Businesspeople often complain about government interference, arguing that government should stay out of the marketplace and regulate it as little as necessary. Of course you don’t hear many complaints from those same people when the government provides a host of tax deductions and subsidies that benefit them. The latest controversy involving government subsidizing business is playing itself out in Tallahassee where House Speaker Richard Corcoran wants to eliminate the government agency Enterprise Florida (actually a public-private hybrid), claiming that it does not do what was intended.
Enterprise Florida is supposed to use its resources to lure business to the Sunshine State using a variety of inducements including tax refunds, tax credits, tax exemptions, and even outright cash grants. While Corcoran wants to eliminate funding for Enterprise Florida Governor Rick Scott who has campaigned on a platform of job creation is a vigorous defender of the program.
The use of government incentives to support business is nothing new in America. Primarily because of the nature of our federal system businesses can play off one governmental unit against others to negotiate the most advantageous package of inducements to locate their business in a particular place.
Our latest local example of this sort of bargaining has recently occurred with the Atlanta Braves who indicated they were willing to relocate from Orlando if “the price was right.” Consequently, they initiated a series of negotiations with Orlando, Sarasota, Collier County and Palm Beach County to see which locale would give them the best deal.
After several months of bargaining, negotiating and playing one county off against the others Sarasota emerged as the “winner” of the Braves sweepstakes and a preliminary deal was struck. A sports complex in the range of $75-$80 million would be built in North Port by 2019. Sarasota county would kick in $22 million, North Port would add $4-5 million, West Villages would contribute 150 acres of land worth $7-9 million, and the state would add about $20 million.
The county’s contribution falls just under the amount that would otherwise have to be approved by voters—hmmmm. Supposedly the Braves would pick up the remaining $22-25 million and they get full operating rights to the baseball complex. The government is trying to negotiate use of the facility for a few days during the year (the latest estimate was 22 days), but profits from the games go to the Braves who will agree to make annual payments for 30 years to cover the stadium debt.
The arguments in favor of such sports stadium deals are common: they will spur economic growth in the local area, help raise incomes and they will create jobs. Sounds good. Sounds like a wise investment. Unfortunately economists who study such deals say there that there is no evidence to indicate that those things actually happen. Two economists, Coates and Humphreys collected all the studies done on the topic and concluded that there was no legitimate economic justification for the deals—they don’t spur economic growth, they don’t create more jobs, and they don’t raise incomes. So why do these deals continue to happen?
For the answer we need to turn to politics, not economics. Politicians often campaign on the argument that they will create jobs. Governor Scott certainly did that, but he is not the only politician to pass himself off as a “jobs-creator.” To justify that they are working to create jobs they must have some sort of highly visible way of showing that they are working on job creation. Enter government incentives! In many instances corporations and sports teams have already decided where they will locate and only as an afterthought do they try to obtain government incentives (hey, why not if they want to give us some freebies).
In fact, studies show that one of the most important factors in determining where businesses locate—in addition to the quality of the labor force, access to relevant transportation, and the cost of energy, (for sports teams a supportive fan base)—is where the CEOs live! (Note that Braves Vice Chairman John Schuerholtz owns a home in Naples).
Of course politicians don’t have to play this game and, to their credit, the politicians in Collier County ultimately decided to drop out of the bidding war for the Braves stadium. Perhaps they are smarter than our own politicians. They can now spend their money on more deserving projects and still enjoy the benefit of seeing the Braves. After all, it’s only a short drive from Naples to North Port. That drive won’t cost anywhere near $26 million.