Economic Development -- Election Survivors

Dec. 21, 2004
Incentives are doled out, no matter the gubernatorial winner.

Several of the 11 state governors who won office in November ran pro-industry campaigns. What they want now are telephone calls from growth-minded business leaders. About the fastest way to win easy money for factory construction or expansion is to announce a project just after a new administration takes office. "They're looking for quick hits in the first 30 days," explains James A. Schriner, who directs location strategies for Fantus Consulting, New York. Business incentives peppered many of last year's gubernatorial campaign speeches. In North Carolina the Democratic winner Mike Easley argued for them; in fact, as the state's attorney general Easley defended incentives before the state supreme court. In 1996 North Carolina's top court ruled them legal. Even in states where politicians have campaigned against incentives, their passionate words so far have failed to stop lucrative tax breaks from going to corporations. Political analysts blame the generous $253 million package given to DaimlerChrysler AG's Mercedes-Benz to lure the automaker to Alabama for costing then-Governor Jim Folsom his reelection. Ironically, Folsom's successor, Fob James, won the governorship campaigning against incentives, but he continued to offer them after taking office. James failed to rescind Mercedes' generous financial package, and, what's more, to entice Boeing Co. to build a factory in Decatur he doled out incentives worth $80 million. "There's not a lot of difference between conservative Republican governors and liberal Democratic ones when it comes to incentives -- both give them," explains Bill Boyd, managing consultant in Lockwood Greene's Atlanta office, who helped put the Boeing factory in Alabama. Initiatives have been launched to remove incentives from political hands, but their impact has been slight. At least three dozen states have introduced public-private partnerships to encourage business participation in economic development. In some cases these programs draw funding from local corporations; in others state and local governments fill the coffers. Responsible for distributing incentives to business, the Utah Economic Development Corp., for example, takes no money from the state government. It collects half of its funding from private investment and the other half from local governments. So if incentives from newly elected or reelected governors are for the taking by fast acting corporations, how do manufacturers choose one state over another? Savvy executives look at environmental policy, education, and tax collection to name a few. In Indiana, where Democratic Governor Frank O'Bannon was reelected, a reassessment of property taxes threatens to pit homeowners against corporations. The controversial change could raise taxes on residential real estate by as much as 33%, says Mark S. Rosentraub, dean of Cleveland State University's College of Urban Affairs. If residents rebel, business could be asked to pay more taxes. "Either way there will be resentment against corporations," he predicts. Governors can't transform tax systems as easily as they can dole out incentives, so savvy executives look not only at tax rebates, but also at how taxes are collected and where the money goes. Expansion Management magazine, which covers corporate expansion and relocation (and is owned by IW's parent company, Penton Media Inc.), ranks states by how officials raise funds and how they use them. It applauds states with low or no corporate or individual income taxes. In its Legislative Quotient 2000 list the magazine also rates highly states that put taxes toward education and infrastructure. It penalizes those that carry heavy debts. Of states with a gubernatorial election, only one landed in the list's top five. Expansion Management ranks Washington number four, praising the state's lack of corporate and individual income taxes as well as its hefty funding for education. Several states with recent gubernatorial races rank at the bottom of the list. New Hampshire, where Governor Jeanne Shaheen was reelected, is last -- for its high corporate tax rate, its spending on government administration, and the high interest it pays on debt. Weld Royal is a New York-based senior editor for IndustryWeek.

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