Economic Development is Essential. But at what Cost?

As central Ohio continues to wait for Amazon’s decision on where to locate their HQ2, the conversation around economic development strategies is brought to light.  Naturally, what city or state would not want to be considered by a major employer, but at what cost?

A major victory for the central Ohio region was landing Chipotle’s newest corporate office, which will be located in the Polaris area.  That being said, this project has a steep price tag of $5 million in state tax credits.  Financially incentivizing large companies to locate or relocate in certain areas has become commonplace for at least the better part of the past two decades.  SBCO believes that this practice is entirely too one dimensional and not forward-thinking.  Clearly, businesses will jump all over tax savings or free money.  But think about this, Chipotle’s CEO stated that “the Columbus region offers us the right combination of diverse talent pool and innovation”.  Based on comments like that, it sounds like Chipotle could have ended up in central Ohio without all of the courtship from Columbus officials.

Incentivizing large companies to locate to your state does not build loyalty or dedication from the corporation.  Towards the end of their abatement they will surely begin looking for the next state or city that can offer them the best deal.  Unfortunately large corporations have made the relocation of company headquarters a game and a contest for regions or cities.  Not to mention that given the fact that large corporations make regions and cities compete for their businesses, the economic development entities are doing the work for them.  Simply stated, when vying for a company, as part of the process, the political subdivision or economic development entity essentially conducts and provides all the market research, education and workforce data and often even site location suggestions.  This information can save the for-profit corporation hundreds of thousands of dollars and countless hours.   

States, counties and cities should be focusing on the resources that already exist within their regions and communities.  Have faith and trust in what your state, region or locality can offer in the way of skilled and educated labor, amount of green space, cost-of-living, proximity to additional resources and the cost and availability of land.  Instead of throwing money at companies to relocate, why not built out more sites that are equipped with water, sewer, electric, curb and gutter, sidewalks and roads.  Having an inventory of ready to build on sites may be a better strategy than monetarily incentivizing large corporations.  Not to sound cliche, but more often than not, if you build it, they will come.

Sure, the function of economic development is extremely valuable to communities of all sizes and economic statuses.  However, when political subdivisions offer taxpayer dollars and tax abatements or subsidies as an effort to attract large corporations, it is a slippery slope.  Subsidies and abatements create an unsustainable model for the government.  The majority of tax subsidies and abatements are for ten years, which is a very long time considering the uncertainty of micro and macro economic conditions.  Furthermore, public opinion of tax breaks for large corporations continues to decrease.  As our culture becomes more and more attracted to small businesses it would only make sense that the government support existing small businesses and provide more monetary resources to allow them to grow.

It is very likely that our organization’s position on economic development will fall on deaf ears for a few main reasons.  For one, government handouts to attract big businesses have become such commonplace that it is expected and demanded by companies.  Unfortunately, many companies threaten to walk away if a competitive offer is not made.  Secondly, for the better part of the past two decades, economic development has become engrained into the political system of our state.  Lawmakers and bureaucrats have become accustomed to touting the big projects that they land.  Thirdly, economic development has become an industry in and of itself, meaning that there is big money involved.  Economic development consultants, real estate developers, lenders and investors are making millions on the projects. 

Our final thought is this; if the redistribution of taxpayer dollars for the attraction of businesses continues (and it will) we would hope that decision makers consider earmarking substantial portions of money towards small businesses.  Individually, small businesses cannot promise nearly the amount of new jobs as large corporations, however, holistically they create a more attractive environment and culture within communities, both large and small.  SBCO believes that economic development is so significantly skewed towards large corporations that small businesses have virtually no piece of the pie.  

SBCO is a business advocate and resource, however, we take issue with certain economic development practices such as the attraction of out-of-state or international large corporations.  Especially when we already have talented entrepreneurs and successful small businesses wanting to grow right here in our communities.