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Welcome to the world of competition

Barry Broome (File photo)

The effectiveness of economic development programs has long been hotly debated. Recent events, like the closing of Suntech’s manufacturing facility in Goodyear, have given rise to a new wave of criticism by organizations like the Arizona Tax Research Association, the Arizona Free Enterprise Club and the Goldwater Institute — most of it unwarranted and unsubstantiated. In fact, Clint Bolick’s recent salvo, “Solyndra, Arizona-Style,” is proof that he is an expert on immigration policy.

Indeed, it appears our friend at the Goldwater Institute may have jumped the gun in his zest to take a shot at the solar industry. Had he done his homework, he would have found that Suntech, a China-based solar manufacturing company that recently shut down its Goodyear facility, received no incentives at all from the Renewable Energy Tax Incentive Program (RETIP) — a far cry from the “$1.5 million in tax breaks” cited by Clint. A recent article in The Arizona Republic, “Goodyear plant benefited from $1.2 million in funds” (April 10, 2013) was also somewhat misleading.

 

As such, I wanted to take a moment to clear the air about performance-based economic development policies that increase our competitiveness for export industries and the quality jobs they create.

What did Suntech receive?

• To repeat, $0 from RETIP. This economic development policy is performance based and contains clawback provisions. It is a model economic development program.
• A maximum of $66,000 in Enterprise Zone tax credits, which are used to offset a company’s income tax liability and incentivize job creation. The Greater Phoenix Economic Council (GPEC) does not endorse Enterprise Zone tax credits — a program that expired in 2011.
• $260,670 in federal funds (American Recovery and Reinvestment Act) distributed through Arizona’s State Energy Program for machinery and equipment. These were federal funds, not state funds. As a result, the general fund was not impacted.
• $500,000 in job training from the city of Goodyear, which should be considered an investment in Goodyear’s workforce. Indeed, former Suntech employees have benefited from cutting-edge training in the field of renewable energy and advanced manufacturing, and remain community assets for employers.
• $149,000 in waived permitting fees, a standard benefit given to transactions of this size and scope. Still, no cash was distributed. The company may have saved money, but it did not pocket additional funds. In addition, Suntech paid a net new $8,000 in fees to Goodyear.

Even after these benefits, the state still received a net positive tax contribution of $782,000.

Suntech’s decision to put its first U.S.-based manufacturing facility in Arizona has given us additional benefits, including a foothold in Chinese industries and an increase in our China-based prospects to about 20 companies. Plus, the city of Goodyear now has a 100,000-square-foot high-tech manufacturing facility that is extremely marketable.

For good measure, let’s also look at the economic impact of First Solar, another high-profile solar “setback.” The company designed and built a state-of-the-art

$400 million facility in Mesa that created more than 800 construction jobs and returned more than $7 million in tax revenue to the state. To date, however, First Solar has not yet operationalized the facility. As a result, it has not qualified for any property tax or tax credit benefits. However, Mesa now has a state-of-the-art facility — the best in the Western half of the country — that it can market to other capital-intensive and export-based companies looking to move or expand.

One of the most common critiques of economic development policies is that investments of the size and magnitude targeted by GPEC would come to the Greater Phoenix region even without incentives. To be sure, it is hard to know whether that is true. But here’s what we do know:

• Boeing, one of the world’s largest aerospace and defense companies with a large presence in Arizona, recently chose to put a $1 billion expansion in South Carolina, where it also has a large presence. For that investment, South Carolina gave Boeing a $120 million incentive.

• Toyota recently invested $360 million into its Georgetown, Ky., plant to manufacture the Lexus ES. According to Forbes, “a big reason for the decision [was] an incentive package offered by the state of Kentucky,” which was valued to be $146.5 million in tax credits for

570 full-time jobs — working out to approximately $257,000 per job.

The lesson? Welcome to the world of competition. Whether Arizona offers competitive economic development programs or not, the fact remains that other states do. And, if we want to have a chance for these kinds of substantive, export-based investments, we must compete for them.

This is not to say that all incentive-based economic development programs are worthwhile. Both Suntech and First Solar provide good examples of the importance of clawback provisions and performance-based metrics in targeted economic development policies, which is why GPEC insists they all be based on the following principles:

• They must be return-driven. All policies must generate a return to the state by being either revenue-positive or neutral.
• They must enhance competitiveness. There is no reason to create policy if it does not increase our competitiveness for capital-intensive export industries.
• They must create quality jobs. Employers must offer health care coverage to help reduce the state’s burden.
• They must be performance-based. Performance milestones must be met before receiving any benefit.
• There must be safeguards. Clawbacks must be incorporated to safeguard against fraud and protect taxpayer dollars.

These kinds of policies have tipped the odds in our favor in several recent announcements in the region, including General Motors, Union Bank, ZocDoc and Stealth Software.

Today, we are only one policy away from becoming the number one state in the Mountain West for high-value investments in export-intensive industries — a brand that will go a long way in business communities across the nation — and creating the ripple effect we need to grow and diversify our local economy.

— Barry Broome is president & CEO of the Greater Phoenix Economic Council

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