Last updated: September 25, 2011 11:25 pm

US states play tax contest to attract jobs

By Shannon Bond in New York

As US states jockey to attract jobs to push down high unemployment rates, companies are benefiting from a host of tax breaks and other government-funded incentives.

But the race to offer sweeteners to corporations is raising questions about whether they are worth the cost.

South Carolina, where the unemployment rate rose to 11.1 per cent in August, announced last week that tyre maker Bridgestone would be eligible for several million dollars in tax credits if it fulfils plans to create 850 jobs at a new plant.

Maryland is looking at expanding benefits for biotechnology and research and development groups, while Missouri’s legislature is considering a $6m programme to keep jobs from decamping to neighbouring Kansas.

In the New York metropolitan area, competition between New York and New Jersey has generated millions of dollars in subsidies to businesses.

Critics, however, question how much cities and states benefit from what they say is mainly a reshuffling of the existing workforce rather than net job creation in the region.

“Generally such moves involve just moving jobs around,” said James Parrott, chief economist of the Fiscal Policy Institute. “Companies play one [state] off the other.” He argued that for most businesses, “location is so important that no matter what the subsidy is, it can’t be the decisive factor in where they’re going to locate”.

Both New York and New Jersey are battling high unemployment. New York’s unemployment rate is hovering around 8 per cent, while New Jersey’s rate was 9.4 per cent in August, up from 9.1 per cent at the start of the year.

New Jersey’s Economic Development Authority this year awarded Panasonic $102.4m in tax credits to relocate its headquarters from Secaucus to Newark in an effort to keep the electronics maker in the state.

Citigroup received a $12.3m package tied to moving as many as 400 jobs from New York to Jersey City.

And Pearson, owner of the Financial Times, could net as much as $130m in incentives from both states as it prepares to move about 1,200 employees to downtown Manhattan and to Hoboken in New Jersey.

Michael Bloomberg, New York mayor, said at a press conference announcing Pearson’s decision to open a new office in New York: “We shouldn’t focus on where the jobs are coming from, we should focus on the fact that they’re moving here.” But his official press release listed a host of sweeteners offered by the city and state “in order to counter efforts by the state of New Jersey”.

Among the incentives were $9m in state tax credits and another potential $38m from New York City.

New Jersey officials voted this month to give Pearson up to $82.5m in credits to keep about 650 jobs in the state.

“Both the states of New Jersey and New York were made aware that we were considering our options,” said Wendy Spiegel, a Pearson spokeswoman. “The city of Hoboken and the city of New York were very interested in this very desirable group of employees as well as the opportunity to bring future jobs.”

Randy Coburn of New York’s Empire State Development says there is “a lot of direct competition” between states, adding: “Sometimes we’re in a strong competitive position [to attract business] and the economic development incentives may be less important but sometimes all other things are equal and then the credits play a larger role.”

Still, New York City has boosted the tax breaks and exemptions it offers to companies over the past decade to an estimated $3bn a year – a faster rate than the city’s tax base has expanded, Mr Parrott said. That figure includes more general incentives as well as credits tied to relocating, retaining or adding jobs.

“That’s $3bn in tax revenues that’s not coming in,” he said. “Given the budget pressures that the city has, it’s far past the time that the city should scrutinise its total business tax expenditures.”

While New York is an expensive place for businesses to operate, the city’s Economic Development Corporation says that economic incentives are not its primary tool for attracting jobs. The non-profit group charged with promoting growth says that New York offers other benefits to companies, including proximity to clients and quality of life.

“We are committed to making investments that yield the most benefits to the city for the lowest commitment of city resources,” said EDC officials.

Pearson’s move to lower Manhattan includes $4.5m in discounted energy for the building and two other properties in the neighborhood. The credit comes from an allocation the city receives from Con Edison, the energy company.

“We’re giving away Con Ed’s money,” Mr Bloomberg said. “We’re not doing anything with city money.”

Doug Muzzio, a public affairs professor at Baruch College, said that for city leaders the appeal of such incentives goes beyond potential economic benefits.

“The political argument is, hey, I’m creating jobs. It’s psychological, a boost for the city that we’ve won, that we’ve beat those guys in New Jersey.

“But what you see depends on where you’re standing.”

© The Financial Times Ltd 2011