Carrier incentives are common tactic

December 5, 2016


Governments often provide subsidies in exchange for jobs but the deals frequently don’t live up to the hype

By David Lieb, The Associated Press published in The Register-Guard

JEFFERSON CITY, Mo. — When President-elect Donald Trump announced a deal to save hundreds of jobs at a Carrier plant in Indiana, it came with a cost to state taxpayers of about $7 million in tax breaks and grants.

Similar jobs-for-subsidies deals are struck nearly every day around the country by governors, mayors and other officials. But it’s debatable whether the economic impact ultimately lives up to the political hype.

Some projects fall short of their promises. Economists say other business deals likely would have occurred even without the incentives. And in some places, it’s hard for the public to track the exact amount of state and local subsidies that get provided.

In any given year, federal, state and local governments promise companies tens of billions of dollars in public subsidies in exchange for creating or saving thousands of jobs.

States offer more than 1,800 incentive programs for businesses, a figure that has declined slightly over the past five years as programs have been consolidated and revamped, according to the Arlington, Va.-based Council for Community and Economic Research.

While some governments provide direct grants, the arrangements often allow companies to forgo paying property, income or sales taxes under the premise that the money the company saves will help it expand, hire workers and create an economic ripple effect in the community.

The announcement marked an extraordinary accomplishment for Trump, who had railed against Carrier’s plans to shift jobs to Mexico while campaigning. The deal was unique because the president-elect became personally involved in it, and Vice President-elect Mike Pence was in a position as Indiana governor to help facilitate the incentives.

But “somewhere around the country it’s probably highly likely that it is happening on a weekly basis,” said Judith Stallmann, a professor of applied economics at the University of Missouri’s Truman School of Public Affairs.

In fact, on the same day Trump tweeted his intent to make a “major announcement” about Carrier keeping jobs in Indianapolis, Arizona Gov. Doug Ducey announced that startup electric vehicle company Lucid Motors will build an assembly plant there that could employ up to 2,000 people. The Arizona Commerce Authority said the company could receive up to about $46 million in state incentives.

Lucid Motors hopes to compete with Tesla Motors, which previously received a $1.3 billion incentive package from the Nevada Legislature to build a lithium battery factory near Reno employing 6,500 workers.

Such deals are no longer rare. Missouri has awarded a similarly sized incentive package for health care technology company Cerner to build a sprawling new office complex that could eventually employ 16,000 people on the site of an abandoned shopping mall in Kansas City.

Aircraft manufacturer Boeing holds the record, winning $8.7 billion in incentives from Washington state in 2013.

“Demand in the form of elected officials anxious to be aggressive on the economy is up, because the recovery is so long and slow,” said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based nonprofit that tracks economic development incentives. So “the price of these megadeals goes up.”

Indiana’s $7 million incentive package for Carrier’s furnace manufacturing facility pales in comparison to some of those deals. But that’s likely because it wasn’t Trump’s sole selling point.

And Trump, who has pledged to cut corporate taxes, had leverage because Carrier’s parent company, United Technologies, also owns Pratt & Whitney, which has contracts to make jet engines for the U.S. military.

The Carrier incentives also are significantly smaller than the $80 billion federal bailout for the auto industry during the Great Recession, most of which was later repaid by the companies.