Whirled editor asks, "When Will States, Cities Stop Bribing Companies?"


An observant reader sent along an insightful opinion column from the Whirled archives. The writer of the column cites experts and studies showing that big corporate bribes, like the proposed cash payment and zero-interest loan to Boeing, don't pay off for cities.

This writer believes that over $100,000 per job is "out of hand". I wonder what he would think of $350,000 per job that we're offering to Boeing.

He doesn't pussyfoot around -- he calls these payments "bribes". And he quotes various studies that show that these bribes don't have any positive economic impact, but instead hurts the cities and states that play this game.

The writer rightly praises Oklahoma's Quality Jobs Program, which evenhandedly rewards companies for actual job creation. And he is correct to say that building a sound economy is a long process, not an event, a process that flows out of the health of the community. Our community was attractive enough to attract Whirlpool -- and since Whirlpool came, Tulsa County residents have invested well over $1 billion dollars in capital improvements, including improvements to our schools, higher education facilities, and civic amenities like libraries, the Performing Arts Center, the Zoo, Gilcrease, parks, trails, and the Convention Center.

This is a rich mine of quotes -- I've highlighted my favorites in boldface. Note that Micron was playing the field in 1995 the way Boeing is today. The decision was already made, but the competition allowed Micron to wring more cash and concessions from their pre-selected location.

I wonder what this Ken Neal fellow is doing these days. Is it the same fellow who writes in today's paper that raising our sales taxes will lower our property taxes? Can't be!

The Highest Bidder // When Will States, Cities Stop Bribing Companies?
Ken Neal

Oklahoma lost Micron Technologies to Utah. Well, that's not quite right. Despite the fact that Oklahoma City was one of the three "finalists" for a 3,500-employee computer-related plant, it appears in retrospect that Micron was probably headed for Utah all along.

Like a pretty girl after her man, Micron appears to have used Oklahoma and Nebraska to make Utah jealous. At least jealous enough to match the incentives offered by the two Plains states.

Gov. Frank Keating said the Micron folks were "yuppies" who liked their mountains. With the original operation in Boise, Idaho, Utah was a likely shift. And, other Oklahomans close to the negotiations believe that the Mormon roots of Micron executives naturally tilted them toward the Salt Lake City-Provo area, world headquarters of Mormonism.

Whatever the real reasons, the Micron case brings into question the competition between the states (and cities) for new industry.

The competition has gotten out of hand. That opinion is shared by many, usually professional economists and public policy analysts. And public officials, particularly governors, are fed up with trying to bribe business and industries and watching the size of the bribes go higher and higher. Incentives per job landed were in the range of $11,000 a decade ago; now Alabama has bid about $253 million, more than $100,000 a job, for a Mercedes auto plant.

Dr. Bernard L. Weinstein, director of the Center for Economic Development and Resources at the University of North Texas in Denton, challenges the smokestack chase in an article written for Southern Growth, a publication of the Southern Growth Policies Board.

"More than three decades of research and case studies have shown that the impact of state and local fiscal incentives on industrial location decisions is minimal at best, and a number of public policy groups have roundly condemned the practice."

Dr. Weinstein cited a 1967 conclusion by the U.S. Advisory Commission on Intergovernmental Relations that "the practice of making special tax concessions to new industry can have baneful effects by setting in motion a self-defeating cycle of competitive tax undercutting and irrational discrimination among business firms." In 1989, the Council of State Governments found no statistical evidence that business incentives actually create jobs or that fiscal inducements are a primary factor in business location decision-making. In 1993, the National Governors' Association approved a resolution stating that "the public and private sectors should undertake cooperative efforts that result in improvements to the general economic climate rather than focus on subsidies for individual projects or companies."

Says Dr. Weinstein: "The fiction abounds that those locales most inclined to give away tax base, or otherwise financially subsidize new industry, will somehow be viewed as offering the best climates."

The nation's governors urge that "competition among states should be judged on factors such as improvements in education, transportation and telecommunications, stable fiscal conditions, equitable tax policies, business regulations and the provision of quality public services."

Tulsa -- and Oklahoma -- have not gone overboard in the smokestack race. In general, the approach has been to follow the advice of the nation's governors to make the city and the state desirable places to live and so attract business and industry. More important, the courtship of newcomers has not detracted from the need to treat existing industries -- some of them old corporate citizens -- as the valuable assets they are. One analyst has likened the industry chase to a homeowner who steals his neighbor's green grass. It's far better to water and fertilize and grow one's own lawn than to steal someone else's.

Oklahoma's Quality Jobs program is recognized as the nation's pacesetter. It pays companies to bring or expand payrolls, but only as the jobs are brought into being. There is no gamble on the part of the state, and native companies are entitled to participate. Other tax incentives give Oklahoma as good an incentive plan -- short of outright cash -- as any state.

In the sole instance in which Tulsa taxpayers are paying for an industry -- the Whirlpool plant -- the city appears to have grabbed a winner. The Whirlpool plant was the biggest manufacturing plum in the nation last year and Tulsa got it. Already, several smaller companies are planning to relocate to Tulsa to supply parts and services for Whirlpool.

Yet, Whirlpool probably will be a rarity for Tulsans. Local officials would not have asked voters to levy a half-cent sales tax to raise $26 million for the Whirlpool plant here if that firm had not been a blue-chip company.

On the other hand, Whirlpool executives make no bones about it. If Tulsa had not had the labor force, a central location, the educational facilities and great natural resources, the cash incentive would not have been enough to bring the company here.

The Micron episode is instructive for Oklahomans. The state and Oklahoma City laid out the range of incentives available to the company. The state's strong points were noted. Officials made the best offer the state could. They did not foolishly promise too much. That's not a bad pattern for the future. What more can be done?

Incentives are really a small part of the total economic development picture. Firm after firm, survey after survey show the same things. Companies want and need the same things that individual citizens desire: Good schools. Good technical education opportunities. A topflight higher education system.
Good roads and transportation. Recreational facilities. Social and cultural amenities. All these cost money and as well as a commitment by citizens and their leaders. Solid economic development grows out of a solid community. It is not an event, but a process.

And there's this consolation: Citizens use and enjoy the same necessities and amenities that attract and develop the economy. The tax dollars are not simply buying a payroll, but building a city.

About this Entry

This page contains a single entry by Michael Bates published on August 31, 2003 11:57 PM.

The voice of youth: Sara Jeffries on the blurred vision was the previous entry in this blog.

A half-dozen things Tulsa should be doing instead of raising taxes is the next entry in this blog.

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