Let The Bidding Begin

The process typically begins with an announcement like the one from Honda in mid-May that said the automaker plans to build its sixth North American facility. The new facility’s location has not yet been decided, but according to my local newspaper, it is slated to open in 2009 with a capacity of 150,000 vehicles per year. Honda already has two plants in Ohio and one each in Alabama, Mexico and Canada.

With the car plant cat out of the bag, we citizens once again get to sit back and watch elected officials trip over each other to entice this facility into their respective state or district. It’s emblematic of what I call our lack of any kind of industrial plan or policy. The exercise we are about to witness will surely involve Ohio and Alabama, probably along with Kentucky and Michigan, with each state trying to out-bid the other with various incentives to lure a plum like Honda.

The bidding weapon of choice for these state officials is the tax abatement, incentive or whatever you want to call it. The amount of money involved can be impressive—at least to me.

Apparently, some of my fellow citizens in Ohio feel similarly. That same issue of the newspaper that carried the Honda plant announcement also reported that the Supreme Court ruled unanimously against a group of Ohio taxpayers suing to recover $300 million in tax abatements from another car plant.

Ohio’s elected officials used $300 million in tax breaks to entice Daimler Chrysler to build its new Jeep plant in Toledo. The sources cited for this incentive included state, city and local school districts that anted up the money.

A group of taxpayers took issue with this and tried to sue to roll back the incentives. The Supreme Court slapped them down with Chief Justice John Roberts saying, “State taxpayers have no standing…to challenge state tax or spending simply by virtue of their status as taxpayers.” I wonder who, if not taxpayers, should have some control over state officials bent on giving away the store. I guess we use the ballot.

I have no particular issue with Daimler Chrysler or Honda for playing a game we invented. I would suggest, however, that as companies get their tax breaks and incentives for locating in a community, they understand the real cost to that community.

Businesses are more pragmatic than politicians. Most companies understand that an educated and skilled workforce is in its best long-term interest. My frustration is that giveaways can and do erode the funding base for education and other critical infrastructure needs. Ultimately the positive characteristics that made a community attractive can degenerate to a point where that community is not attractive any longer.

This, to me, is the shortsightedness of the so-called industrial policy that is manifested in the bidding wars between states competing for businesses and the jobs they promise to bring. If states and communities abate the source of their revenue to a point where schools must close, teachers get laid off and roads can’t be maintained or built, what good are those jobs?

There needs to be balance between the tax breaks we give and the taxes we need to keep the quality of life in a community or state at a level that will keep people wanting to live there. The Supreme Court says that state taxpayers have no status in this issue. I believe taxpayers are the last line of defense against profligate officials who can’t see beyond the next election. I guess if we can’t sue, we can vote the bums out. Unfortunately, the damage will be done by then.

What do I hear for a Honda plant? Going once, twice, SOLD!