Harris does not eschew all incentives. He’s written six tax-break deals for companies that, for example, want to move to town and rehab an old building. But he avoids those that seem more interested in an incentive package than in becoming part of the community.
The question of whether, or how much, incentives actually spark a community’s economic growth is still unsettled. That’s partly because coming to any bottom-line answer is extremely difficult given all the possible variables in any scenario. “The overall conclusion is that effectiveness is there,” says Peter Fisher, a professor emeritus at the University of Iowa and the research director of the nonprofit Iowa Policy Project. “But it’s pretty small, and small enough that incentives end up being a very costly strategy.” In his opinion, far too many state and city boosters indiscriminately spray financial giveaway packages, which ends up costing them more than it should.
Fisher points to the example of Iowa, which has succeeded in drawing tech giants such as Google, Facebook, Apple, and Microsoft into its borders. It has given away generous incentive packages to support the creation of server farms. But such facilities can sometimes employ fewer than 100 people once they’re built, meaning the state and communities effectively pay hundreds of thousands of dollars per job gained.
“That makes no sense,” Fisher says. “It really does nothing for the high-tech sector in Iowa—it’s just a name on a big building.” The main reasons tech giants have built those farms is not the incentives. Rather, it’s Iowa’s abundant, cheap energy (thanks partly to the growth of wind power), lots of land, and few natural disasters.
Fisher notes that whether it’s a server farm, a manufacturing plant, or a new headquarters, states and communities often neglect to consider, or fail to publicize, ancillary costs beyond the actual incentives. In 1983, for example, after the little town of Wellston, Ohio, and the state, used tax breaks to attract a Jeno’s frozen-pizza plant from Minnesota, the town’s sewer system nearly collapsed while handling 400,000 gallons of pizza-ingredient sludge emerging from the factory. So the state had to use a federal block grant of over $500,000 to bail out the company and the town.
Most secondary costs are more prosaic. New business brings new growth and demands, which may be a net good, but also include costs like new roads, more children in the school system, more housing, more waterworks. All that has to be paid for, and when tax revenues are cut via incentives, there’s less money to pay for it.
And incentive deals can go sour in more dramatic ways. Companies have a long history of reneging on promised jobs and development, and states can fail to include strict job targets in their packages. Louisiana, for example, has lost over 36,000 manufacturing jobs even as it continued doling out expensive incentive packages. Chiquita Brands was seduced away from Cincinnati to Charlotte with a $22 million package including rebates on state payroll taxes, and millions in grant money. Three years later, it moved out of Charlotte, leaving city leaders to question the whole idea of incentives.