From The Senior Editor: Deal or No Deal

When should a state provide incentives to a big employer?

That’s one of the questions that states are wrestling with as they try to shake off the recession and move forward. And, it’s a story the Changing Gears team will be examining many times in the next few years.

The latest state to deal with the issue is Missouri, whose governor has signed controversial legislation meant to keep a Ford Motor Company plant from leaving the state. I talked about the situation this week on KMOX in St. Louis.

[audio:http://kmox.cbslocal.com/shows/total-information-am/.mp3]

The incentives for Ford, worth as much as $100 million, are part of broader legislation called the Missouri Manufacturing Jobs Act. The governor signed the measure on Thursday at United Automobile Workers union Local 249, which is near Ford’s factory in Claycomo, outside Kansas City.

The centerpiece of the measure is a package that Ford would receive, if it invests in the Claycomo plant, and maintains or increases jobs there. The Claycomo plant has 3,700 workers, and is one of the biggest automobile plants operated by a Detroit automaker in the United States.

Proponents of the idea said they had no choice. If Missouri didn’t live up to its name as the “show me” state, Ford might not think it was wanted. Opponents, who staged a filibuster that delayed the bill from passing the state Senate, argued Ford would probably do what it needed to do, anyway.

History was on the opponents’ side. Four years ago, Ford idled a factory outside St. Louis, even though state politicians pulled many strings to keep it open. And, since 1980, automakers have closed 128 factories in the United States, from California to Massachusetts. St. Louis, which once had four big car plants representing each of the Detroit automakers, has been especially hard hit, losing parts jobs as well as assembly line jobs.

Despite the deal, there is no guarantee Ford will take advantage of Missouri’s offer. In fact, Ford essentially remained silent through the Missouri legislation’s debate over the bill.

Does that mean incentives are a waste of time? Do they ever work?

Certainly, in some cases, they do. Ohio is undoubtedly glad that its former governor, James Rhodes, offered $5 million in incentives to Honda Motor Company back in the 1970s to convince it to build a motorcycle plant in Marysville. That factory has led to two automotive assembly plants, an engine plant, and a technical center with thousands of engineers.

I was allowed to make a rare visit to the Honda¬†engineering center a few years ago, and was amazed at how big it was. It took more than two and a half minutes just to walk from one end of the engineers’ development lab to the other.

Likewise, Alabama‘s rise as an automobile state can be directly traced to lawmakers’ decision to offer Mercedes-Benz a package worth $300 million, then the richest deal ever. Since the Mercedes plant opened in 1997, Alabama has attracted Honda, Toyota and Hyundai, and Mercedes has doubled the size of its factory.

As in Alabama, Kentucky has had a good track record in using incentives. Its biggest victory was the Toyota factory in Georgetown, which has attracted dozens of Japanese investments. But the recession has caused those to slow down.

And so, the state has come up with a new wrinkle in the incentive wars. It recently announced a program called the Kentucky Reinvestment Act that would offer training funds to its existing companies, regardless of whether they add jobs. In order to qualify, companies simply have to promise to invest $2.5 million in Kentucky facilities and retain at least 85% of their existing workers.

That kind of aggressiveness may leave states little choice which briefcase to pick. It may have to be the one with the cash. And, for states in the Manufacturing Belt, which already are facing tight budgets, there may be some tough choices ahead.

What do you think of states competing for jobs with incentive programs? Do they do it too much or not enough? What other kinds of ideas might help a state move forward?

Leave a Reply