Why States Should Stop Courting Boeing

A handful of cities and states are competing to attract a new aerospace manufacturing plant, despite little proof that it would spur economic growth.

EVERETT, WA - FEBRUARY 8: Boeing 747 jets are built in the company's factory February 8, 2009 at Paine Field in Everett, Washington. The 747-8 is the largest jumbo jet Boeing has built. (Photo by Stephen Brashear/Getty Images)
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Nancy Cook
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Nancy Cook
Dec. 12, 2013, 6:24 a.m.

States and cit­ies across the coun­try have been trip­ping over them­selves this week to try to cast their re­gions as the most hos­pit­able place for the aerospace in­dustry — as if every re­gion, in its back pock­et, has the labor and skills needed to build jet­liners.

At stake is the loc­a­tion of a new Boe­ing man­u­fac­tur­ing plant, where the com­pany plans to as­semble its 777x air­craft. Politi­cians and loc­al eco­nom­ic de­vel­op­ment lead­ers act as if they can already see the head­lines if their lucky state wins the bid: So-and-so gov­ernor or may­or brought Boe­ing to the area and cre­ated thou­sands of new, high-pay­ing jobs. Hello reelec­tion cam­paigns!

In re­turn, Boe­ing wants some good­ies. Among the re­por­ted asks: Cheap or free land; easy ac­cess to rail­roads, a port, an air­port, or high­ways; and some ser­i­ous tax breaks. In­creas­ingly, loc­al gov­ern­ments lean on such deal-sweeten­ers to at­tract busi­nesses.

The prob­lem with the tax-in­cent­ive strategy is that there is little eco­nom­ic evid­ence that busi­nesses — even ones that bring highly skilled man­u­fac­tur­ing jobs — can boost a loc­al eco­nomy after they re­ceive the tax breaks and move in­to town. Even if a loc­al gov­ern­ment doubles the value of the tax in­cent­ives it of­fers, that will still add only about 3 per­cent of that in­vest­ment to eco­nom­ic growth, says Richard Fun­der­burg, as­sist­ant pro­fess­or of urb­an and re­gion­al plan­ning at the Uni­versity of Iowa who’s stud­ied man­u­fac­tur­ing tax breaks ex­tens­ively.

“Tax in­cent­ives don’t really mat­ter,” he adds. “And, usu­ally, the dir­ect ef­fect is likely to be neg­at­ive.”

An­oth­er ma­jor prob­lem with these pack­ages is that once the tax sub­sidies come to life, they rarely go away. Loc­al gov­ern­ments of­ten do not ex­am­ine them closely to fig­ure out if they cre­ate jobs, or raise wages, or em­ploy res­id­ents. A 2012 re­port by the Pew Char­it­able Trusts showed that only 13 of 50 states con­sist­ently and sys­tem­at­ic­ally ex­amined the ef­fect­ive­ness of these state-based tax in­cent­ives.

“You have to ask your­self if the money wouldn’t be bet­ter spent on lower taxes for every­one, or by in­vest­ing money in edu­ca­tion or in­fra­struc­ture — stuff the gov­ern­ment does to make its eco­nomy more at­tract­ive,” says Don­ald Boyd, seni­or fel­low at the Rock­e­feller In­sti­tute of Gov­ern­ment.

When states do look closely at their tax in­cent­ives, they some­times real­ize that the breaks do not work. Wis­con­sin law­makers, ac­cord­ing to the Pew study, scaled back the state’s film tax cred­it after a study deemed it in­ef­fect­ive. Sim­il­arly, a Louisi­ana eco­nom­ic-de­vel­op­ment agency real­ized that one tax cred­it cre­ated only one-third of the jobs it had prom­ised. Con­necti­c­ut of­fi­cials were happy to learn that a job-cre­ation tax cred­it ac­tu­ally seemed to be­ne­fit the state.

It’s dif­fi­cult to track the growth of these tax in­cent­ives over the years, giv­en the dif­fer­ences in how states award them. Polit­ic­al sci­ence pro­fess­or Ken­neth P. Thomas has es­tim­ated that such sub­sidies now cost loc­al gov­ern­ments roughly $70 bil­lion a year — not an in­sig­ni­fic­ant sum of money.

Be­fore states woo Boe­ing or oth­er com­pan­ies with tax in­cent­ives, state of­fi­cials need to ask more ques­tions, says Jeff Chap­man of the Pew Char­it­able Trusts. Like: How does this fit in­to the state or city’s broad­er eco­nom­ic pack­age? Or, is this more ef­fect­ive than what we could be do­ing with the same amount of money? And, will this fact­ory or plant cre­ate an­oth­er, re­lated mini-in­dustry of small busi­nesses that feed off it?

So far, loc­al of­fi­cials do not seem to be think­ing along these lines as the Boe­ing mania over­takes them. Then again, it’s hard to con­tem­plate the long-term eco­nom­ic ef­fects of grant­ing Boe­ing its wish list when all law­makers can ima­gine are the glow­ing head­lines an­noun­cing they won the Boe­ing con­tract.

Cor­rec­tion: An earli­er ver­sion of this art­icle mis­stated the amount of in­vest­ment that a state could earn by doub­ling its tax in­cent­ives, based on in­cor­rect in­form­a­tion provided by a source.

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