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What If Every State Stopped Giving Businesses Money To Locate?

What If Every State Stopped Giving Businesses Money To Locate?

Not a fan of state and local governments offering special tax breaks and/or cash to lure companies to their locale?

 

If so, you've probably run into this counter-argument: "We can't unilaterally disarm from doing that, because everyone else is doing it."

But what if all states laid down their arms when it comes to competing with each other to lure big companies with publicly funded incentives?

That's the concept behind the "End Corporate Welfare Act" making the rounds in states like New York, Illinois and Arizona, according to a Governing article.

The idea behind the multistate push would be to, according to Governing, "essentially call a cease-fire on awarding tax incentives to certain companies by creating an interstate compact of states that agree to end the practice."

The move has also drawn interest from lawmakers in Connecticut, Florida, New Jersey and Massachusetts, and now at least one lawmaker in Michigan is intrigued by the prospect.

Sen. Tom Barrett (R-Potterville) called the practice of pursuing companies with incentives a "race to the bottom," and said this is something he's been looking at.

"I'd rather enter a multistate compact so we're not constantly forced, every three, four, five months of the Legislature to make this gun-to-our-head decision, if you don't do this, this company's going to go to Wisconsin," he said.

That's a reference to when Michigan tossed its hat into the ring for the chance to land Apple manufacturer Foxconn's massive factory project. But Michigan lost out to Wisconsin despite former Gov. Rick Snyder signing into law an incentive package that had luring Foxconn in mind.

Recently, press reports suggested Foxconn would back out of its plans to build in Wisconsin, but the company reiterated it would continue forward, according to The Badger Herald, which noted Foxconn could be eligible for at least $2.85 billion in state incentives.

Barrett also referenced the Michigan's courting of the data center company Switch a few years back when Snyder signed into law a tax exemption bill for the company's project planned for Kent County.

Barrett said he had a data center operating "below the radar" in his legislative district, but Switch's appearance on the scene put the existing data center at a competitive disadvantage, he said.

"It's not fair to tell my business that . . . they don't count anymore," Barrett said.

Interest in the multistate anti-incentive movement comes as Amazon last week pulled out of its plan to locate one of its new headquarters in Long Island, New York. According to CNN, the company cited opposition from local and state politicians, who had criticized the more than $1.5 billion in incentives being offered to Amazon.

Amazon invited cities to compete for its proposed "HQ2," or second headquarters, with the company eventually settling on New York and northern Virginia. While Amazon will move forward with its plans in northern Virginia, it's not reopening the search to find another spot for HQ2.

Detroit had also been vying for HQ2, hoping to land the promised $5 billion investment and 50,000 high-paying jobs.

Free-market minded folks like the Mackinac Center don't like state-funded incentives for businesses, arguing the benefits don't outweigh the costs and it results in the picking of winners and losers.

But, yet, the Michigan Economic Development Corp. (MEDC) has repeatedly pointed to the competition it faces from other states competing for jobs and business projects as the rationale behind its pursuit of such deals.

In nearly every memo the MEDC prepares to explain its proposed incentive deals, the agency will list the other states Michigan was competing with for the proposed project and why the incentive was needed to land the jobs here.

Asked about the "End Corporate Welfare Act" and the Governing story, MEDC spokesperson Otie McKinley said, "at this point, this is purely speculation and so not something we would comment on, other than to reiterate that Michigan’s diverse ecosystem, business-friendly climate and strong talent pipeline put our state in a strong position for business attraction and growth."

The MEDC made the switch under Snyder to replace the Michigan Economic Development Authority (MEGA) tax credit program with performance-based grants from appropriated money, although existing MEGA credits are still on the books and being paid out.

The Mackinac Center's Michael LaFaive, senior director of the Morey Fiscal Policy initiative, said he thinks the multistate concept is "feasible" because it "neutralizes" the 'unilateral disarmament' defense.

"The devil will be in the details with compacts of any sort, but the fact that they are being discussed is a positive development," LaFaive said, adding later, "If a compact gives lawmakers the incentives they need to drop them, all the better. Michigan can and has competed successfully without expensive business subsidy programs in the past. It can do so again."

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