Taking a New Look at State Business Incentives

E-newsletter Issue #123 | September 26, 2013

A group of legislators and other state leaders thinks it’s time that states take a new look at how they’re conducting economic development.

“We really believe in having a larger pie instead of keep slicing smaller pieces,” said Gynii Gilliam, Idaho’s chief economic development officer. She was speaking at the session “Economic Development After the Recession” at the recent CSG 2013 National Conference in Kansas City, Mo.

The session was part of Kansas Sen. Jay Emler’s 2012 chairman’s initiative, which focused on rethinking how states conduct economic development.

“The idea is not to say, ‘This is the best practice,’” Emler said. “We are not advocating one practice over another practice. We want to put a whole plethora of practices out there and then it’s up to you and your state to decide what’s the best one.”

Gilliam said Idaho’s economic development strategy is about trying to get a share of the $2 to $3 trillion in reserves businesses are sitting on. At some point, she said, “they’re going to have to kick all that money into gear.

“We focus on what we do best in Idaho that the rest of the world needs,” she said. “Moving them (businesses) from another state to Idaho means we’re just building our success on another person’s demise.”

Gary Sage, senior business development officer at the Economic Development Corporation of Kansas City, Mo., agrees with Idaho’s philosophy. The Kansas City area, which is split between Kansas and Missouri by the Missouri River, has had a particularly hard time with businesses being poached across state lines.

“We’ve done a hell of a good job over the past 30 years of moving businesses back and forth over that state line,” Sage said. “There’s a growing consensus that this is one of the most stupid things we can be involved in, but it’s a difficult one to put an end to. … It’s one of the things we should come to some kind of agreement that we’re not going to do this.”

Kansas’s economic development policy is to get all the services small businesses or entrepreneurs need in one convenient portal called Network Kansas. Entrepreneurs, through a variety of programs, can access sales and marketing experts, state tax credits and even local resources because “successful entrepreneurial development really is a local issue,” said Steve Kelly, Kansas’s deputy secretary for business development.

Kelly said Kansas also has created Rural Opportunity Zones, which focus on 50 counties that lost population between the 2000 and 2010 census.

“Some incentives were put into place to encourage people to relocate into one of those areas,” Kelly said. “First was a tax abatement program for out-of-state individuals moving into the state into one of those counties. … Also there’s a program to encourage students who graduated from a Kansas university … to move back into one of these rural areas and attain a match of state and local money to help pay off student loans, which I think is very innovative.”

With the student loan payoff program, residents can receive a maximum of $15,000 over five years. Kelly said a large number of those taking advantage of the opportunity have been education, medical or engineering graduates, which helps small communities gain the needed professionals they often lack.

Incentives Report Released

As part of the chairman’s initiative, CSG released a new report on state business incentives at the meeting. A new State Business Incentives Tracker, which will track news about state business incentive programs, also has been added to CSG’s Knowledge Center.

Jennifer Burnett, CSG’s senior program manager for Fiscal and Economic Policy, said there is a lot states don’t know about economic development incentives, some of which can be worth up to $1 billion each.

“State leaders, the people who make decisions on this, are in the dark about how much we spend, where we spend it,” she said. “We don’t really evaluate our programs well.”

“It’s clear as a bell we have a problem out there with transparency with what the incentives are,” Sage said. “This is not a state or local issue anymore. This should be federally mandated.”

Emler said some of the procedures with business incentives were so secretive in Kansas that the legislature had to pass a bill ordering the Department of Revenue to share information with the Department of Commerce to see if businesses were upholding their promises for job creation.

“We needed to know if businesses were meeting their responsibilities,” Emler said. “He (Kelly) may be getting information from the client, but he’s not getting verification of the information. We need to verify.”

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