What if we don’t offer incentives to companies willing to relocate or expand in Texas? They might decide to move to another state or city, and Texas will have lost the possibility of new jobs-or so warn economic development supporters.
Conceived as “deal-closing” programs, economic development funds were created to encourage companies to expand or move their headquarters to Texas (especially when Texas isn’t the only option on the table) and hence create growth and jobs for the state.
Economic development supporters may want to revise their vision of what an economic incentive really is or should be. Three companies have recently canceled their incentive deals with the city of Austin. Two of them declared they intend to carry on with the creation of jobs initially planned despite the dissolution of the incentive deal. To put it succinctly: the monetary incentive from the city was not necessary for the companies to expand in Austin.
Why have these deals been canceled? According to Austin Mayor Lee Leffingwell, conditions linked to incentives deals (such as reports and minimum wage requirements) may be too “burdensome” for the companies. Dropbox cited compliance issues with the condition of the deals; U.S. Farathane simply declared that it remained “committed to the project” despite backing out of the deal.
According to Austin City Council Member Kathie Tovo, “we need to seriously reevaluate whether, and under what conditions, we as a city consider offering economic incentives. . . . I don’t believe we should, except under extraordinary conditions.”
For the 10th year in a row, Texas has been named the best state to do business by Chief Executive Magazine in a survey of over 500 CEOs across the U.S. In this and other rankings, the main reasons given for choosing Texas as a great place to do business are a relatively low state and local tax burden, a limited government, the quality of Texas’ workforce, and a good quality of life. This is the Texas Model.
Dropbox just showed that, indeed, additional government intervention in its business operations was a burden not worth a monetary incentive; that it was this absence of burdens that initially acted as an inducement to move here, along with everything else that Texas has to offer.
In moving to or expanding in a new state, a company takes into account the long term benefits that will yield from such an expensive decision. Factors include business climate and regulation, but also business considerations that only the company can evaluate properly. These factors should and do go way beyond a short-term monetary incentive. That is why economic development incentives should consist not in giving away taxpayer money to “close deals,” but only in a laissez-faire policy from the government towards businesses. And that is precisely what the Texas Model is about.