Economic Development: Not All Roses

As this article in The Seattle Times shows, incentive programs are not all roses and chocolate, or whatever the cliché I'm looking for is. A basic incentive in Washington called the Job Development Fund gives communities grants to attract companies (and thus, jobs). The grant might be used to widen a roadway for example--something the company would normally need to pay for (or convince the city to pay for). The communities naturally are eager for the jobs, but apparently what's happened is that there is a fundamental misunderstanding about what constitutes the "good paying" jobs that the Job Development Fund is supposed to promote. When state leaders see retail establishments (a Cabela's sporting-goods store in Lacey, WA, and a Costco store in Covington, WA), they wonder how much the jobs being created there could possibly be paying, and whether the state needs to be chipping in money to create what are presumably mostly low-wage jobs. The Cabela's store for example, will create a nice 233 jobs--at nine dollars an hour. The state would probably not have a problem with 115 jobs at $18/hour.

According to the article,

The board winnowed the proposals using a formula that scored projects on such criteria as how much tax revenue they'd generate for the state and local governments, and how many jobs they'd create. A dozen finalists were identified in 2006. The Legislature reviewed the list and approved the spending last month.

The formula, created by CERB and its staff, put more emphasis on "return on the state's investment" than on creating family-wage jobs.

It weighted family-wage jobs at 7 percent. Tax revenues, including sales and property taxes, were weighted at 12 percent. The overall "return on the state's investment" -- which included private investment and expected tax revenue -- was weighted at 30 percent.

"I came to find out that, despite its title, which is job-development fund, they weight tax more heavily than jobs," Gregoire said. "I think that's reverse in terms of priority."

In addition, CERB Chairman Tom Trulove, an economics professor at Eastern Washington University, said his board didn't have the staff to adequately scrutinize the projects. "You just had to accept that the project proponents were telling the truth, and accept their numbers, and go with the basis of what you saw," he said.

Trulove said he believes the projects are worthwhile, but "if we were to do this again, we certainly would give a lot more weighting to jobs."

At least in Washington they're only criticizing an incentive; in Arkansas, it's the whole program feeling the heat (or at least the state's policies toward business attraction). Being in the competitive Southeast (competitive in the sense that the incentives flow pretty freely for quality projects), Arkansas--it would seem--needs to spend more to compete, as this AP article (courtesy of the local Fox affiliate) reports. The Toyota and ThyssenKrupp recent announcements were the latest sharp sticks in the eye for Arkansas. However, while I'm not prepared to issue a sweeping verdict of Arkansas' business climate, I hope that the answer is not for them to buy themselves a few big projects without working on the fundamentals. Among those I would include making sure the state's vocational training is up to par with the best systems in the country (look at North Dakota, perhaps), that education is funded better than the other states in the region, and that the taxes on business are broad based, fair, and simple.