Leader Blues

Wednesday, February 22, 2006

SAT 2-18-06 EDITORIAL >> Don’t buy off Industries

For once, we have to agree with Asa Hutchinson’s reflexive criticism of one of Mike Beebe’s ideas. The attorney general says if he is elected governor he will ask the legislature to appropriate $50 million every two years that he could use to close the deal on a new plant in Arkansas or to pay a company not to leave Arkansas. Hutchinson, the certain Republican candidate for governor, said Beebe’s idea was backward.

It is at least not fresh. Many other states, mostly in the South and Midwest, have ways of bribing industries to situate new plants within their boundaries. One of them is a pot of money to offer companies that are looking around for a plant site. Such funds invariably get used, which then becomes prima-facie evidence that the incentive actually works and produces new jobs for the state.

But empirical evidence that state giveaways to corporations add payrolls is much slimmer. Corporations with a long view do not make site decisions based on a one-time gift or instant emoluments. They move or build based on the proximity to raw materials, product markets, abundant and inexpensive energy, water, transportation and trained workforces. A gift of a few million dollars is little incentive if those other factors make its products less competitive over the long haul. State and local taxes are very small factors because the differentiation in tax rates is rendered minuscule by the deductibility of key state and local taxes on federal returns.

If the state appropriates $50 million of taxpayers’ money every two years, though, you can be sure that businesses will line up at the governor’s door to take it. Businesses that expect to build or expand a plant in Arkansas will play hard to get. They can talk about picking up stakes and going somewhere else. The game has been going on for 50 years and the states keep ratcheting up the stakes with the hard-earned dimes of taxpayers.

When Toyota picked West Texas as the site for a new truck plant rather than Crittenden County, Ark., and sites in Mississippi and Tennessee, Arkansas industrial-development officials mourned that Arkansas just couldn’t match Texas’s rich package of incentives. But Toyota officials let it out that they could not afford to go anyplace but Texas because that was the heart of the light-truck market that it was trying to penetrate. Energy costs in east Arkansas also are a trifle non-competitive.

Ambient air-quality standards also were a problem. A $50 million piggy bank would not have brought the plant to Arkansas.
Arkansas has a pretty broad array of incentives already, including a new one, adopted by the voters two years ago, to issue bonds, amortized by tax receipts, to enlist a big corporation. But that process would take a few weeks. Beebe says the governor needs a pot of money that he could give away immediately to close a deal when time was of essence.

The appeal was that it would be a substitute to the legislative pork barrel that is the now-scandalous General Improvement Fund. Legislators last year gave themselves $52 million for little projects in their districts that would buy political support for the next campaign. We’re not sure even that Beebe’s is a better idea than that. At least you have a hunch that most of these little projects would not be done without the state money. You could never be sure of the bribe to a business to come or stay.
Hutchinson instead offered a variation. He would take the $50 million every two years and send it to state universities for research and workforce education. It is a mildly better approach to economic development though barely more promising of results if the goal is a big workforce expansion.

If the issue is how spend $50 million or so of surplus money that the state discovers from time to time when it underbudgets, there is a far more urgent need, one that the Arkansas Supreme Court unanimously said the state was obligated by its own Constitution to fulfill: replacing and repairing the crumbling public schools. Wouldn’t it be refreshing if a candidate simply promised to use every dime the state could spare to give children a safe and modern learning environment? It is too simple. Anyone could think of that.