The Free Press, Mankato, MN

September 29, 2013

Homegrown ideas are best solution to job growth

Why it matters: Report on government usage of incentives to lure businesses to states is ineffective, wasteful

The Mankato Free Press

---- — Job growth has been the mantra of state governments for many years with some arguing that’s not the role of government, while others say government can be a kick starter.

There are a number of ways they can do that — the more business-minded proponents argue for cutting taxes or regulations to make the business environment more inviting.

Others suggest hiring more government employees or funding government programs like road construction to put more cash into the economy. That’s a popular version among liberals and offered by economist and occasional Free Press columnist Robert Reich.

However, one method that seems to find favor with most political persuasions is to offer incentives to lure businesses to their state. Most recently, Gov. Mark Dayton was able to lure Shutterfly, a maker of digital paper and photo products, to Shakopee with incentives worth $3 million.

Now a new report from the Council of State Governments (CSG) suggests that many states “don’t have an accurate accounting of the cost of their state incentive programs” some of which involves billions of dollars.

And the CSG, a non-partisan, non-profit organization that has been serving state governments for 80 years, suggests state policymakers don’t have “reliable evaluations of how those programs are performing.”

Key findings from the report Include

n When it comes to the cost of incentives, state leaders are in the dark: State policymakers don’t have an accurate accounting of the most basic of information about their state’s incentive programs — the cost.

n Solid evaluation of existing programs is lacking: In addition to comprehensive cost estimates, reliable evaluations of the performance of existing programs are not available to policymakers, which are needed to make informed, data-driven decisions.

n Emphasis on incentives may mean missed opportunities: While a well-designed and well-evaluated incentive program may be effective, relying on incentives as a primary economic development strategy could mean alternative methods are ignored.

n Bidding wars really mean nobody wins: Given the potentially negative effects of bidding wars, finding alternatives should be a goal of state leaders.

n Better communications is needed: Regular conversations across the legislative and executive branches are needed to ensure that practitioners have the tools they need to effectively implement policies and so that legislators maintain real-time insight as to how their policies are functioning.

n Public transparency is lacking: Just as policymakers need information about business incentives to make informed decisions, the public needs information about how its government is functioning to remain engaged in the democratic process.

“Most states make significant investments in business incentives but we’ve found most states don’t have a good handle on what that investment is buying,” said David Adkins, CSG’s executive director/CEO.

“Far too often, states are competing for a business whose relocation decision is not significantly impacted by the business incentives offered. Investments in education and cultural resources may actually do more to influence the decisions of CEOs,” said Adkins.

The CSG recommends that plans should reflect input from both the executive and legislative branches with both sharing ownership for the promotion strategy. But the most compelling finding is not a new one — the best incentives are those that are focused on existing businesses to help them grow rather than luring a business to the state.

“Investments in education and cultural resources may actually do more to influence the decisions of CEOs” than any incentives. In other words, clean up your house, make your location a great place to be and they will come … or stay.