Fla. Pays Billions To Lure Businesses; Lawmakers Question Return On Investment
Like all states, Florida offers economic incentives to try and get companies to relocate or expand in the state. The incentives add up to billions of dollars in lost tax revenue, and some state lawmakers are making it a priority to make sure taxpayers are getting a return on the investment.
Florida’s state and local governments see the value in paying to attract companies that will create jobs. Incentives they offer include tax exemptions, grants, investments and refunds.
According to a recent New York Times investigation, in Florida, those incentives amount to $212 per resident, or 16 cents of every dollar in the state budget. Times reporter Louise Story recently gave this explanation of incentives on NPR’s Fresh Air:
“In a sense these incentives are a bit of a hidden way that companies get tax breaks because - and get lower taxes - because for government, for a state government to lower the corporate income tax rate, they have to, you know, pass legislation.”
Story reported, incentives cost Florida $3.98 billion in lost tax revenue. But Michelle Dennard, with the Florida Department of Economic Opportunity, says the state keeps track of whether that’s money well spent.
She said, “The jobs that are created by these businesses who receive incentives happen over a period of years and, more often than not, are only paid after performance has been completed and confirmed.”
Dennard said, a company’s performance can include the amount of jobs it creates above a certain wage level and how much capital investment it makes, which includes buying land and buildings.
But a report the nonprofit Pew Charitable Trusts released in April found Florida to be lagging behind the majority of states in how well it tracks the effectiveness of incentives. But, Dennard insists, it’s something the state takes seriously.
“By increasing transparency about our economic development incentive programs, we can help to educate not only lawmakers but also every taxpayer about how its dollars are spent,” she said.
With the goal of transparency in mind, the Department of Economic Opportunity launched a searchable corporate incentive database this summer. It shows business names, how many jobs they created, how much they spent on capital, and what the state paid to attract them.
But Sen. Jeremy Ring, (D-Margate), who serves on the Senate committee that tracks economic development, says transparency is great, but he has much larger issues with the way the state does incentives.
He said, “We can have all the databases in the world. My point is we need to reform and restructure our entire economic development efforts in a way that is similar to the traditional business world, where you need to have oversight over your investments.”
Ring said, the state needs more control over the companies that it invests in. To do that, he said, it must partner with private fund managers, who can get their people on the boards of the companies they invest in. He said, that’s already happening with the Florida Growth Fund and private equity management firm Hamilton Lane.
And, he said, Florida should be choosier about which companies it courts. Some industries, like web and other technology, create better economic ripple effects. And Ring should know. He was one of the founding executives of Yahoo and watched Silicon Valley spring up around companies like Google and eBay.
“Because of the wealth that was created, the entire service economy thrived as well,” he said. “If you owned a children’s clothing store, you had a lot of customers. If you sold cars, you had a lot of customers.”
Finally, he said, rather than rebates or tax breaks, the state needs to be more aggressive and give companies cash outright to relocate.
But, not all lawmakers are convinced the state’s economic incentives need an overhaul. At a meeting this month, one of Ring’s fellow senators on the appropriations committee, Tom Lee (R-Brandon), asked what the problem is.
“Clearly there’s some concern here about whether or not economic development incentives have worked, and I’m just curious as somebody who hasn’t been around here for a while, what kinds of things are perceived to be broken?”
Soon, Florida taxpayers will get an update on the state’s economic incentives. Enterprise Florida is expected to release its annual incentive-performance report before the end of the year.