State Tax Breaks to Attract Jobs: States Getting Stingier

New "Show Me" Attitude Makes Relocation Incentives Contingent on Performance;

ByABC News
April 25, 2011, 10:15 AM

April 26, 2011 -- At first glance, it might not seem extraordinary that New Jersey is offering Panasonic $102 million in tax breaks to relocate its corporate headquarters to Newark. Even today, at a time of tight budgets and taxpayer fury over government spending, state economic development departments spend lavishly to lure companies from other states, the idea being that the influx of jobs will justify the cost. Kenneth Thomas, associate professor of political science at the University of Missouri at St. Louis, says states collectively spend more than $70 billion a year on such wooing.

What's unusual in New Jersey's case, though, is that Panasonic isn't in another state. It's in New Jersey, headquartered in Secaucus, nine miles from Newark. Taxpayers, in effect, will be giving Panasonic carfare of $10.6 million per mile to make the same trip they could make for under 49 cents a mile, assuming that they drove a Honda Civic. That's according to the American Automobile Association of New Jersey.

The millions will come from a Garden State development program called the Urban Transit Hub Tax Credit, intended to promote use of public transit by giving companies an incentive to relocate facilities to any one of nine New Jersey cities designated a public transit hub. Newark qualifies; Secaucus does not.

Secaucus stands to lose 850 jobs when the electronics firm leaves, and Secaucus deputy mayor John Bueckner isn't happy: "We're saying, basically, this is crazy! Panasonic is our largest tax-generator. Now they're moving 10 miles down the road, and the state's paying them $102 million to do it.

"We don't think that was the intent of the Hub program. It wasn't set up to help somebody move from one community to another within the state, for Newark to make a gain that costs Secaucus." It was meant, he argues, to get out-of-state companies to move jobs into the state.

A Panasonic spokesman says his company had given New Jersey notice that it was planning to relocate, and that it had received between 35 and 40 offers, including attractive ones from other states. When the deal with Newark was announced, Panasonic and the governor's office both toasted it for keeping jobs in-state.

Asks Bueckner, unimpressed, "What's to prevent another company, now, from saying the same thing: I'll move out of state unless you give me the same deal? It's something the state is going to have to take a look at, moving forward -- something that will cost us millions of dollars."

Exactly so, say critics of economic development incentives. They contend the programs don't pay off, even when designed to win jobs from out of state. As Prof. Thomas writes in an as yet unpublished op-ed piece, "At a time when state and local governments are cutting programs and collectively laying off hundreds of thousands of workers, it's time to rethink…economic development. Recent research shows that these subsidies have little net effect on…jobs."

He and others fault the programs for their lack of transparency: All a company has to do to get states to bow down and offer them the moon is to let it be known they've received an offer to relocate. They don't have to say from whom; nor do they have to prove the offer is legit.