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offering incentives to businesses that cater to local spending and instead target businesses that draw economic activity into an area. Mars’ manufacturing facility, for example, does not suffer from the problem of shifting economic activity within the Topeka economy. The opening of the facility in Topeka will not shift chocolate production from other parts of the Topeka economy, but instead shifts economic activity from some other part of the national or global economy. Similarly, if Goodyear were to shut down its tire manufacturing plant, there would not be an offsetting increase in tire production at other Topeka plants.
The Impact of Economic Development Incentives
Perhaps the most difficult to assess and controversial issue regarding economic development incentives is whether or not the incentives truly influence a business’ decision to operate in a particular location. While we can be fairly confident in estimating the economic impact of a business or event that draws economic activity from outside Topeka, it is more difficult to determine whether the economic activity and corresponding multiplier effect can be attributed to an economic development incentive. A business that receives an economic development incentive could have a large, positive impact on the local economy that far exceeds the incentives and tax breaks given to it by local governments, but if the business would have located in the area with or without the incentive, then that economic activity cannot be fairly attributed to the incentive. Businesses seeking incentives know with certainty how much of an incentive, if any, they need in order to locate or remain in Shawnee County. However, economic
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Mars employees at grand opening of Mars Chocolate North America Topeka development practitioners and policy makers must make their decision to offer incentives with limited information on just how much of an incentive is necessary to ensure that the local economy receives the substantial benefits of having the targeted business locate here. Many who oppose such incentives believe that they do not impact businesses’ location decision and unnecessarily divert valuable tax dollars from other local businesses, households or public spending options. On the other hand, many proponents of incentives believe that, fair or not, failing to offer certain businesses incentives will result in an even greater loss of valuable tax dollars and jobs as these businesses would locate in other cities.
Do Economic Development Incentives Work?
Shawnee County voters are being asked to pay $5 million per year to fund economic development incentives meant to attract and retain businesses to help maintain a strong local economy and job market. A reasonable question for voters
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to ask is whether taxpayers are receiving a profitable return on their investment. The first conditioning necessary for a positive return is for those incentives to be focused on supporting activities that draw new economic activity into Shawnee County or prevent existing economic activity from leaving Shawnee County. This means refraining from supporting activities that simply shift economic activity from one area within the local economy to another. The second condition depends on how effective economic development practitioners and policy makers are at focusing incentives on businesses whose location decision is, on the margin, more sensitive to receiving the incentives. The most important factor in helping voters determine the return on investment of their economic development tax dollars is a transparent accountability of how those monies have been utilized. TK