Schafer: Why handouts are a bad way for state to help companies

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: January 11, 2014 - 2:00 PM

Not every company adding high-skill jobs gets any attention from Gov. Mark Dayton.

In December, the governor helped announce Price Mechanical’s new 12,000-square-foot design center in Maple Grove, being built for up to 40 jobs, having previously flown to its hometown of Winnipeg for the sole purpose of pitching our state to Price.

He has yet to stop by Check Engine Express in Minnetonka, although it has a new 13,000-square-foot facility about a year old and plans to add to payroll this year, too.

Of course, unlike Price Mechanical, Check Engine Express wasn’t promised a $700,000 state grant.

So co-founders Ann Sangpan and Shane Burgeson expanded the old-fashioned way, getting about half of the $240,000 expansion funded by their landlord in the form of tenant improvements. They borrowed or otherwise came up with the rest.

Before anyone concludes that a car repair shop like Check Engine Express is no economic plum, please note that Sangpan is trying to hire for a job that sounds a little like the positions Price Mechanical intends to create.

Sangpan said only ASE master technicians need apply, for a starting salary of $50,000 that should quickly get to $70,000 or even $90,000. Sounds pretty high-wage and high-skill, so where is the grant for Check Engine Express?

Economic development incentives, of course, are not doled out to every business that creates a good job. That basic lack of fairness — company A gets a state grant or tax break while companies B through Z do not — is just part of what is so aggravating about public incentives for for-profit businesses.

The consensus among economists on these kinds of company-by-company public incentives really hasn’t changed over the years. It’s still considered terrible economic policy.

Subsidizing an employer in any particular town or state may result in job gains there, but the overall economy doesn’t grow as fast as it would without that kind of subsidy, in part because some taxpayers’ money gets diverted from public investments such as education or transportation networks.

There’s also plenty of doubts about how effective a grant or loan can be in getting the promised jobs.

In 2011 the Star Tribune analyzed the more than 650 job-creation deals that were put together from 2004 to 2009 that provided state and local tax breaks, low-interest loans, grants or other benefits.

In 125 of those projects, the companies didn’t meet their hiring commitments. In at least 46 of them the company provided no lasting jobs whatsoever.

None of this has put much of a dent in the popularity of economic development among public officials. A mayor, county commissioner or governor is accountable only to their own voters and would have no reason to fret about lost gross domestic product, so inducing a company to pick their community would be on the agenda of any officeholder.

The governor’s commissioner for employment and economic development, Katie Clark Sieben, explained that unless and until Congress bans economic incentive programs, Minnesota can’t unilaterally disarm. She added that Minnesota is typically far outspent by competing states.

Of the 112 business expansion projects the state has tracked through the end of the 3rd quarter of 2013, she said, about one-third had some sort of state support. One company had a state offering a $40 million incentive and it came to Minnesota anyway for only a $1 million incentive deal.

But if our governor can be excused for having to play the same dirty game with his 49 peers, he still ought to walk down St. Peter Street in St. Paul to the headquarters of GovDelivery, because it’s going to match Price Mechanical with up to 40 new jobs in Minnesota and it’s receiving no $700,000 grant to do so.

If GovDelivery does all of its hiring as planning in 2014, that will bring its Minnesota staff count to about 125. Three of the five St. Paul openings on its recruiting page this week are the kind of high-skill engineering jobs economic developers seem to really covet.

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