How Far Should States Go in Offering Incentives to Business?
In the tussle with state governments over tax breaks and incentives, sometimes companies blink first.
January 20 2014 by ChiefExecutive.net
With Boeing as the king of U.S. aircraft manufacturing, more than a dozen states are groveling before the Chicago-based maker of the next-generation jetliner with lavish incentive packages that offer property, labor deals and billions of dollars in tax breaks. All of this in the hopes that the aerospace giant will select them to assemble the new 777X — or at least give them a wing to construct, according to Manufacturing.net.
The contest unfolded in a mere matter of weeks after a machinists’ union in Washington state rejected Boeing’s proposed contract for the 777X because it would have replaced their traditional pension with a defined-contribution savings plan.
The buzz around Boeing has been loudest in Missouri, where Gov. Jay Nixon immediately convened a special legislative session to approve an incentive package valued at up to $1.7 billion over more than two decades. Boeing never even had to send a lobbyist to talk to a lawmaker. Other states are keeping the details of their offers out of the public spotlight — and away from the inquisitive eyes of their rivals— by crafting them through administrative agencies shielded by non-disclosure laws.
Last year, Alabama lured Boeing’s biggest worldwide rival, Airbus, to build a $600 million assembly plant in Mobile by offering tax breaks and $158 million for bond expenses, site and road improvements, building costs and worker training.
But every now and then states take the opposite tack. Archer Daniels Midland decided to set up its new international headquarters in Chicago even after it failed in its bid for millions of dollars in state tax breaks. The move was the latest twist in the debate about how far Illinois and other states should go to lure and keep companies. Critics of tax breaks say the agribusiness giant’s announcement provides a lesson: Illinois didn’t play ball, even as cities such as St. Louis and Atlanta talked to ADM, and won anyway.
Illinois has been engaged in an incentives tug-of-war for years with companies ranging from Sears Holdings Corporation and Motorola Mobility, trying to fight off often loud pitches from other states happy to talk with any firm that wanted to leave. Illinois joined more than 20 others trying to convince Boeing Co. to build an aircraft plant that would employ up to 8,500 people.
ADM’s announcement to stay in Illinois likely will give ammunition to both sides over whether states should play ball when companies make demands, though some incentives skeptics warned not to read too much into one company’s decision. Chicago, with its two international airports in the heart of Midwestern farm country, was the best place for ADM’s new headquarters, CEO Patricia Woertz said Wednesday.
“While we considered other global hubs, Chicago emerged as the best location to provide efficient access to global markets while maintaining our close connections with U.S. farmers, customers and operations,” Woertz said in a statement.
The agribusiness giant’s plans to keep about 4,400 jobs in the central Illinois city of Decatur, where it’s been headquartered for 44 years, and make that city its North American headquarters. Gov. Pat Quinn said he talked with Woertz several times and stressed Illinois’ workforce and transportation infrastructure in the pitch. “The whole idea of tax matters … is secondary to good workforce and making sure you have good logistics and transportation,” Quinn said.
But an economist who is both a longtime observer of Illinois’ back-and-forth with companies looking for incentives and a critic of most tax breaks and other perks said whatever stand Illinois took may not mean much when other companies ask. State officials were “either smart or lucky,” said Fred Giertz, an economist at the University of Illinois’ Institute of Government and Public Affairs. The next time a big company asks the state for perks, “I think that the politics would be so compelling they probably would still enter into negotiations.”