Who really benefits from incentives?

By Jim Vaughan, Senior Fellow.

Now that the latest economic development project-of-the-century has been sited—this one so big it’s called a “gigafactory”—questions are being asked again about who really benefits from the incentives that governments are giving to attract or retain businesses and industries.
 

Regardless of your position on the subject, it’s a fact that the playing field on which communities compete for jobs and investment tilted toward Nevada when the Silver State gave $1.25 billion in incentives to the electric vehicle manufacturer, Tesla, and Panasonic to make lithium-ion battery cells in Reno.

Tesla may be a good deal for Nevada and for America—only time will tell—but the cost to compete for new projects just went up for every city, county and state including Nevada.

Incentives are nothing new
During my career, incentives have included free land given to companies from up north to come down south, workforce training for employees of new companies, building roads and infrastructure, and abating taxes for up to 10, 15 and now 20 years. But instead of a sweetener to close a deal, incentives today are often the starting point when presenting a community to a prospect.
 

In my first post on the Market Street blog on December 21, 2012, I wrote about the pushback from a New York Times series on corporate incentives and suggested that it could affect one of the tools in the business recruitment and retention toolbox.

The Times identified 48 companies that received more than $100 million in state grants since 2007. The leader, General Motors, got $1.77 billion through 208 grants for projects in 16 states. Now comes Tesla receiving $1.25 billion for one project in one state!

I could make a case for the Tesla deal based on it being in the national interest that we make cheaper and more efficient batteries for automobiles. Battery powered cars, after all, will help America reduce greenhouse gases that contribute to global climate change. But the Tesla incentives aren’t based on their value to the nation. Instead, they’re coming from a state to influence the location of the plant.

What’s the return?
After the announcement, Richard Florida, a critic of incentives in the aftermath of the NY. Times series, again made the case that “incentives play little if any role in companies’ location decisions. They are based on more fundamental factors like labor costs, the quality of the workforce, proximity to markets and access to suppliers,” he said.

Florida said companies have “learned to game the process” and that certainly seems plausible in the Tesla case. The company broke ground in June for the plant in Reno even as reports suggest it continued to negotiate with Arizona, California, New Mexico and Texas officials for an even better deal for another three months.

While the Times and Florida question whether incentives influence location decisions, a Lincoln Institute of Land Policy report went even further. “There is little evidence that tax incentives are an effective instrument to promote economic development (even as) they cost state and local governments $5 to $10 billion each year in forgone revenue,” the report said.

Questions we should be asking
Can we have a serious, national discussion about who really benefits from the incentives that governments are giving to attract or retain businesses and industries? The questions that should be asked include, 

• Why are cities and states subsidizing profitable companies with incentives and tax breaks?

• Do incentives really influence location decisions?

• If incentives are gravy for businesses receiving them, how can they be stopped?

• What if incentives are a good deal for the local community but are a zero sum game for the U.S. overall?

• Is this an issue that should be addressed nationally?

Market Street has helped its client communities develop holistic strategies for sustainable growth and development based on measurable improvements in education and workforce development; a competitive business environment; 21st century transportation and infrastructure; and a superb quality of life.

Our strategies are framed in terms of “people, prosperity, and place.”

Maybe with the right strategy, you won’t need to offer incentives.

A Woman’s Worth

By Ranada Robinson, Research Manager. 

Pomp and circumstance. Ceremonial bells. African drums. Processions of bright colors including those representing academic expertise, past historic landmarks. Concert choir selections. I absolutely love pretty much everything about university ceremonies, especially at historically black colleges and universities. So when President Beverly Hogan and Ms. Doris Bridgeman, the Director of Alumni Affairs for Tougaloo College, asked me to serve as a delegate for my alma mater at the Investiture of Dr. Valerie Montgomery Rice as the sixth president of Morehouse School of Medicine (MSM), I didn’t blink an eye before saying “of course.”

Yesterday, I donned my own gown and hood, and I joined delegates representing many other colleges and universities, Morehouse School of Medicine Board of Trustees, faculty and staff, alumni, students, and other supporters for the Investiture Ceremony. It was a beautiful ceremony with several dignitaries and other woman pioneers on the program. You see, Dr. Rice is not only the first woman president of MSM; she’s the first African American woman to lead any freestanding medical school in the nation as CEO.

As I sat there surrounded by PhDs and MDs and dignitaries, I was blown away and once again inspired by the perseverance of people who have beaten the odds to make amazing and tangible strides. As I listened to women such as Gwendolyn Boyd, the first female president of Alabama State University; Alexis Herman, the 23rd U.S. Secretary of Labor and the first African American to head the U.S. Department of Labor; and Donna Hyland, President and CEO of Children’s Healthcare of Atlanta, I began to think about how many barriers women have broken and was inspired by their dynamic voices and presence. Always thinking about economic development, I started thinking about how many communities I’ve visited where diversity has been identified as an issue—not just racially or ethnically, but also as it relates to gender.

I won’t spend time in today’s post discussing how only 24 of the nation’s Fortune 500 companies have women as CEOs. Or how full-time working women earn 77 percent of what their male counterparts earn. Or how women are less likely to be self-employed. What I’d like to focus on is the significant progress that has been made over time. Did you know the following facts about women?

• On average, women (over the age of 25) are more likely to have completed high school than men. This is true for both white[1] women compared to white men and black women compared to black men according to the U.S. Census Bureau.

• A higher percentage of women hold associate degrees than men. 

• A slightly higher percentage of women have earned bachelor’s degrees than men nationwide. However, when race and ethnicity are taken into account, a minimally lower percentage of white women have attained a four-year college degree than white men, while a larger percentage of black women have attained four-year degrees than black men.

•  Men still lead women in graduate and professional degree attainment. However, a higher percentage of black women have completed post-graduate education than black men.

•  According to the U.S. Bureau of Labor Statistics, over 50 years, immense improvements in educational attainment outcomes have occurred. Between 1962 and 2012, the percentage of women without a high school diploma has decreased by 40.5 percentage points. Over that same time period, the percentage of women who have earned at least a bachelor’s degree has increased by 23.9 percent.

Educational Attainment of Adults Aged 25 and Over, 2012

Source: U.S. Census Bureau

• Although women are still less likely to be self-employed, women-owned businesses have grown rapidly during recent years. Between 2002 and 2007[2], women-owned businesses grew by 20.1 percent compared to growth in men-owned businesses of 5.5 percent.

•  Although fewer than five percent of Fortune 500 companies have women as CEOs, it is important to remember that in 1995, there were no female CEOs in the Fortune 500.

Many communities are proactively encouraging the inclusion of women in various areas of the workforce. Several chambers support K-12 programs that expose women to STEM careers and technical careers, are becoming more cognizant of diversity on boards, and are working with area businesses to encourage diversity in the workplace. There is a long way to go to achieve gender equality in the workforce, but progress is being made. Maybe one day, it will be as apparent in everyday life as it can be at special ceremonies.

[1] “White” refers to white, not Hispanic.

[2] The 2012 Census Bureau Survey of Business Owners has not yet been published.

Millennials and the Changing Work Environment

By Evan Robertson, Senior Project Associate.

As economic development professionals, our tools for attracting and retaining the best and brightest young professionals tend to be strongest at the community level. Whether it is downtown revitalization, developing a young professional networking organization within your chamber, or actively reaching out to high school or college graduates from your region, are all extremely important activities for ensuring businesses have an adequate supply of talent as their workforce ages and, consequently, retires. Yet a recent article in the Chamber Executive’s Summer 2014 issue, written by Josh Dukelow, V.P. of Public Policy and Leadership, at the Fox Cities Chamber of Commerce and Industry (located in Appleton, Wisconsin for the curious) highlights an important, and arguably overlooked by the profession, part of talent attraction and retention: it’s not just about the community, companies need to reform their business operations internally too.

Within the article, three primary trends are singled out that are impacting millennials decisions on where to live and where to work. Perhaps the most obvious, or rather most well-known, is location. Championed by the likes of Richard Florida, millennials are choosing authentic communities that offer the experiences and opportunities they desire first, and foremost. After their community is selected, it is then that they start looking for employment. Location, and place-based economic development, is where we economic development professionals feel we can have the most impact. Whether it is downtown redevelopment and revitalization, building arts incubators, or promoting tactical urbanism (just to name a few), economic development professionals, along with other public and private partners, can drastically transform the built environment into an authentic community attractive to tomorrow’s workforce.

Josh highlights two other millennial workplace trends that are just as important: the untethered desk and flexible schedules. With the advent of mobile technology, millennials are increasingly choosing to work out of the office, selecting coffee shops or co-working spaces over a cubicle. But it is just not a work-from-anywhere attitude that drives millennials; it’s a work-when-ever attitude as well. Whether it is going to mid-day yoga classes or early evening happy hours, Josh points out that millennial workers are willing to work at any hour of the day so long as it can fit within their lifestyle. This doesn’t mean they are less productive, or less dedicated to work, they just don’t want to do the typical nine-to-five. These two trends are solely influenced by individual company practices, granted we can still assist in ensuring they have a wide selection of coffee shops and co-working spaces to go to.

It wasn’t until a recent visit to the Tulsa region, for a community input session that made me realize that, why yes, we can motivate companies to change their internal business practices. I was facilitating a focus group of aerospace professionals; the topic of discussion was workforce. One of the participants casually mentioned that leaders from TYPros, Tulsa’s young professional organization, spoke at their company about the changing workplace demands of young professionals. Instead of focusing solely on what the community must do to attract young professionals for their business, the interaction identified what complementary practices the business itself could do to attract tomorrow’s talent. Honestly, the thought, which seems so simple, had never occurred to me. So, while we are busy transforming downtown areas, ensuring residential neighborhoods have quality schools and diverse building stock, and all those other place-based actions that will prepare a community to be competitive in tomorrow’s highly competitive talent environment, let’s also ensure that local businesses are prepared to compete for millennial talent. While we can’t transform their practices directly, engender change through open dialogue between our community’s young professionals and businesses.