax incentives are effective for luring businesses and it doesn't say that they aren't. According to the article, the report says: "state leaders often aren't familiar with the costs of tax incentives, and that solid evaluation of the programs is lacking."

Did the knee-jerk reactors above read to the end of the article and see that the group that issued this report, CSG, was chaired last year by State Sen. Jay Scott Emler, R-Lindsborg?

FarleyM 4 years, 5 months ago

Regardless or the R or D next to the politicians name, familiarity with how money is created, is a must for understanding tax incentives and tax disincentives.

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