Playing the Incentives Game

“In order to pay for them, [states] basically have to raise taxes on everyone else, so then you become a higher-tax state for other companies deciding where to locate,” notes Ben Zimmer, executive director of the Connecticut Policy Institute. “Everyone who’s not getting that incentive may locate somewhere else. So if it’s a long-term strategy to attract jobs to a state, I don’t think [financial incentives] are a particularly sound approach.”

“Lower, broad-based, uniform taxes are better than targeted tax incentives, top to bottom,” agrees Frank Conte, project manager for the Beacon Hill Institute State Competitiveness Report by Suffolk University in Boston. “What’s important is general tax policy, as well as other things, especially human capital.”

So the case of Spreadshirt is typical. With an American headquarters in Boston and manufacturing in Greensburg, Pennsylvania, the Germany-based maker of cloth-printing equipment wanted to add production in the Western U.S. While Nevada offered six-figure tax incentives for capital improvements and training, they ranked only fourth or fifth on Spreadshirt’s list of priorities for deciding between Nevada and California.

“Proximity to an international airport, a large labor pool and the availability of space were all clearly more important” than incentives in the company’s decision to open a plant last year in Las Vegas that now employs 60 people, with an expansion in the works for late 2013, says Mark Venezia, Spreadshirt’s vice president of global sales and marketing. “But the tax rates in California definitely weren’t attractive.”

There were no financial incentives that Illinois possibly could have offered to get Roger Sessions to change his mind about moving Ferris Manufacturing and its 50 or so jobs from Burr Ridge, Illinois, to Fort Worth last year.

“Just as the business climate is bad in Illinois because no one wants to be the last guy there, businesses want to be in Texas and look at it with a different attitude,” says the chairman/CEO of the $25-million manufacturer of wound-care dressings. Ferris “dropped a few hints” to Illinois officials about wanting to move the company “but no one seemed to notice or care.”

While other factors loom much larger in qualifying a locality for consideration as a site, financial incentives remain an essential condition for any state or city that wants to be considered a serious player near the end of a potential deal.