NORMAN — Editor, The Transcript:
The Transcript (“Chamber Hosts Legislative Breakfast,” 1/30/2013) reports that the Norman Chamber of Commerce has endorsed various goals including the following: “Economic development incentives that create and maintain jobs and investment in Oklahoma,” and “funding for the Oklahoma Quick Action Closing Fund to attract new jobs.”
In theory, the idea of making public investments on behalf of the community seems sensible.
Programs like the Oklahoma Quick Action Closing Fund do “incentivize” businesses.
Unfortunately, such strategies give businesses an incentive to play communities off against each other to maximize the size of subsidy they receive (i.e., create a bidding war). The “winner” benefits only if it does not pay more than the additional jobs or investments are worth to the community.
There is excellent reason to think that communities overpay for businesses – that is what the empirical evidence about economic development incentives indicates.
Firms have the upper hand in negotiating deals (e.g., political clout, more information about their business models, costs, etc.).
Communities, on the other hand, are not well equipped to accurately assess the costs and benefits of development. Norman, for instance, does not do fiscal impact analysis of the potential costs/benefits of new development. (The Norman Economic Development Coalition tries to estimate the job impacts of new businesses, but it uses a simple, static model that always outputs an increase in jobs for any positive input.)
Offering development incentives is akin to shopping for a car armed with minimal research on the value of a given make/model, and instead basing the purchase decision primarily on the dealer’s input.
Businesses typically employ professional advocates to “sell” projects to communities. It must be politically difficult for elected officials to say “no” to promises of jobs, even if such promises are unsubstantiated or the jobs cost more than they are worth.