The path to jobs is not through the red ribbon

by Byron Schlomach, Ph.D.
Goldwater Institute

Since 2007, Arizona has lost 300,000 jobs, more than 10 percent of total employment. So it’s understandable our elected officials are anxious to bring more jobs to the state. Governor Jan Brewer and other state officials want to create a Commerce Authority armed with $25 million for grants to businesses as enticements to locate here. They often point to the Texas Enterprise Fund (TEF) as a model. A close look at the TEF, though, raises questions about how effective it really is.

The TEF makes grants to private companies to encourage them to locate in Texas. From 2004 to 2010, Texas gave $412 million to various enterprises ranging from a mattress company to Frito-Lay to Facebook. According to state statistics, these giveaways directly “bought” 54,269 jobs, which means each of these jobs cost Texas taxpayers an average of $7,600, assuming these jobs would not have been created anyway.

Making the model especially popular among politicians is TEF’s claim that a single $2 million grant resulted in a $3.5 billion investment in oil refinery expansion. This stretches credibility when Texas is already a top refining state and $2 million is a mere drop in a $3.5 billion bucket.

At $7,600 per job, $25 million would buy fewer than 3,300 jobs when we need 100 times that many. But that’s not a call to increase the fund budget. With a 2012 deficit of $1.1 billion, we simply can’t afford this. Not to mention that the money for the fund would come from tax revenues paid by businesses who are already here. Nothing like forcing people to subsidize their competition…

Arizona would do well to follow Texas’s most effective economic development policies, including a reduction in income taxes, elimination of excessive business regulations, and more use of our natural resources. Those policies might not come with ribbon-cutting ceremonies that allow elected officials to take credit, but they do bring jobs.

Dr. Byron Schlomach is director of the Goldwater Institute’s Center for Economic Prosperity.

Learn More:

Texas Comptroller: An Analysis of Texas Economic Development Incentives 2010

Texas Governor: Texas Enterprise Fund Grant Listing

The Economist: America’s Future: California v Texas


Comments

  1. This article is so correct.

    Paying companies to relocate is nonsense. Lower taxes for ALL and cut excessive regulations.

    If one has to BRIBE to get businesses or people to come, then one hasn’t addressed in any credible manner the root causes of their reluctance to move here.

    “Build a better mousetrap and they beat a path to your door.”

    Built a better business environment and they will be pouring in. ESPECIALLY now that there are MANY businesses ACTIVELY looking for better locations than oppressive overtaxed and overunionized Democrat Party-controlled states like Illinois, Massachusetts, California to name a few. Add the expense and discomfort generated by -30F temperatures with frozen solid windmills and a few palm trees only enhances the appeal.

    A patronage-inspired “Commerce Authority” is business by “Connections” not by a neutral favorable business ground. Same old same old doesn’t cut it. We are in a measurable decline, so OPEN it UP. FAST.

    The myopic self-preservation of our politicians is akin to struggling to be top dog on the lifeboats and thinking that’s a victory when the ship is sinking. Should have been busy closing the sea valves and repairing the holes to save the entire SHIP, instead of manuevering to hog the life preservers.

  2. Here’s a suggestion:
    Arizona just ASK major corporations and entrepreneurs WHY they aren’t already HERE.

    Great weather, outstanding variety in natural wonders, lots of space, lots of housing … but *crickets* when it comes to a booming economic sector.

    Look at the list and get RID of the impediments.

  3. If all this underlying bill (the “jobs bill” were only about $25 million, I almost wouldn’t care.

    The REAL ISSUE here (that Adams and Pearce both support) is the ability for the Development Authority to raise money (DEBT FINANCE) on an UNLIMITED basis, where all bonds they issue are underwritten by the taxpayer, but there is no representative oversight of the spending.

    UNLIMITED = BILLIONS, not millions. In perspective, it makes the $25 million look like zero.

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