To the list of those dinged by states’ budgetary woes—from Illinois vendors to Wisconsin public employees—add YUSA Corp., an auto-parts supplier in the city of Washington Court House, Ohio.
YUSA received a $35,000 development grant from the state of Ohio five years ago, pledging to expand a plant and employ 816 people. It’s only at 445. Recently, Ohio sent the firm a bill, demanding $15,915 back.
This was one of nearly a dozen “clawback” orders signed in two months under the state’s new Republican governor, John Kasich. There will be more, says his job-creation director, Mark Kvamme: “We need every single dollar we can get our hands on.”
YUSA’s view: “Give me a break,” says Chris Fairchild, the auto-parts firm’s controller. “For crying out loud, we’re doing our darnedest. While other local businesses have gone bankrupt or gone to Mexico or other states, we’re right here. You’d think there would be a little respect for that.”
The budget vise squeezing states and cities is changing the economic-development game. Governments are attaching more strings to their offers of tax breaks, cheap rents and bond deals designed to lure business, and are getting tougher on past recipients who didn’t come through.
Officials fret that taxpayers will look askance on any giveaways to business that don’t yield a clear benefit, at a time when governments are paring services to save money. “We want to challenge this stuff before the public does. The political environment now is that you have to,” says John Garcia, director of economic development in Albuquerque, N.M.
State and local governments collectively give more than $70 billion a year of incentives to lure business and jobs, primarily through tax breaks, says Kenneth Thomas, an associate professor of political science at the University of Missouri-St. Louis.
Economists have long debated the wisdom of such incentives. Supporters say they help states build diverse local economies and boost employment, ultimately generating more tax revenue than they cost. Detractors say perks sometimes go to businesses that would have come anyway, and in other cases just enable companies to play one region against another for a sweeter deal.
The issue has started to attract limited-government activists, who decry the perks as waste and government overreach. On Wednesday, a tea-party group gathered at the South Carolina Statehouse in support of a Republican-sponsored bill calling for disclosure of how much economic sweeteners cost taxpayers.
“It’s the wrong time for these deals; we really don’t have a lot of money in the state,” said Talbert Black, Jr., state coordinator for the Campaign for Liberty, a tea-party group. “But even in a good time, it’s still not right to have the state deciding who gets to pay taxes and who doesn’t,” he said. “It messes up our free market if the government gets to pick who the winners and losers are.”