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Bill Virgin: Are these tax dollars working?

Sometimes, it seems as if state departments of Commerce and Economic Development exist to give governors something to do.

Did your predecessor in the governor’s mansion throw a mishmash of functions into one agency? Great! You can break it apart. Or give it a new name. Or assign it a new mission statement to reflect a renewed and invigorated focus on economic growth. Your successor can then undo what you did.

The beauty of this is that it allows governors to give the appearance of Getting Things Done, without spending much money and without having to wade into truly controversial and expensive quagmires such as education or social services. If your Commerce Department/Economic Development Division/Jobs Cabinet happens to produce the occasional new plant, affording opportunities for photogenic and image-enhancing ribbon cuttings, so much the better.

But with states, including Washington, facing budget gaps counted in the billions of dollars, even relatively obscure and inexpensive corners of government are getting a much closer scrutiny, not just for what money can be cut but whether the remaining spending produces enough to make that function worthwhile, and whether government ought to be doing it at all.

In the field of economic development, much of the debate has concentrated on the issue of tax exemptions and other incentives offered to businesses to come or stay here.

DIRECT INCENTIVES

Washington has long poor-mouthed its portfolio of incentives compared with the riches that other states can lavish on recruitment and retention candidates, but it is not without some treats in its goody bag, from low-cost financing programs to worker training to infrastructure improvements at industrial sites. Indeed, the state has demonstrated the ability to put together a large-scale incentive package when sufficiently motivated (see: the first 787 assembly line).

It’s the direct incentives, such as tax exemptions, that are getting the most attention in the current legislative session, with the Washington State Labor Council proposing a public vote on a three-year moratorium on such deals.

The labor council has thrown out a number of $3 billion that might be picked up in such a moratorium, based on estimates of revenue that would be collected if those exemptions weren’t in place. But “spongy” would be a kind adjective to apply to such figures. Would the state really collect that much money? Would businesses simply not engage in those activities were the incentives not offered (or shift them to other states that did)? Do those estimates represent money the state wouldn’t collect in either case?

More questions: Would companies come to Washington anyway for its other attributes (including low-cost power, a major economic-development incentive in central and eastern Washington) if the tax incentives weren’t offered? When incentives are tied to job creation, do businesses actually produce the jobs promised? What would it do to the state’s credibility in future recruitment efforts if the incentives used to lure other companies to Washington were suspended or terminated once they got here?

Beyond those questions are the more practical considerations of who should carry out the state’s economic-development strategy, which brings us back to the matter of governmental departments charged with that task.

IMPLEMENTATION

Whether state constitutions make any mention of the issue, economic development has become widely seen as integral to the job of governor and the role of state government as paving the highways. It’s the rare governor who gets elected on a platform of “Economic development and job retention? Eh, I got other things to worry about. I’ll let those work themselves out.”

But how integral? Economic development and business recruitment is done by cities, counties, port districts and utilities, as well as local and regional agencies with those as their core purpose. Still, it makes sense to have a state agency as a point of contact, referral and coordination, and to develop some sort of coherent policy.

Provided, of course, you can afford to do that yourself. Already, as mentioned in this space recently, the governor has floated a budget proposal that would knock out tourism promotion from the Department of Commerce, leaving it to the private sector to promote itself.

That’s not as radical an idea as it sounds. The private sector, in the form of local tourism and state trade groups, already does considerable amount of tourism promotion. The Washington Lodging Association publishes a state visitor’s guide (the state has in recent years been doing one of its own, meaning that Washington has two such comprehensive tourism publications). In Maine, no stranger to a thriving tourism sector, publication of the official travel planner and operation of state visitor centers is handled by a nonprofit tourism association.

Far more radical is what newly elected Ohio Gov. John Kasich is proposing: Creating a private economic-development organization to take over the functions of an existing governmental department. According to Good Jobs First, an advocacy group opposed to the idea, seven states have turned economic activities over to outside or private entities, and several more in addition to Ohio are considering doing so.

Will most states, Washington included, make dramatic overhauls of how they handle economic development, in terms of the incentives they offer and the agencies that carry out that mission? That depends in part on when a recovery will bail state governments out of having to make huge cuts in their budgets, including the elimination of some programs and functions.

It also depends on how willing governors are to give up control. Whether it’s Gov. Gregoire, or a future Gov. McKenna, Gov. Inslee, Gov. Sonntag, Gov. Brown or even – heaven help you all – Gov. Virgin, the fun and potential political rewards of having an economic development strategy, incentives and an agency to tinker with may be just too enticing to pass up or pass on to someone else.

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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