PhillyInc: Report calls states' efforts to lure business a 'fraudulent shell game'

Posted: January 26, 2013

When businesses threaten to move from city to suburbs or across state lines but just a short drive away, state economic-development offices spring into action in the name of saving or attracting jobs.

Their carrot of choice may be a tax credit or an outright grant. Paying to retain jobs is an all-too-frequent practice, and it drives all sorts of diligent, taxpaying business people nuts.

The Washington advocacy group Good Jobs First calls it a "fraudulent shell game." It released a report Thursday that blasted several states for "pirating" jobs from other states, noting that in some areas, the use of incentives had increased during these slow job-creation times.

Over the years in this region, the incentive game has played out with officials from Pennsylvania, New Jersey, and Delaware bidding against one another to keep companies from leaving the nation's fifth-largest metropolitan area. In the end, the companies end up with new offices just minutes from their old haunts.

Philadelphia wasn't a focus of the Good Jobs First report, but New Jersey's efforts to poach employers from New York and retain several big corporations were.

Among the big tax-credit deals: $102 million in 2011 to retain Panasonic North America, which is building in Newark; $82 million in 2012 to move Goya Foods from Secaucus to Jersey City; and $250 million (later reduced to $210 million) in 2011 to retain Prudential Insurance, which intends to build a $444 million office tower in Newark.

The Good Jobs First report zeroes in on New Jersey's payments to attract Wall Street firms to Jersey City from Manhattan after 9/11 and the Christie administration's 2011 effort to lure companies from Illinois, which was increasing its corporate net-income-tax rate.

Greg LeRoy, executive director of Good Jobs First, said interstate moves of only a few miles tend to have microscopic effects on state economies because employees most often simply change their commutes, not their homes. As for the Illinois offensive, "firms did not flee . . . for the Garden State," the report states.

LeRoy is clear-eyed about what's going on. States should compete, he said, but only on the basis of their quality of infrastructure, life, and workforce, not how big a check they can write. It's simply not fair that a small number of companies game the system at the expense of other "incumbent" employers, he noted.

With deal-making of all sorts down since the financial crisis, politicians have been more aggressive in trying to create jobs, LeRoy said. That tends to drive up the incentive price per job, but the report cites plenty of metro areas, such as Kansas City and Charlotte, where aggressive incentives wind up producing no net gain in jobs and often a net loss in the tax base.

As a low- to no-growth area, Philadelphia doesn't get as much of the shell game Good Jobs First describes. But it does happen. Within the last year, and backed by public incentives, Ocean Spray Cranberries Inc. announced it would move its bottling plant from Burlington County in South Jersey to Lehigh County in Pennsylvania, and InterDigital Inc. moved its headquarters from King of Prussia to Wilmington.

It would be great to point to data that show whether such tax incentives and grants are effective, but that's the other point of much of Good Jobs First's work. States have not been consistent in following up on job creation/retention promises and generally have not been transparent about which incentives work and which do not.


Contact Mike Armstrong

at 215-854-2980, marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz.

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