The lemming approach to corporate welfare

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In the last couple of weeks, Gov. McDonnell’s office has been churning-out the press releases touting new jobs, new businesses and more economic growth for the commonwealth.  But all of these releases tout deals in which various state and local bureaucracies have played a part – which usually means they’ve cut checks, promised to do so, or will do so with very little fanfare over the coming months. 

A sobering piece in the News-Advance took a closer look at all these incentive deals and found that state and local economic developers were paying more for each job private companies promised to create:

When Virginia offers incentive dollars to help a company expand, it offers more money per job created than it did before the recession — $6,441 per job since McDonnell took office, Virginia Economic Development Partnership data shows.

That is barely more than the $6,216 per job under McDonnell’s predecessor, Timothy M. Kaine. But it is more than 40 percent above the $4,478 per job Virginia offered under now-Sen. Mark Warner, whose term as governor ended before the economic downturn.

So companies are demanding more money, and getting it, while promising fewer jobs in return. More troubling is the capital side of the incentive equation:

Also, companies receiving incentives now put down $28 of capital investment for each $1 of incentive money, compared to $48 during Kaine’s term and $40 in Warner’s.

The deals are getting more expensive at the same time companies are asking state and local entities – and by extension, taxpayers -- to shoulder more of the risk.  That’s not how free markets are supposed to work.

That Virginia’s corporate welfare window has been so ready to cut deals regardless of which political party is in control is embarrassment enough.  On top of that we now have to deal with subsidy inflation.

All of this is dismissed as the result of the deals bringing higher-paying jobs, or of more competition among state government subsidy programs.  Despite this, the incentive to keep chasing these diminishing returns is quite powerful:

David, at the Region 2000 partnership, said many in the economic development profession would rather not deal with incentives.

“We would all rather not have to use money to help sway a business’s decision to choose to do an investment (or) create jobs in one location over another,” he said.

But incentives are here to stay. A community that forsook them would be “unilaterally disarming” itself, he said.

It’s the sort of logic that appeals to those who’ve run out of ideas.  And to lemmings. So Virginia, its local governments, assorted partnerships, chambers of commerce and other entities, will continue to pay whatever prices the rent seekers demand. It ought to work out swell, too. Right up to the point we all go over the cliff.

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