Sustaining Cities: Urban Policies, Practices, and Perceptions

Hostage Cities: Unsustainable Competition for Corporate Investment

25 Newspaper reports like the following are increasingly common across the United States: In a move that is sure to set off a bidding war among communities in southeast Wisconsin and other states, Astronautics Corp. of America, a low-key but high-tech Milwaukee manufacturer, is seeking a new headquarters site that would employ 1,000 people. . . . Astronautics has retained Steve Palec, senior vice president of CB Richard Ellis in Milwaukee, to conduct the search. Palec was involved in 2007 in procuring headquarters for GE Healthcare in Wauwatosa and Manpower Inc. in Milwaukee. . . . While Astronautics executives prefer to remain in Milwaukee, CB Richard Ellis will conduct a national search, Palec said. “There’s nothing that would not be on the table right now.” Dozens of southeast Wisconsin developers and communities have entered the derby to win what could be the Milwaukee area’s biggest economic development deal in these recessionary times: a new headquarters for Astronautics. . . . The 50-year-old unsustainable competition for corporate investment Linda McCarthy Hostage Cities i company has made it clear that a major factor in determining its new location will be incentives. . . . The company sought submissions that include development zones, low-interest loans and grants, infrastructure assistance, and “lowered acquisition or occupancy costs,” according to its request for proposals. . . . It’s likely the company is seeking financial incentives comparable to those the city of Milwaukee offered to lure Manpower Inc.’s headquarters and the city of Wauwatosa offered to attract GE Healthcare.1 In a global economy, competition using public incentives to attract nationally or internationally mobile companies has intensified to the point where a culture of competition now pervades state and local government economic development policy and spending. Upping the ante are major employers like Manpower, GE Healthcare, and Astronautics that can threaten to relocate and then play places against each other. The winning locality gets the company, certainly, but the competitive pressures hike up the price of success—obligatory tax breaks, of course, but also expensive public outlays like grants and subsidized land parcels. When the incentives merely involve relocations within the same metropolitan region, the company may not even create any new jobs or investment. Within the context of sustaining cities, no one is arguing that incentives to encourage economic development are a bad or irrational use of public funds. Some incentives may benefit cities, such as tax breaks to attract a foreign corporation, grants for new start-up enterprises, or infrastructure investments to encourage a company to expand in an economically distressed neighborhood. But others may be wasteful subsidies for cities, if they are zero sum at a metropolitan , state, or national scale. linda mccarthy 26 State and Local Government Competition for Corporate Investment During the last few decades, state and local governments have increased their business incentive programs in an effort to retain or attract company investment and jobs.2 These programs usually entail corporate subsidies involving foregone public revenues, such as tax credits for companies, and government expenditures involving upfront public spending, like grants to companies or upgraded urban infrastructure, usually paid for through tax increment financing (TIF). In TIF, a municipality sets aside the difference between pre- and post-redevelopment property taxes (the increment) to pay off the often millions of dollars in TIF bonds that are sold to help finance the redevelopment in the first place. Although using the future tax increment to help pay for a redevelopment sounds attractive, drawbacks include loss of tax base due to unnecessary TIF use in areas where redevelopment would have occurred anyway, and a lack of transparency because, not being general obligation bonds, TIF bonds do not require voter approval. In their desperate desire for economic development, government agencies increasingly negotiate with companies for their investment. Fueling this culture of competition are government officials who face increasing pressures to win corporate investment and generate tangible results such as new jobs for their jurisdiction. The result, as captured by one particularly well-titled academic journal article, is that government officials are prone to “shoot anything that flies; claim anything that falls.”3 There are no accurate estimates, but the value of state and local incentives to businesses in the United States may have risen to as much as $50 billion annually.4 States and localities argue that incentives are necessary to attract and retain business investment and hostage cities 27 jobs in a highly competitive...