Can Wichita government investment create jobs?

Recently the president of the Greater Wichita Economic Development Coalition wrote an op-ed that engaged in a large measure of self-congratulation, while at the same time asking for even more resources. (Vicki Pratt Gerbino: Invest in recruiting, preserving area jobs, February 15, 2009 Wichita Eagle)

We need to examine whether activities of groups like the GWEDC are really needed and desirable.

First, Ms. Gerbino states “To date, our public investments have returned more than $2 for each public dollar invested.” Reading this, it sounds like a great deal — local taxpayers put up $1 and get $2 back. But it doesn’t quite work out that way.

If you read a document at the GWEDC website titled GWEDC Economic Development Activity and Performance Evaluation 1st Half 2008, you’ll learn who really wins: local governments. Here’s what this document says: “To measure public benefit, the GWEDC evaluation model estimates the streams of tax revenues …”

That’s right. More tax revenue flows to local governments. Somehow this is supposed to be viewed as “return on investment” for the taxpayers. If government were to reduce taxes in response to this increase of revenue, that might be a good return. But that doesn’t happen.

Some of these programs don’t recognize the cost of providing the benefit. Consider Industrial Revenue Bonds (IRB). The purpose of these bonds is tax abatement, usually property tax, but sometime sales tax too. The company that receives the abatements benefits. But unless the city reduces spending by the amount of the abatement, taxes rise for other taxpayers. This leads to a loss of economic activity — and jobs — somewhere else.

There are 12 different types of incentive programs listed on the GWEDC’s website. Each has its own set of criteria that companies must meet. It’s likely that each of these programs has administrative overhead that must be paid for, and companies undergo costs when they apply for these programs.

This has the result of creating two classes of companies: those that are able to take advantage of these incentives, and those who, for whatever reason, can’t use them.

A better strategy would be to eliminate economic development incentives and the distortions that accompany them. Instead, work to reduce taxes for all companies. People across the country will notice this without an expensive advertising campaign that get lost in the noise created by all the other cities and states competing with taxpayer dollars.

Besides, for all this economic development to make sense, you have to believe that government is the best judge as to where investment capital should be directed. There’s not much evidence to support this.

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