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)
Getty Images
Nancy Cook
Add to Briefcase
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.

What We're Following See More »
FCC Tightens Internet Privacy Standards
5 hours ago

Along party lines, the Federal Communications Commission on Thursday voted to tighten privacy standards for Internet service providers. "The regulations will require providers to receive explicit customer consent before using an individual’s web browsing or app usage history for marketing purposes. The broadband industry fought to keep that obligation out of the rules."

Obama Commutes Another 98 Sentences
6 hours ago

President Obama commuted the sentences of another 98 drug offenders on Thursday. Most of the convicts were charged with conspiracy to distribute drugs or possession with intent to distribute. Many of the sentences were commuted to expire next year, but some will run longer. Others are required to enroll in residential drug treatment as a condition of their release.

DOJ Busts More Than 50 for Call Center Scam
6 hours ago

The Department of Justice announced today it's charged "61 individuals and entities for their alleged involvement in a transnational criminal organization that has victimized tens of thousands of persons in the United States through fraudulent schemes that have resulted in hundreds of millions of dollars in losses. In connection with the scheme, 20 individuals were arrested today in the United States and 32 individuals and five call centers in India were charged for their alleged involvement. An additional U.S.-based defendant is currently in the custody of immigration authorities."

Johnson on Ballot Everywhere, Followed by Stein, McMullin
8 hours ago
Is McMullin Building the GOP in Exile?
10 hours ago

Evan McMullin, the independent conservative candidate who may win his home state of Utah, is quietly planning to turn his candidacy into a broader movement for principled conservatism. He tells BuzzFeed he's "skeptical" that the Republican party can reform itself "within a generation" and that the party's internal "disease" can't be cured via "the existing infrastructure.” The ex-CIA employee and Capitol Hill staffer says, “I have seen and worked with a lot of very courageous people in my time [but] I have seen a remarkable display of cowardice over the last couple of months in our leaders.” McMullin's team has assembled organizations in the 11 states where he's on the ballot, and adviser Rick Wilson says "there’s actually a very vibrant market for our message in the urban northeast and in parts of the south."


Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.