I'm not sure I would find too many people willing to say they endorse the practice of states offering subsidies to attract or retain companies.
That jobs, jobs, and more jobs are the focus behind the scramble to keep or lure companies, I understand. But the public cost to do so is a head-scratcher when you consider the size of some of the sums involved.
I really detest when neighboring states outbid each other simply to move a company across a border. And when a company is already established, growing, and, in fact, publicly traded, why is it necessary to pay up to make sure it stays put rather than cross state lines?
On Monday, Delaware officials approved an $11.1 million package of incentives, including $1.05 million in capital-improvement funds, aimed at encouraging Incyte Corp., a biopharmaceutical company, to remain and grow in the state.
Incyte, which obtained U.S. regulatory approval for its first drug in 2011, currently operates in about 110,000 square feet at DuPont Co.'s Experimental Station research and development complex in Wilmington, where it employs about 300 people. In its agreement with Delaware economic-development officials, Incyte has promised to add 266 employees over the next five years in exchange for $10,070,505.
How did the state arrive at that figure? Alan Levin, director of the Delaware Economic Development Office, said that's the amount of state personal income tax Delaware would expect to receive from an Incyte workforce of 560 from now until the end of 2018. In essence, Delaware is fronting the company future tax revenue the state expects to receive.
To Levin, such an incentive makes sense because "we will get back our investment quickly" based on Incyte's current growth trends. In addition, Levin said, the state estimates Incyte's expansion in Delaware will have a $140 million impact, a figure that includes spending by both employees and the company.
Brian S. Keefer, Incyte's senior director of corporate communications, would not say where the company would relocate, citing ongoing lease negotiations. But it won't be staying at the Experimental Station, "which has served us well for years," he said.
Keefer confirmed that Incyte did consider options in Pennsylvania and New Jersey. In the end, Delaware won out.
That's fine with Levin, who said the state would like to attract more pharmaceutical companies, which provide jobs paying more than $100,000 on average.
The Diamond State has offered larger incentives to other companies, based on a review of a database compiled by the New York Times for its recent series on state subsidies. PBF Energy Inc. received a package of $32 million that led to the restart of the oil refinery in Delaware City, and Fisker Automotive Inc. has been promised $30.5 million should it proceed with plans for an electric-vehicle manufacturing operation in Wilmington.
But are these deals worth the price in the end?
Delaware first lured the research operations of Incyte and 80 employees from California in March 2002. The following year, the rest of the company moved to Delaware as it restructured and closed operations in Palo Alto, San Diego, and Cambridge, England.
Still unprofitable, Incyte has been generating its first product sales after receiving approval from the Food and Drug Administration for Jakafi, a treatment for a serious blood cancer called myelofibrosis. Incyte expects Jakafi sales of $120 million to $135 million in 2012, while some analysts project that Jakafi could become $1 billion-a-year seller.
Given potentially lucrative agreements with Novartis A.G. and Eli Lilly & Co. worth in the hundreds of millions of dollars, Incyte would seem able to afford any corporate complex it desired without a public subsidy. But the same could be said about an oil refiner and an automaker, too.
State governments see such public subsidies as a cost of doing business to catch and keep companies and the jobs they provide. But that doesn't mean I have to like it.