The debate over state tax incentives provided to businesses to induce them to locate in Camden is becoming louder and more acrimonious. But this classic New Jersey political power struggle is causing the focus of attention to stray from the real issue: Should tax incentives be used to foster economic development and if so, how?
In short, they should, but with clear plans on how those incentives restructure the local economy so they actually create greater, sustained future economic growth. Currently, few are talking about that goal.
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First, let’s get real. Tax incentives are a fact of life for governments and businesses. As an economist, I am generally against them, especially because they have become weapons, not tools.
Some states have done a great job of weaponizing their offers to attract (i.e., steal) and retain companies. As a consequence, competing states must take defensive action, even when those moves don’t make economic sense.
Second, you have to remember that “where you sit determines where you stand.” That is, the state and the local Camden political and business interests have different perspectives on the incentives.
New Jersey, as the financier, not surprisingly wants a return on its investment. Camden just wants the businesses. If the state is willing to spend billions to relocate companies to the city they will take it, regardless of the returns to the state.
Economists take a different view of incentives — at least I do. Simply throwing dollars against the wall and hoping they will stick is not an economic development plan. As I noted in a previous column, stand-alone projects that are not integrated into the city, or companies that don’t have a hiring profile that matches the local labor supply, don’t form the foundation for future growth or greatly benefit current residents and businesses.
What needs to be done is to attract firms that create an integrated economic base that is self-sustaining. The tax grants should be directed toward companies that maximize local/neighborhood job creation and/or develop industry concentrations that attract other, similar types of companies.
When you provide more than one billion dollars of tax incentives, you had better increase the capacity to grow, and it is not clear how most of the companies receiving Camden tax breaks do that.
That is not to say Camden didn’t benefit from the relocations. It is just that it is not clear how the funds can be leveraged, given the profiles of some of the companies receiving the tax breaks.
Public-sector incentives are meant to be the base on which revitalization is built. If Camden is to fulfill my previously stated vision of becoming another Brooklyn Heights, it needs much more than public-sector funds paying for firms to move into the city. It requires sustained private-sector investment in residential, retail, and commercial/office buildings that attract residents and other businesses.
And those firms should be in growth sectors such as high tech, health care, or distribution, which provide positions requiring the full range of labor skills.
Camden also needs to foster gentrification. That process has led the housing revitalization in many other urban areas, including Philadelphia. Yes, it creates issues for poor residents, but without it, the city’s housing base will stagnate.
As for special interests being involved in the tax incentive process, well, I am shocked. Right.
Let’s face it, in every city and town, in every state and country, there are go-to, well-connected lobbyists or lawyers who “get things done” – and who make lots of money doing so. To me, that is a form of corruption that should be stopped. But it has existed since time immemorial and you have to change the political class first.
For Camden to really rise, a plan must be developed that details what future steps need to be taken. In particular, what types of companies should be attracted; what kind of public infrastructure is required to support the development; and how the revitalization process promotes private-sector residential, commercial and retail investment.
As for the state, it needs to restructure its tax-incentive plan so that awards are based not just on benefit/cost calculations (that must be realistic), but also on how those tax expenditures support or accelerate future growth. The tax break impact must be tracked, not just given and forgotten.
The political powers can continuing playing their games, but only if they don’t lose sight of what really needs to be done: reforming the tax-incentive program so it creates maximum economic and social benefits. Right now, that objective seems to have faded into the background.
Full disclosure: George Norcross and I were at Commerce Bank together. Connor, Strong and Buckelew periodically distributes my economic commentaries under its banner, for which I receive no compensation. I have been an informal, unpaid economic adviser to U.S. Rep. Donald Norcross. My disdain for the tax-incentive program was made clear in a February Inquirer column.