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krazeeboi

The Incentives Game: is it really worth it?

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I've been thinking about this lately, especially as it concerns the area where I live (the SC portion of the Charlotte metro) and most recently the Lockheed Martin situation in Greenville. To a certain degree I see how incentives are necessary, but do we by and large overpay companies to come here? For instance, in Lancaster and York counties, companies that jump the border from Mecklenburg like to take advantage of our lower taxes and better incentives. But these companies still retain the bulk of their employees from Charlotte--the only thing that really changes is the traffic flow. So we might have another company on the roll, but more strain on our infrastructure and not many more South Carolinians with jobs resulting from the relocation (if at all). It would be the same with corporations that relocate further inland and bring the bulk of their employees with them. I'm not as saavy on the actual numbers portion of this equation, but I don't think they always speak in our favor.

So what do you guys think?

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Interesting. I'd say that its worth it to a point. The question becomes: what is that point?

BMW moving to Spartanburg County was a major prize for the Upstate. They had a major incentives deal, and many were not happy about that (they are basicly here tax free). But the jobs they create are valueable, and they create other supporting jobs. It gets down to basic economics and job base/creation ratios.

The problem in SC is that most of our big employment deals as of late are for manufacturing and supply/distribution companies. We don't have as many white collar jobs moving in as we need (not that there aren't any). I'd say that most of the white collar jobs that are out there are supportive of the existing populations needs (doctors, lawyers, banks, etc.). We need to build our knowledge based economy to bring in those types of jobs to the state.

Columbia may be the one place that is currently high in the knowledge based area, but thats mainly due to its economy being rooted in government. Greenville has gained more ground lately than anywhere else in the state, but is still largely industrial. Charleston, Spartanburg, Florence, Rock Hill, etc. have not seen much at all. I want to stress that this doesn't mean that the other places don't have it, just that they aren't gaining ground IMO.

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I think that in most cases it definitely benefits us to offer incentives. With Lockheed Martin, we have one of the most prestigious aircraft engineering companies in the nation, not to mention over 1000 well-paying jobs that help the economy with reinvestment. If another state is able to offer more, then we should still do whatever we can to obtain and keep such companies here because the longterm benefit definitely outweighs the initial sacrifice in almost every case.

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Back in the '70's and early '80's incentives weren't really used except maybe extending a water and/or sewer line. Over the years that has changed into where we lower their property taxes, as well as other state taxes as well. Even more in the way of infrastructure is proveded also.

Now, (ie Lockheed Martin), we are being coercised into giving incentives just so a company will STAY rather than leave. This is unethical IMO. These are the same companies that complain about the lack of a well-educated work force. Maybe if all these industries paid their normal levy of taxes, we could have a better educated work force.

Basically what this has allowed is a shift of taxes from industry onto the residential population. Where does it stop? No one wants to see someone like Lockheed leave the area, so I guess we have to pay the ransome, that doesn't make it right though.

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Of course then there is the other side of this argurment.... what about competing with other states that are also offering incentives packages? If we don't keep up with them, we will loose out.

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Of course then there is the other side of this argurment.... what about competing with other states that are also offering incentives packages? If we don't keep up with them, we will loose out.

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It seems that NC hasn't typically been involved in the incentives game, at least not to the extent that states like SC and Alabama have--yet the state has one of the best economies in the South. Companies are trying to gain a foothold there because of the quality of the workforce, not because of large incentives packages (although the latter does play some role).

Considering us "losing out," that depends on how you look at it. If a company is relocating to SC just to take advantage of our big incentives package, yet 80% of its workforce relocates as well, who is really losing out?

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Well, if the company chooses any place other than SC, then we are loosing out, regardless of their reason. If they come to SC for any reason, then we win, hands down. Jobs = more money into the economy.

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I'm no economist, but I think that may be an oversimplified response.

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Its definitely simplified, but you can't disagree that if a company considers SC but chooses another location then we loose.

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I guess the question then becomes, are the immediate gains that we obtain by offering large incentive packages worth it in the long run?

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I guess the question then becomes, are the immediate gains that we obtain by offering large incentive packages worth it in the long run?

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^I sure hope so. That's the advantage of clustering. BMW fits right in among the other automotive-related companies in the Upstate.

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I think Georgia took a pretty substantial ht when they won the Sprinter plant over SC. GA had puchased something like 2200 acres, done some sitewok, and then Daimler-Chrysler backed out and left GA holding the bag.

I don't have any problem with incentives to bring people into the state, but I consider what Lockheed Martin is doing to be extorion.

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I hate the whole corporate incentive game. When every state in the nation plays it, the playing field levels out to where its about the same as if no state were playing the incentive game.

Who are the losers? People/Businesses already in the state. When a state gives a business tax incentives to locate within the state, they are essentially subsidizing the business. They're forgiving their tax dollars, and its up to the rest of the citizens and businesss to pay the bill.

It's not going to change though. The reason why it won't ever change is that the benefit from tax incentives is concentrated in a few people (eg. those who will get the jobs). These people will lobby hard for the incentives. The cost of the incentives is spread out among the population as a whole. Thus, there is little motivation for everyone else that doesn't benefit to really lobby against the incentives.

Another problem I have with the government incentives/subsidies is that the government is the WORST investor EVER. Government has no incentive to look to potential return on their investments. In fact, the Government views winning on its investment by simply getting the company to come to the state. This is a horrible investment strategy. For example, the biotech industry that USC and Columbia are trying so hard to attract. This industry is THE most sought after industry in the country right now, which, of course, gives the Biotech companies a HUGE bargaining advantage at the expense of Governments. The result is that USC and Columbia, will be paying enormous sums of money to attract these industries, but will receive little return on their investment.

Allow me to put it in a simplified scenario: "You have some money to invest in real estate, and engage a consultant to invest your money for you. The consultant comes back and says that he chose to invest in the most sought-after single property in town, where hundreds of other people were bidding against you for the project, but eventually you outbid them all and got it. "

I'd be pretty pissed off if a consultant did this with my money, but this is exactly what USC, Columbia, and South Carolina do everyday.

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^^You bring up some very good points about attracting certain niches, as they could prove to be more costly than they're worth in the long run. Hopefully it will prove to be a good move and a positive thing, particularly with Innovista. We'll have to wait and see.

You have to remember that it's a lot like playing the stock market. There's much risk involved with incentives sometimes, but without the risks we've taken, I'd hate to see where South Carolina would be right now. :wacko: We'd mostly be unemployed, sitting on our front porches and just staring at our empty mills.

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GMoxley, you bring up some good points, particularly as far as biotech is concerned, but honestly I'm not worried about incentives in that case. Any progress we as a state make in that arena is going to pretty much be homegrown; why would a relocating company choose Columbia over Raleigh-Durham to set up shop, when that area has the trained/educated labor pool and the costs of living and doing business are just as cheap? I have more hope for the hydrogen, nanotech, and environmental research areas of Innovista than biotech. At least with ICAR, SC has already lured several of the associated companies, so the state doesn't have to worry about incentives to get the companies to set up shop there; the companies are giving back, and this benefits both them and the state.

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So in light of what we've been discussing in "The two South Carolinas" thread, does everyone still think the same about incentives? Until I read that article, I never thought about it the way Matthews put it--the state being too poor to give generous tax incentives AND invest significantly in education, particularly higher education.

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Earlier I stated, Incentives at the expense of the people, is pretty much a last ditch effort. Usually once the tax breaks run dry (usually after 10 years or so) companies leave and let tax payers foot the rest of the bill. It's a good short term solution to stimulate the economy, but in the long haul all that's gonna happen is someplace even more impoverished will offer greater incentives (usually at the expense of their citizens), and those companies will move there (Mexico, India, China, etc.). Personally If I were running things I would tax the hell out of companies and industry that wanted to set up shop in state, especially if they are getting cheap local labor and make them put in for the quality of life in the state, ie transportaiton, education, etc. These companies aren't dumb. Most realize that the south is a cash cow (very little effort, with a huge return). Look at SC's coast. It's to the point that the average Joe can't live there anymore. Insurance has skyrocketed to the point where one is pretty much forced to sell. So guess who the only one's are that can afford the insurance, companies. They buy the land that is to them virtually dirt cheap, develop it with resorts, malls, themeparks, etc...and guess where all that money goes? It sure as hell doesn't go the the people of SC. Mabye some but there is a lot of money turning over in Myrtle, and Charleston, but how much stays in state? Florida doesn't have state income because tourist pay for it. If SC main industry is tourism we should be thinking along the same lines. Make all those yocals from up north pay for the infrastructure that they help to wear down. At one time Florida was nothing more than uninhabital swampland that no one wanted anything to do with.

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Earlier I stated, Incentives at the expense of the people, is pretty much a last ditch effort. Usually once the tax breaks run dry (usually after 10 years or so) companies leave and let tax payers foot the rest of the bill. It's a good short term solution to stimulate the economy, but in the long haul all that's gonna happen is someplace even more impoverished will offer greater incentives (usually at the expense of their citizens), and those companies will move there (Mexico, India, China, etc.). Personally If I were running things I would tax the hell out of companies and industry that wanted to set up shop in state, especially if they are getting cheap local labor and make them put in for the quality of life in the state, ie transportaiton, education, etc. These companies aren't dumb. Most realize that the south is a cash cow (very little effort, with a huge return). Look at SC's coast. It's to the point that the average Joe can't live there anymore. Insurance has skyrocketed to the point where one is pretty much forced to sell. So guess who the only one's are that can afford the insurance, companies. They buy the land that is to them virtually dirt cheap, develop it with resorts, malls, themeparks, etc...and guess where all that money goes? It sure as hell doesn't go the the people of SC. Mabye some but there is a lot of money turning over in Myrtle, and Charleston, but how much stays in state? Florida doesn't have state income because tourist pay for it. If SC main industry is tourism we should be thinking along the same lines. Make all those yocals from up north pay for the infrastructure that they help to wear down. At one time Florida was nothing more than uninhabital swampland that no one wanted anything to do with.

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If SC jacked it's taxes up so high, then what would prevent those companies from going to Mississppi, Alabama for low taxes; or NC or GA for similiar taxes and a high standard of living/development. The key is to get a proper balance of taxes/labor/land/capital (incl. venture capital)/ quality of life so that the state is condusive to good-paying business and industry.

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Corporations don't pay taxes anyway.

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While it is true that the corporations' taxes are passed on to the consumer, the tax savings can also be passed on to the consumer. This can make the company more competitive in the marketplace based on pricing of its products. Thus if it can sell more products at a lower price point, and it could make up the difference in revenue and profit on volume.

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^Huh? Yes they do. I know they pay state and federal.

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