Our “Shell Game” Findings Strike A Chord

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When we released our study “Job-Creation Shell Game” last week, we knew we would meet some skepticism. We could hear a few hackneyed questions coming, like: “What state would unilaterally disarm?”

But actually, we got very few such questions—because we isolated an aspect of the economic war among the states that is just so outrageous no one can credibly defend it. I am referring to what we called “interstate job fraud,” or the dishonest relabeling of existing jobs as “new” just because they have been moved across a state line—even if that move was literally across the street.

Joining us on our press conference call was Bill Hall, Assistant to the Chairman of Hallmark Cards, in Kansas City, Missouri. Almost two years ago, a fellow Hallmark executive joined leaders of 16 other Kansas City-area businesses in a public letter to Missouri Gov. Jay Nixon and Kansas Gov. Sam Brownback, urging them to stop paying businesses to jump the state line for eight-figure subsidy packages for “new” jobs.

During the press conference, Hall revealed new research: the two states have spent at least $192 million in recent years pirating jobs from each other:

Through the PEAK (Promoting Employment Across Kansas) income tax abatement program, Kansas will rebate $132 million for entities moving from Jackson County, MO to Johnson or Wyandotte Counties in KS.  A total of 3,109 jobs moved from east to west over the state line.  On the Missouri side, the Missouri Quality Jobs program will spend $60 million in subsidies to move 2,514 jobs from west to east.  The net job gain to Kansas of this job shuffle was 595 jobs, at a staggering cost of $323,000 per job.

Alarmingly he added:

The numbers are dynamic.  Each month new companies apply for and receive benefits.  In Kansas, many of the firms receiving incentives are small to medium sized service firms such as law offices, accounting firms, architecture and engineering firms …even catering companies.  These types of companies would not leave the region, but are relocating for the generous incentive packages available.  Most relocations are 10 to 15 minutes from the original location.   Employees don’t move to new homes or change schools, they just change their commute.

 The pace of incentive use continues to accelerate, with new announcements each month.  In total, since 2009, Kansas has abated $324 million in state income taxes and Missouri’s Quality Jobs program has cost $365 million in general tax revenue since the program began in 2005.

In our study, we detailed three other metro multi-state areas with similar interstate job fraud: Memphis (pirated by Mississippi); Charlotte (spanning 16 counties in North and South Carolina); and New York City (often pirated by New Jersey). We also cited Rhode Island for a tragic episode of job piracy from the Boston area.

We have received many private back-slaps for the study, including some from business groups and economic development staffers. Public reactions in the news media, including the business press, have hardly been skeptical:

In a biting editorial, the Columbia (Mo.) Daily Tribune warned:  “This idea of chasing Kansas over the [tax-cutting] cliff is ludicrous.” “Maybe we should quit funding public education and give the money instead to a few companies operating on the state line,” it bitterly concluded.

The Bergen County (N.J.) Record headlined: “N.J. job incentives blasted; advocacy group sees ‘fraud’ in relocation subsidies.” When the New Jersey Economic Development Administration failed to comment on our findings, the paper quoted us at length, as well as a conservative think-tank study we cited that also found minimal impact from costly interstate relocations.

Kansas City Business Journal columnist Steve Vockrodt wryly noted that at least “Kansas City hasn’t had a company like Sears Roebuck & Co., which went to Illinois in 1989 and again in 2012 for a combined $440 million in retention subsidies.”

State Tax Notes, the weekly of record on state tax policy, reported that an economist at the conservative Tax Foundation “told Tax Analysts that generally she agrees with the report’s findings and that providing incentives to some companies is not good policy.”

Philadelphia Inquirer columnist Mike Armstrong wrote: “Paying to retain jobs [what we called ‘job blackmail’] is an all-too-frequent practice, and it drives all sorts of diligent, taxpaying business people nuts.”

The Jefferson City (Mo.) News Tribune editorialized “Do we follow Kansas off tax-credit cliff?”: “The sparring between the states is reminiscent of the stereotypical mother’s admonition to a child’s rationale in the following exchange. Child: ‘Well, my friend Joey is allowed to do it.’ Mom: ‘If Joey jumped off a cliff, would you jump off a cliff?’”

Political scientist and subsidy scholar Kenneth Thomas, writing at the Wall Street online daily Business Insider, cited our evidence that 40 states already refuse to subsidize intrastate job piracy. “What is necessary, the report argues and I wholeheartedly agree, is that states need to tweak their program language to stop rewarding interstate job relocation as well. They need to stop efforts to directly poach existing firms, something Texas is heavily engaged in.”

Pulitzer Prize-winning tax reporter David Cay Johnston, in a State Tax Notes column, wrote: “Tax officials, business owners, and others interested in easing state-level tax burdens and protecting state fiscs would do well to spend time not just reading but studying [the] clearly written report…” and “The vast array of new data, including footnotes with hypertext links, makes an overwhelming case against relocation and retention payments to corporations big and small.”

Finally, the Atlanta Journal-Constitution said a Georgia official “chafed” at our relabeling it “the Poach State.”

I suspect that some of the 1,250 people at NCR headquarters, whose jobs had resided in Dayton Ohio for 125 years, had choicer words when their jobs were uprooted and relabeled “new” to help qualify the company for a nine-figure subsidy package.

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