By Dean Stansel
Professor of Economics
The Sarasota County Commission recently voted to spend $218,000 of taxpayer money to convince two unnamed businesses to locate in the county.
Sadly, politicians giving taxpayer money to individual businesses is nothing new. Nevertheless, cronyism — when the government selects the winners — is bad policy and the secrecy of this deal is even worse.
The commission has kept the companies' names secret, referring to them only as "Project Ice" and "Project Background." This lack of transparency makes it harder for the public and other whistleblowers to object to these types of deals and to suggest alternative policies that better aid communities.
State and local economic development officials often argue that the taxpayer dollars they spend on programs like Sarasota's Project Ice play an essential role in the success of the local economy. Yet, instead of creating projects that deliver on promises of job creation, our state and local governments have built a solid track record of investing taxpayer dollars in business ventures that yield a poor return on investment and a meager payout.
Before engaging in the same failed practices of the past, our politicians should review their previous flops. In 2004, officials provided nearly $600 million in state and local funds to Scripps Research Institute to build a biomedical research facility in Palm Beach County. While officials boasted the venture would create 44,000 jobs by 2018, Palm Beach County residents are still waiting.
According to a December 2011 report from the News Service of Florida, by 2011 Scripps had generated only about 11,000 jobs. This means that when the Scripps project was just shy of hitting the halfway mark to 2018, it had created only a quarter of the jobs promised.
And Scripps is not alone. According to a 2010 analysis in the Gulf Coast Business Review, between 2004 and 2010, eight bio-tech projects across Florida (including Scripps) received nearly $1.6 billion in taxpayer subsidies. Together, these firms employ about 1,143 workers. But that means the state spent about $1.4 million per job. Not exactly a bargain.
Examples like these justify calls for greater transparency in government spending, but also for a different approach. There are far better ways to strengthen the local economy including making local government more business-friendly. This approach is not only more effective, it is more fair because it benefits all businesses (and their customers) not just those with political influence. A good place to start is with taxes.
My research findings, published in the Cato Journal last year, show that over roughly the last three decades, the 10 metro areas with the lowest tax burdens saw their population, employment, and real personal income grow two to three times faster than the 10 metro areas with the highest taxes.
The same trends exist within Florida where areas with lower tax burdens out-performed their higher-taxed neighbors. In Miami, the average state and local tax burden over the last thirty years was about 10 percent of income, compared to only about 8 percent in Bradenton-Sarasota-Venice and in Tampa-St. Pete-Clearwater. Employment grew twice as fast in both of those lower tax areas. Population and personal income also grew twice as fast in the Sarasota area and about one-and-a-half times faster in Tampa.
Given past results, politicians working to improve their local economies would be wise to stop playing venture capitalist with taxpayer dollars. Keeping spending in check — starting with getting rid of corporate welfare like Project Ice — will better enable them to implement the time-tested strategy of keeping tax burdens low, which will in turn attract more residents and businesses. That would be a much more effective way to get local economies back on track.
Stansel is a former policy analyst at the Cato Institute.