Incentives give away our tax dollars to developers: Should we let them?

Economic development incentives have long been a staple in the South, often focusing on providing subsidies and tax breaks for footloose manufacturing plants. The origin of incentives date to the Post-Reconstruction era, when Mississippi led Southern states in luring companies from the Northeast who were seeking lower taxes and weaker labor unions. With important public investments necessary to ensure shared prosperity in Durham, it’s worth asking whether local leaders should still be offering millions in incentives to lure employers to Durham.

The One City Center, which now hosts WeWork, received a nearly $4 million incentive contract in 2014.

The One City Center, which now hosts WeWork, received a nearly $4 million incentive contract in 2014. Photo: Scott Sellers.

The vestiges of this traditional approach to economic development are still with us today, as cities across the country participate in battles to recruit companies such as Amazon. The gamesmanship witnessed during the Amazon HQ2 battle reveals the tactics that occur daily — often behind closed doors — and the willingness of state and local governments to offer up millions of dollars of taxpayer money to land possible recruits. Usually, these negotiations are held privately, only to be shared with the public at the last possible minute.

Even Durham, the progressive beacon of North Carolina, is not exempt from such tactics. We participated in the recruitment efforts for HQ2, offering up a whopping $50 million before Amazon ultimately chose a site in the DC metro area. While most deals are not this extreme, the practice of using taxpayer dollars to recruit businesses to Durham continues.

Just within the past few months, Durham County has agreed to give $3 million to Merck (a drug manufacturing company) and approximately $200K to PolicyGenius (an insurance company). These deals are made in conjunction with a commitment to bring jobs and increase the tax base of Durham. However, we must ask — is it worth it?

Before thinking about whether incentives are inherently “good” or “bad,” we should consider the decision-making process.

How Incentives Decisions are Made in Durham

The City Council is bound to an incentive policy passed in 2014. This policy includes detailed requirements for developers and the corresponding incentive. City leaders ultimately vote on whether to approve an incentive deal. However, these deals are often negotiated outside of the public eye and brought to a vote before the public is even aware that a deal is under works. Although this may be fine while we have a strong progressive council, an updated policy that displays the priorities of the public is long past due.

On the county level, the incentive process is conducted primarily by the Durham Chamber of Commerce — notable in itself as the Chamber largely represents business interests. The Chamber is contracted to analyze incentive prospects and provide an anonymous report to the County. In other words, county commissioners are unaware of what company is being offered an incentive until they have already voted on the deal. Again, since this process occurs primarily through the Chamber of Commerce, it is done outside of public view.

There is an evident lack of transparency when it comes to how incentive deals are negotiated, not to mention the total amount of tax dollars given away in incentives yearly. Residents have little voice in what companies come to Durham and how their tax dollars contribute to that process.

However, that still doesn’t address whether incentive deals are inherently “bad.” One might argue that incentives are a necessary way to entice companies to locate in Durham, thus bringing jobs and increased revenue. There is also an argument that recruitment of this sort creates a “trickle down” effect that boosts the local economy. These ideas are grounded in the neoliberal idea that localities compete for scarce global resources.  

Yet, research from economic development practitioners suggests that jobs created from companies receiving an incentive often draw in commuting workers over local workers (Who Wins from Local Economic Development? Partridge, Rickman, and Li). Thus, local tax dollars effectively produce jobs for workers outside the region.

So, we must ask: Do companies really make their decisions based on local governments’ decisions to provide incentives? Or instead, do they coerce these deals to make us believe their business is necessary for our communities, while in the meantime, these companies gain a prominent financial boost?

How Might We Reform Incentives?

There are several approaches we could take in reforming our incentive policy.

  1. First, we could simply get rid of them. This is a highly unconventional approach and would almost certainly receive much pushback, but it is perhaps worth the political fight. The residents of New York City clearly believed so when they organized against the massive incentive deal for Amazon HQ2. They mobilized against giving public dollars to a company that would only bring low wages and poor working conditions, not to mention likely increases in gentrification or the fact that Amazon provides their facial recognition software to U.S. Immigration and Customs Enforcement (ICE), which is then used to aid the detention and deportation of New York residents.
  2. Second, we could put a cap on the amount of incentive dollars to be distributed in a given fiscal year. This would prevent high dollar amounts for companies we may not want in Durham — and force local leaders to focus on only bringing the best companies.
  3. Third, and more directly, we could change the standards for which we give incentives. Durham currently gives incentives for capital investment or job creation. Perhaps we should consider only giving incentives to companies that create living-wage jobs, including positions given to workers without a post-secondary degree. Cities in North Carolina cannot mandate a local minimum wage, but they can incentivize it.
  4. We could also consider something even bolder by focusing economic development efforts on our homegrown small business entrepreneurs. What if instead of giving away millions of dollars to large corporations, we give grants for minority business startups, revitalizing the thriving local economy that has made Durham such an icon for economic progress? What if we capped the size of any incentive? What if we provided our small, local, and minority-owned businesses with job training through Durham Tech, providing workers with necessary skills while also developing our workforce?
  5. Lastly, one of the most troubling aspects of the incentives process is the lack of transparency. Only recently did Durham begin posting an incentive dashboard that tracks the projects receiving incentives, the amount associated with each project, and the number of jobs created through the development. Nevertheless, the dashboard is challenging to find and is not updated often, making it harder to hold companies accountable. Also, the County currently has no such dashboard.

Whether we attain it from a process reform, through heightened accountability, or through a radical change in policy, it is time for Durham to revisit how it does incentives and to decide whether or not incentives promote shared economic prosperity.

 

Note: The views and opinions expressed in this post are the author's and do not necessarily reflect the official policy or position of the People's Alliance.

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