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Last week, a New York Times investigation examined the role local government subsidies play in the country's economy.
It found that collectively, states and communities across the US spend more than $80 billion in incentives for private companies. The economic impact from those investments, however is much more fuzzy.
The NYT series, for instance, cites Michigan's $779 million subsidy to save General Motors and the company's subsequent shutting of factories around the state.
New Mexico spends $253 million—or $123 per person—on corporate incentive programs each year. Between 2005-2008, $99 million from the state went to LionsGate Entertainment for film incentives. Many of the companies that take incentives stay located in the area for a minimum amount of time, says Jeff Mitchell, a senior economist at the University of New Mexico's Bureau of Business and Economic Research.
"You find they’re kind of direct and short term," Jeff Mitchell tells SFR. "[Businesses] come in and take
the subsidy and use it up. As soon as that’s gone, they shut the door and move
A case-in-point came earlier this year when Sony Pictures Imageworks left Albuquerque after changes in the state's tax incentives for films.
Long-term businesses, on the other hand, tend to stay in the same location instead of moving and require "a great deal of patience" to develop, Mitchell says, pointing to Silicon Valley as an example.
"It’s inconceivable, impossible that that industry is going to get lured away," Mitchell says. "You can’t pull one thread out and have something that’s Silicon Valley. That takes a long-term sustained effort."
Yet politicians, who run for reelection every few years, want to cite economic gains from under their watch. Tax relief for businesses usually do just that, at least during the short run. But the country's large picture economy often gets ignored.
States may, for example, bid for the same companies with different incentives that doesn't better national economic growth but instead merely "moves pieces around the states."
"It tends to fit the election cycle of policy makers that want to be able
to point to success," Mitchell says.