State Watch

States dole out mega-subsidies in bid to lure companies

State governments are spending parts of their first major cash surpluses in a decade on billions of dollars in tax breaks for some of the world’s largest corporations, hoping to lure new high-tech manufacturing hubs that have become this year’s most sought-after economic development projects.

For years, states have offered corporations rich incentives to bring thousands of jobs to their communities in what critics have called a race to the economic bottom. But the positive fiscal conditions in which many states now find themselves have accelerated some of those deals, putting the country on pace for a greater number of such agreements than any other year in history.

In just the first few weeks of the new year, at least three mega-deals have been announced, and several more are in the works.

Intel plans to build a $20 billion semiconductor chip manufacturing plant in central Ohio, Gov. Mike DeWine (R) announced earlier this month, in a deal that is expected to bring 20,000 jobs to the state. Ohio’s legislature has already approved the expansion of one tax incentive program, and DeWine plans to ask for a new round of incentives to be announced Friday.

In Michigan, the state Economic Development authority gave General Motors $600 million in grants and nearly $1.1 billion in tax breaks and lower electric and water rates over decades to attract a $6.5 billion electric pickup plant and battery factory.

North Carolina lured Boom Supersonic, a new aviation startup that plans to manufacture hypersonic passenger aircraft, to Greensboro with a package of more than $121 million in incentives, Gov. Roy Cooper (D) said this week.

Kansas lawmakers have been asked to approve a major tax incentive package for an economic development project they do not even know about yet. The state Commerce Department says Kansas is a finalist for a $4 billion, 3 million-square-foot advanced manufacturing facility that would deliver 4,000 permanent jobs — but it will not say which company is involved, what the facility would make, or even where it would be located.

The Kansas Commerce Department and Gov. Laura Kelly’s (D) office did not respond to requests for comment.

Critics of the deals on both the right and left say the splashy headlines promising thousands of jobs and billions in investment rarely, if ever, deliver. And the money the state surrenders in the deals have to come from somewhere — usually from taxpayers, or from budgets dedicated to education or infrastructure.

“It’s like paying for a free sample. It’s paying for something you’re already going to get anyway,” said Michael Farren, a research fellow at the libertarian Mercatus Center at George Mason University. “They’re giving you all of the icing, and none of the cake. It is a benefit-only analysis.”

What’s more, academic research shows a company’s decision to locate somewhere is rarely determined by breaks and incentives alone.

“It is technically a success, your incentive did attract that company, but that’s because you worked hand-in-hand with that company to secure that deal,” said Richard Auxier, a senior policy associate at the Urban-Brookings Tax Policy Center. “Just getting the company isn’t enough. We’re supposed to be creating an economic environment that’s going to help our schools, our downtowns.”

But governors insist the spending is worth it to bring high-impact projects to areas that desperately need good-paying jobs.

“Last week’s transformative announcement by Intel and Gov. DeWine was great news for Ohio, as well as for efforts to onshore supply chain back to the United States,” said Dan Tierney, DeWine’s spokesman. He said DeWine’s administration had a long way to go before finalizing the incentive package aimed at Intel.

Many analysts said they see an increase in the number of states offering mega-deals to attract new investment in recent years. Good Jobs First, an advocacy group that tracks and monitors state subsidies to big business, tallied 13 such deals struck in 2021, the highest number since 2015.

The increased pace of such mega-deals are taking place against a backdrop of states that actually have their houses in fiscal order, for the first time since the Great Recession. The surpluses with which they find themselves have come from an infusion of federal dollars appropriated during the coronavirus pandemic and from a surge in tax revenues generated by federal relief dollars that flowed directly to individuals and businesses.

While some states are debating tax cuts, long-term programs or even short-term or one-time infrastructure spending, others have used the windfalls to attract new business.

Among the biggest spenders last year, according to Good Jobs First: Texas, which ponied up $1.185 billion in incentives to lure a new Samsung plant; North Carolina, which delivered $890 million to win a new facility from Apple, a company that has $195 billion in cash reserves; and Tennessee, which offered Ford $884 million in incentives to build an electric battery facility (neighboring Kentucky gave Ford another $410 million in incentives for their own slice of the plant).

In the last decade, many of the biggest incentive packages were won by companies like Amazon, which began pressing states to offer tax breaks to win distribution centers, as well as the national race to land the company’s HQ2. Amazon eventually chose Northern Virginia and New York City as split winners — though New York clawed back some of the incentives it offered in the face of public outrage.

Now, incentive packages are shifting as states try to enter the race to compete for facilities that will manufacture electric vehicles and the batteries and high-tech parts they need to operate, said Greg LeRoy, who heads Good Jobs First.

Just a few years ago, governors would routinely tout a laundry list of incentives they had offered to win new deals, LeRoy said.

“Today, that content is MIA,” he said.

Analysts who watch such mega-deals point out that many are announced in election years, fortuitous timing for governors eager to show voters a list of accomplishments that only they could deliver. DeWine, Kelly and Michigan Gov. Gretchen Whitmer (D) are all up for reelection this year.

“A governor’s only got four years, and you can hand out that tax incentive tomorrow and say, ‘I did it,’” Auxier said. “When problems get really, really complicated, and the pandemic is absolutely one of those, tax is a really simple tool, but it’s not always the best one.”

The challenge in the long run is to ensure that the projects deliver on the promises made by the governors and the companies with which they deal. Some of the largest incentive programs in recent years — offered to Foxconn in Wisconsin, or Boeing in Washington, or Tesla in Nevada — have not always resulted in the jobs that a company has pledged.

“One of the problems with trying to forecast the economic impact from one of these projects,” Farren, of the Mercatus Center, said, “is that the projected economic impact never accounts for the higher taxes needed to subsidize the project and the negative impact those taxes would have.”

Tags Business Gretchen Whitmer Intel Kansas Laura Kelly Mike DeWine Ohio Subsidies

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