$80B in Economic Development Incentives Awarded Annually in U.S.

Midwestern Companies Need Incentives to Retain a Competitive Advantage

Harvard’s Michael Porter makes a handsome living defining how companies can build a sustainable competitive advantage to bring profits and success to companies big and small.  Well, if a recent New York Times series on local and state tax incentives is true, you do not need to teach at Harvard’sBusinessSchool to figure out companies need economic development incentives to compete.

A recent three part New York Times series outlined a detailed study of how local and state governments award $80B annually in economic development incentives.  The stories can be found at http://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-corporations.html?_r=1& .  Economic development professionals across the nation would no doubt concede the New York Times uncovered poorly made public policy decisions around the implementation of economic development incentives.  Of course, many of those same economic development officials would point out a couple key facts America’ liberal icon failed to address:

  • U.S.has the highest corporate tax rate among industrialized nations, is in a battle to remain the world’s largest economy with a boomingChinaand uses economic development incentives to level the playing field in corporate site location projects;
  • The federal government’s failure to address trade imbalances and mounting federal debt has left it to the local and state governments to address incentivizing job and company creation with economic development incentives as one but not their only tool; and
  • With rebooting the economy still as the top national priority, local and state governments spending of $80B on economic development incentives is a drop in the bucket as compared to the $2Trillon in local and state government spending on a $15 Trillion national economy.

What is even more interesting than battling the New York Times, although that is pretty fun, is what the database of economic development incentive deals tells company’s looking to retain or grow jobs.  The number of companies and types of deals going on would surprise many.

Indiana- The Hoosier State spent $921M per year on economic development incentives with the top industry winner being the technology sector. Indiana likeOhio andMichigan focused aggressively as well with manufacturers for economic development incentives but included technology, service, and health care as well.  Governor Mitch Daniels proved frugal in the use of economic development incentives by only having a per capita spending total of $142.

Illinois- President Obama’s home state spent $1.51B per year on incentives with the majority of economic development incentives going to the Agriculture industry.  It is no surpriseIllinois’ $161M incentive package to retain the Sears corporate headquarters tops theIllinois list of economic development incentives.  But theIllinois incentive list also includes the likes of Google, ADM, Navistar, hospitals, oil companies and a long list of other companies for mainly smaller economic development deals.  Having the economic mega-city ofChicago helpedIllinois keep its per capita economic development spending down to $117.  

Michigan- The Wolverine State spent $6.65B on economic development incentives with—you guessed it manufacturing taking nearly one third that total by industry.  Surprisingly film and alternative energy finished second and third on Michigan’s economic development incentive spending chart.  As they should, the Big 3 topped Michigan’s individual incentive deal list but a wide range of chemical, energy, consulting and technology companies received million dollar plus economic development incentive awards.  Michigan topped the charts in the Midwest with a per capita spending total of $672.  

MinnesotaEven the home of Garrison Keillor gave $239M in economic development incentives.  It should not prove a surprise that the agriculture industry topped the list of incentive awardees.  However, the strong service based economy of Minneapolis-St. Paul clearly impacted the state’s economic development programs as major retailers such as Best Buy, Target, Kohl’s and other services companies topped the list of individual economic development incentive awards but the list included everything from steel and auto factories to energy companies. Minnesota tops the frugal category with only spending $45 per capita on economic development incentives. 

Ohio—The Buckeye State spent $3.24B per year on economic development incentives with more half going to manufacturers.  GE received the largest tax incentive award of $120M but many other manufacturing, service, health care, information technology and agribusinesses companies received multi million dollar economic development incentive awards.  Ohio’s economic development incentive awards came out to $281 in per capita spending. 

Pennsylvania- The Keystone State spent $3.42B per year on economic development incentives with just under one-third going to manufacturers.  The shale related Royal Dutch Shell facility toppedPennsylvania’s incentive award list at $1.65B but everything from movie studios to financial services to pharmaceuticals to food processing made the list of companies awarded incentives. Pennsylvania’s economic development incentive awards come out to $381 in per capita spending. 

Wisconsin- The cheese capital of theMidwest spent $1.53B on economic development incentives with manufacturing closely followed by agriculture topping the industry recipient list.  A wide range of manufacturers, service companies, and health care providers made the list of multi-million dollar individual economic development incentive deals forWisconsin.  However, the home of Conservative Congressman Paul Ryan still only had a per capita spending total of $268 for economic development incentives.

Again, putting the policy issues aside, three conclusions are obvious from the New York Times economic development data set.

  1. Every state aggressively uses economic development incentives to retain and attract companies with million dollar incentive deals a regular occurance.
  2. Every company who has not gained an economic development incentive when a competitor has is at a competitive disadvantage.
  3. Any company looking to retain or create jobs is a fool not to undergo a corporate location process to gain the millions of dollars in economic development incentives available in the Midwest and throughout theUnited States.

The New York Times series is probably what journalism should be—thought provoking and controversial.  It is also a wake-up call to companies not yet playing in the economic development incentive game to join the fun or risk your future.

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