Are Incentives Smart Business or Race to the Bottom?

By Conor Dougherty

An article in the Journal details the move of NCR Corp. to the Atlanta area from Dayton, Ohio. But beyond Southern states’ aggressiveness in luring Northern companies below the Mason-Dixon line, NCR’s move has also raised questions as to whether federal stimulus money is being used to fund tax breaks, grants and other incentives to poach companies from other states. The answer is kind of yes and kind of no.

To recap: NCR, which makes ATMs, scanners and other electronic kiosks, announced last week it was moving it headquarters to Duluth, Georgia after more than a century in Dayton. Ohio politicians were understandably sore over losing an iconic local company — formerly known as the National Cash Register Co. — but they went ballistic after noticing a line in the press release about the use of stimulus money.

“What we shouldn’t be doing is using taxpayers borrowed money to pit one state against another,” says Patrick Tiberi, an Ohio Congressman in an interview. “It’s insane.” Mr. Tiberi was just one among many Ohio politicians who spoke out on the issue.

For the record, that didn’t technically happen. The state of Georgia used almost $100 million in incentives to convince NCR to move to its headquarters to the state. That’s their money. Separately, NCR is building a new manufacturing facility in Columbus, Georgia, 7005 and to fund it the city applied for a $5.5 million grant from the Economic Development Administration, which is funded with stimulus money.

That grant hasn’t yet been approved, and an NCR spokesman says the project would have gone forward even if the headquarters hadn’t moved. The company and the EDA also argue the facility will create new manufacturing jobs and therefore isn’t a transfer.

“It is not the Obama Administration’s policy to use Recovery Act funds to encourage the relocation of businesses and jobs from one state to another,” said Ed Deseve, Special Advisor to the President for Recovery Act Implementation, in a statement.

Given the longstanding debate around economic incentives used to lure companies — an issue that, in general, pits higher-tax, union-friendly northern states against lower tax Southern states with right-to-work laws — it was inevitable that stimulus money would get drawn into the debate. Indeed, even before the NCR move went public Milwaukee’s mayor had concerns about the issue.

Critics of incentives say despite the Obama administration’s claim that stimulus funds won’t be used to fund jobs transfers, the popularity of incentive programs guarantees that stimulus money will be used to fund transfers, at least indirectly. NCR, for instance, will be consolidating manufacturing operations at the new Columbus facility. The company says it will stop using outsourced manufacturers overseas and in South Carolina. (It’s not clear if the loss of business will result in lost jobs there.)

Of course, all this begs the question: Do these incentives do any good to develop the economy? The theory behind incentives is that by paying for jobs, the state/county will create more jobs, which will create more tax revenues. But advocates and some economists dismiss the practice as a zero-sum game where states and municipalities are played against each other, in the process lowering the quality of life for both communities. This piece argues that in the long run jobs follow amenities, rather than the other way around.

Anyway, following the NCR victory, even some Georgians are wondering if doling out $100 million in incentives is the best way to attract business to their state.