Economic Development Subsidies: Helpful or Radioactive?

In testifying to the Arkansas House and Senate Committees on Revenue and Taxation yesterday, Grant Tennille (the head of the Arkansas Economic Development Commission) explained yesterday that Arkansas’s reliance on corporate welfare is like a nuclear weapon.
Tennille said:
“I say this all the time. I hate incentives. I don’t think we ever should pay a dime to anybody to do anything. But I feel about incentives the same way I feel about nuclear weapons. I will happily be the second guy to put mine down”
or, Tennille explained, to resort to their use.  He added:
“As long as Bobby Jindal pays $56 million for a chicken plant, I can’t sit here and say that we’re going to be too good to do that.”
This remarkable metaphor is perhaps more revealing than Tennille intended. A central justification of nuclear weapons is that they are better used as threats than as tactics; when we get to the point that nuclear weapons are used on a regular basis, most people will conclude that something, somewhere, has gone wrong. One name for what has gone wrong in that case is mutually assured destruction. Maybe it’s true that we should compare corporate welfare to nuclear weapons, but if so we ought to keep in mind that the substantial damage that corporate welfare can do — taxpayer-funded subsidies to businesses that apparently can’t make it on their own — is already taking place.
Regrettably, it is not even clear that the money that taxpayers are spending on economic development is having its promised effects: an Arkansas Democrat-Gazette analysis last month demonstrated that there is no way for the public to verify that economic-development expenditures actually result in jobs. When asked about this at the hearing, Tennille responded that he is confident that most companies have delivered on their promise, but “a lot of it is an article of faith because it’s really tough for us to say with absolute certainty … that yeah, they’ve done what they said they were going to do and hired this many people.”
At the hearing, a number of legislators asked Tennille some probing questions that implied some skepticism about the value of corporate welfare in general:
Rep. Stephen Meeks asked what the return on investment was on the governor’s Quick Action Closing Fund, which prompted Tennille to discuss his thoughts on faith and evidence as reproduced immediately above. Instead of supplying the requested figure, Tennille gave the example, near Meeks’s district, of Hewlett-Packard’s taxpayer-funded economic development success – in my opinion, an explanation similar to that of a poker player who is intent on relating anecdotes about the big hands he won but who is less talkative about his losses. Meeks responded to Tennille’s invocation of Hewlett-Packard by asking if Tennille thought his anecdote was the exception or the rule, pointedly underscoring that we won’t be able to discuss these matters meaningfully until we have actual numbers.  Tennille then replied with more anecdotes.
Rep. Andrea Lea asked how we tell whether the economic development assistance that is funded by taxpayers is providing any return on investment at all, and whether AEDC provides any information on the question of what benefit its actions provide to the public. Tennille answered “We do … we actually prepare those reports for you.” Under questioning by Lea, however, Tennille conceded that those reports only contain predictions, and the only evidence of actual achievements is hidden in the tax returns that corporate welfare recipients provide to the state; when Lea asked further if there is anything that provides after-the-fact evaluation of how well these programs work, she was told by AEDC staffer Morris Jenkins that AEDC “would love to know” the answer to these questions and that “there is some language” in legislative draft form that would address them. Further questioning by Lea resulted in Jenkins’s admission that he had no knowledge of any legislators working on the issue, followed by Tennille’s invitation to Lea to carry such a bill, to which Lea responded “I’d love to carry the bill, if I can agree with the language.”
Rep. Charlie Collins suggested that AEDC’s mission was based less on individual choice and more on central planning; given the historically-demonstrated defects of central planning, Collins asked, are AEDC’s methods the correct ones? Tennille responded at some length that he had discovered over time that some of the strongest advocates in Arkansas of getting government out of the business of corporate welfare were on the state dole: “They’re entrepreneurs, but when it came right down to it, they showed up at our door, and we’re toting their note.” Collins responded to this non sequitur by saying “I agree with you that if you put a pile of sugar cubes in the middle of a field, every horse in the field will eat them.” I think this was a particularly concise way of noting that what we want to do is to think about what happens when we get the sugar cubes out of the field, and that Tennille’s revelation that many businesses have received corporate welfare was essentially unrelated to that question.
Rep. Linda Collins-Smith noted that it wouldn’t seem hard to her to require recipients of corporate welfare to disclose what they are getting and what they are providing, saying “I would like to know how many jobs we have purchased with taxpayer dollars.” Tennille responded by suggesting that he’d need to know what was meant by “purchased,” asking if any incentive would count as a purchase. Rep. Collins-Smith fired back, noting that lawmakers had been supplied so little information about the details of Arkansas’s existing economic development programs that it was difficult to respond with appropriate criteria to Tennille’s question. It was around this time that Tennille explained that business incentives are like nuclear weapons, a metaphor which is (depending on one’s perspective) either highly regrettable or highly revealing. If these legislators continue to attend to this issue, there will likely be continuing fallout.

Alex Cartwright is an Economic Policy Analyst at the Advance Arkansas Institute.
A version of this article originally appeared on the blog, “The Arkansas Project” on 7/20/12. 

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