Economic Development Through Tax Incentives

Often, us in the Washington state economic development world mention the challenges that we have in not being able to engage in traditional economic development incentives. Because of our state constitution, we can’t do a lot of the direct financial offerings to companies that other states do, as it violates our “lending of credit” provision.

But this article in the trusty New York Times points out that using incentives to lure companies across state borders can be a tough way to do economic development“:

…the interstate rivalry has grown fierce on a new battlefield — business — as the two states stage cross-border raids and entice companies with generous incentives to move a few miles and resettle on the other side.

Though some say such moves strengthen communities with new jobs and tax revenue, a growing chorus of leaders on both sides are wondering about the point of it all, warning that the efforts serve only to help private companies at taxpayer expense…

“It’s a little bit of a zero sum game,” Mr. Bartik said. “Because one part gains and the other part loses. And the gains are much more modest than the losses.”

First off, nice to have the business of economic development get such a high national profile. Usually, the ins and outs of relocating shopping centers and smokestacks is only considered news-worthy when a mayor is cutting a ribbon in front of one.

Second, though, it really highlights the advantages that Washington has in the fact that it doesn’t do this. Yes, we pass broad incentives for specific industries and activities, but it’s much harder and much more of a blunt instrument. I think that the benefit we get out of this restriction (besides the potential for losing more revenue than you gain from recruiting the business) is that the businesses we get here really want to be here. They’ve evaluated our workforce, our quality of life and our vibrant economy, and decided that there is great benefit to being here. As the NYT points out, if a company is only in your region because it’s the lowest priced option, you’re going to be in trouble when a new, lower-priced option comes along; it’s a proverbial race to the bottom.

I’m not saying that the economic development system in this region and state is perfect, but it’s nice to at least think about the silver-linings every once in a while.

 

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