April 12, 2012

Good Business Climate Won't Need Incentives

Maurice P. McTigue

Vice President, Outreach
Summary

Kansas policymakers left for recess on the heels of very disappointing jobs news. According to the latest jobs report, Kansas ranked fourth in terms of jobs lost with a 5,700 decrease in employment. As legislators prepare to return in a couple of weeks, they should consider what’s best for the Kansas economy and pursue goals that make Kansas a better place to do business than any other state.

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This article was originally published in The Wichita Eagle

Kansas policymakers left for recess on the heels of very disappointing jobs news. According to the latest jobs report, Kansas ranked fourth in terms of jobs lost with a 5,700 decrease in employment.

As legislators prepare to return in a couple of weeks, they should consider what’s best for the Kansas economy and pursue goals that make Kansas a better place to do business than any other state.

Kansas has a history of giving incentives to attract business. Despite this, businesses are leaving, and taking jobs and revenue with them.

Legislators should look at all the hoops that businesses must go through in Kansas, and decide what hurdles can be removed to eliminate uncertainty and make the state more attractive for investment. Instead of asking what subsidy Kansas can give firms to get them to do business here, policymakers should ask existing business what it needs to operate more efficiently and effectively.

Certainty is a key component to sound economic development, because it allows businesses to make permanent plans and decisions.

If Kansas had an economic climate that made it the best place to do business, Boeing might not be leaving in 2013 – regardless of outside contracts, defense restructuring or inside subsidies. If businesses understand the tax and regulatory landscape, and can count on it to be permanent, they can make good decisions. Outside factors are offset by a predictable and stable economic climate that allows them to be profitable.

Certainty keeps jobs in Kansas creating revenue, not incentives.

The problem with incentives is that they are not free, and they result in a cost to someone else because they come from tax revenue.

The recent referendum on the Ambassador Hotel tax incentive in Wichita illustrates this lose-lose situation. If the hotel needs a tax break to do business, it likely was not competitive in the first place. Businesses and taxpayers naturally oppose unfair advantages. And once subsidies are gone, the business may fail anyway.

To compete, instead of offering subsidies, Kansas should first think about businesses and people trading in the local economy and what permanent changes it would take to expand those businesses.

For sustainable economic growth, it is better to have 1,000 local businesses each hire one extra person than use an incentive to bring in one business that may hire 1,000. Those jobs stay because of the permanent and positive business climate, generating revenue, as opposed to jobs resulting from incentives that may leave and cost revenue dollars.

Once achieved, economic competitiveness is not something that can be forgotten. A major role for any economic development agency should be vigilance in seeking competitive improvements. This includes monitoring processes and procedures that make the state unproductive, and advocating for their removal or reform.

Key battles on taxes and the budget lie ahead; jobs and Kansas’ future are at stake. Let’s hope decision makers see fit to avoid merely doing things as they always have been done.

Most incentives or subsidies are payments to compensate for things in the economy that need to be fixed. A better economic development program is cultivating a climate where it is unnecessary to offer any special incentives to encourage business and investors to come to your state.