What I have to say in this article will rub some people the wrong way. That’s ok. Incentives are part of an antiquated, unfair, costly, and ineffective model of economic development that has been around since the Industrial Revolution in the late 19th century. Some places have successfully shifted away from this haphazard approach to economic development, but most have not. Ashtabula County remains mired in the old way of doing business.
Let’s see what the Pew Trust report has to say. Although every state gives tax incentives for economic development, there are numerous inconsistencies in how these incentives are evaluated. Based on best practices developed by 10 states and the District of Columbia that passed legislation requiring regular evaluation of economic development tax credits from 2012 to 2014, researchers at The Pew Charitable Trust developed a framework for states hoping to improve the accountability and performance of tax incentives in a new policy brief. Ultimately, the brief recommends three steps:
- Making a plan that determines who will evaluate the incentives, how they will evaluate, and when they will evaluate. By identifying clear, measurable goals for each incentive, it is easier for policymakers to assess success;
- Measure the impacts by selecting appropriate metrics and a reasonable timeframe for analysis. Although many evaluations study how incentives impact businesses, the authors suggest more emphasis should be on how incentives affect state residents (jobs, wages, economic security); and,
- Inform decisions by identifying opportunities for improvement and encouraging lawmakers to regularly review incentives. According to the authors, this approach would allow for effective incentives to potentially become more effective, while ineffective incentives could be changed rather than completely eliminated.
Read the report here.
In my view, businesses take incentives for granted. They expect them as a given. Many using them don’t need them. For years my position has been to eliminate all incentives everywhere. Unilateral disarmament will not work; that is if one place stops using incentives and others do not. Incentive disarmament is very unlikely to happen because the policy of using incentives is deeply entrenched in business practices globally. Research shows that in the vast majority of cases the bidding wars for businesses and jobs do nothing more than drive of the price for what would have happened anyway. That is bad public policy! Perhaps it is even criminal.
There are better ways to encourage and assist business competitiveness. For one, provide the trained and educated workforce that employers need. Second, provide competitive sites and infrastructure. Third, streamline development permits — not to break the rules, but speed up the review and approval process. Finally, create quality communities and schools that attract managers, knowledge workers, and their families.
Ashtabula County needs to mount a new growth curve–that is the curve of creating knowledge and innovation-driven businesses and industries, which create higher skilled and better paying jobs. And before that can happen, our population base and workforce need to become better educated and skilled.
Highly skilled and knowledge based jobs follow the people who have the skills. Frankly the county is not prepared to mount this curve because many don’t believe it is possible and many think what we have is just fine. It’s not. Ashtabula County lacks opportunity, especially for young people. We will continue to lose our young people if we do not fix this problem. The solution will require a very long term commitment by leadership, employers, educators, and citizens. As I think of this economic shift proposition, we may be able to justify using government incentives because this shift to the new economy would not happen otherwise. Until we make this long term commitment to the shift, we will continue to have the social and economic realities we see across the county.
More on this important set of issues in the future.