By Johnny Kampis | Missouri Watchdog
ST. LOUIS – States are using an increasing amount of the money they withhold from workers’ paychecks for corporate subsidies, and Missouri is one of the biggest offenders, a Washington, D.C. think tank found.
Good Jobs First says 16 states funnel about $700 million per year to business and industry, including some of the largest American corporations. The study found that as states try to keep jobs within their border, they may be giving away too much in tax incentives.
“You assume that money goes to school or libraries, but in these states it goes to the employers,” said Kasia Tarczynska, the Good Jobs First research analyst who studied Missouri.
The group, which released in April its multi-year study of corporate subsidies, found that Missouri ranks high elsewhere: in the 50 states, there are just five programs allowing employers to keep 100 percent of employees’ state withholding taxes, and Missouri accounts for two of those — the Quality Jobs Program and the Missouri Automotive Manufacturing Jobs Act.
Missouri’s automotive act was enacted in 2010, largely to keep Ford from closing its manufacturing plant in Claycomo. The act allows Ford to keep the state withholding for 10 years, and for its suppliers to keep their workers’ Missouri taxes for five years. The recipients must invest at least $50,000 per existing job to qualify. The program is expected to cost $15 million in 2012 – a cap set by the legislature – with Ford getting about two thirds of the total. The program will cost Missouri $150 million in lost tax revenue over the next decade.
The much broader Quality Jobs Program lets small and expanding businesses keep 100 percent of withholdings up to five years as long as they create 20 new jobs in rural areas and 40 in urban areas. Technology firms retain withholdings up to 6 percent of new jobs payroll for five years, with some firms retaining 7 percent of new jobs payroll. Technology firms must employ 10 workers to qualify, while so-called “high-impact” firms — companies with high current employment and projected employment growth — must have 100 workers.
The cost of the program has risen from just under $7 million in 2008 to more than $51 million in 2011, Good Jobs First found.
The Missouri Department of Economic Development’s annual report says 159 businesses accounted for 189 projects in the program at the end of 2011.
The Missouri General Assembly created the Quality Jobs Program in 2005 when St. Louis-based pharmacy benefit manager Express Scripts announced it was considering relocating its headquarters to other states. The legislation passed, Express Scripts stayed, and the company has since collected $17 million in subsidies.
The company was criticized for outsourcing many of its U.S. jobs overseas, and the St. Louis Post-Dispatch reported that profits grew 325 percent between 2004 and 2010 while employment climbed 28 percent.
In the battle to keep companies in place, the squeaky wheel continues to get more grease. Peter Mueser, a labor economics professor at Missouri University, said legislators are likely to enact more business-retention programs.
“They’re not going to lower taxes on the ones who plan to be here long term,” Mueser said. “This gives firms an incentive to try to move so they can be eligible for those subsidies.”
Kansas gave $47 million in tax incentives through its Promoting Employment Across Kansas program to AMC Entertainment in 2011 to convince the movie theater chain to move its headquarters from Kansas City, MO, 10 miles across the state line to Leafwood.
Tarczunska said such “interstate job piracy” is common.
“Companies move between Missouri and Kansas all the time,” she said.
Last April, 17 Kansas City-area business leaders signed a letter decrying the business border war between Kansas and Missouri. The letter said the tactics provided “no net economic gain to the community as a whole and a resulting erosion of the area’s tax base.”
In January, the Missouri House Committee on Government Oversight and Accountability questioned representatives of the state’s Department of Economic Development about the Quality Jobs Program after DED’s own report showed that less than 6,000 jobs had been created although more than 23,000 were promised through the program.
Sen. Bill Stouffer, R-Napton, leaving the Senate this year after two terms, said he’s become less enthusiastic about aggressive corporate subsidies.
“I think the legislature should foster a friendly business climate for everybody. That climate should be fair with an opportunity for growth,” he said.
But with Kansas battling with Kansas City and Illinois trying to pry corporations away from St. Louis, Stouffer admits lawmakers are in a tough position.
“I don’t like blackmail,” Stouffer said. “If we continue giving it away we’re going to continue to get blackmailed.”