Are incentives to draw businesses worth it?
Sunday, July 21, 2013
Government-sponsored incentives often can help establish a business and create jobs, but views vary on how much they benefit a community long term -- especially when businesses that receive those incentives start laying off workers.
Cape Girardeau and its surrounding communities, like many towns and cities, have a long history of promoting economic development through tax subsidies and other incentives. The incentives especially are popular in the industrial and manufacturing sectors in the form of abatements, which allow governments to give businesses a discount on property taxes, and sometimes are required to be handed out so businesses can qualify for additional economic benefits, such as grants.
But the local incentives don't mean businesses have to stay in operation or have a better chance of doing so.
A recent example is the planned closing of the PolyOne plant, formerly known as Spartech, on Cape Girardeau's Nash Road. About 90 employees will lose their jobs when the plastics manufacturing plant shuts down by July 2014. In December, Cape Girardeau County give the company a 10-year, 50 percent abatement on property taxes. The deal was part of an agreement with the Missouri Department of Economic Development. The DED also agreed to give the company a little more than $47,000 over five years to help pay for a facility expansion.
County officials say the abatement will not take effect in the years the company is not open, even if PolyOne continues to own the property. The grant also will not be fully applied, since the company has to reapply for a portion of the total each year.
"A lot of times just because something is approved doesn't mean it happens," said John Mehner, executive director of the Cape Girardeau Area Chamber of Commerce, who helped shepherd the deal. "Money isn't just handed out; there are many requirements the company has to meet to keep the deal going."
Although PolyOne won't use all its incentives, Mehner said other such packages have worked, such as a $3.5 million expansion of QC Corp., another Nash Road company; an expansion of Mondi, formerly Nordenia U.S.A., in Jackson; and a $300 million expansion of Procter & Gamble. The projects have resulted in about 100 new jobs in a year.
"If you look at it like that, three of the four we have done lately are still doing very strong and very well, and one was doing very well. it was just a corporate decision to close it; it wasn't anything we did locally," Mehner said.
PolyOne said closing its Nash Road plant is part of an effort to eliminate redundancy of its assets across the country.
Still another job-creating deal that featured incentives facilitated through local governments were property tax abatement for building improvements and a Community Improvement District at the Town Plaza Shopping Center that increased sales tax on retail goods to enhance the area. The deals helped draw NARS, now known as Integrity Solution Services, to Cape Girardeau. The company, a call center, has employed between 400 and 700 people but recently announced it will close in September because of the loss of its one client, Charter Communications. The closing of the company won't affect any abatements or sales taxes, however, because NARS was only part of the deal as a tenant, said Eric Cunningham, attorney for the city of Cape Girardeau. Incentives were offered only to Greater Missouri Builders, then-owner of the Town Plaza. But the Town Plaza is losing the main driver for improvements made to the property and the many jobs that helped keep the shopping center bustling.
Dr. James Stapleton, executive director of the Douglas C. Greene Center for Innovation and Entrepreneurship and associate professor of management at Southeast Missouri State University, has researched job creation as it relates to tax abatements and other public incentives designed to draw and keep companies in local communities.
"I would have to say that those kinds of investments in rural regions actually are probably better short-term than they are long term," Stapleton said. "The reason I say that is because this data that we analyzed basically indicated over a 20-year period in our region, the net number of jobs created from businesses that were attracted into the region versus ones that were attracted away from the region were essentially zero. There weren't any new jobs that had been created from that activity."
Stapleton acknowledges a positive short-term effect from the incentives.
"Obviously is a difference," he said. "The impact of jobs on individuals for the time those jobs are here is great, but longer term, for the community itself, it doesn't look like that strategy works."
Local companies, according to Stapleton's research, created new net jobs seen in the region.
Mehner said he is optimistic companies can be found for the PolyOne plant and the Integrity building.
4753 Nash Road, Cape Girardeau, MO
2500 Spartech Drive, Cape Girardeau, MO
2102 William St., Cape Girardeau, MO
One University Plaza, Cape Girardeau, MO