Lawmakers As Jobs Buyers

Abstract

In 2013, Washington State authorized the largest state tax incentive for private industry in U.S. history. It is not remarkable for a state legislature to use tax benefits to retain a major employer — in this case, global aerospace manufacturer Boeing. Laws across all states and thousands of cities routinely incentivize companies such as Amazon, and others, to relocate or remain in particular areas. What is noteworthy, however, is that despite Boeing’s significant post-incentive workforce reductions, Washington was unable to recover any of the incentives it had authorized. This story leads to several important questions, including the following: how effective are state and local legislatures at influencing business location decisions? Do such incentive programs actually achieve their goals of increasing and maintaining jobs? Is the public protected from imprudent spending? This Article looks specifically at the role of state and local governments in encouraging businesses to locate in their jurisdictions. In such cases, state and local lawmakers act as buyers of jobs. This Article argues for a two-step proposal to limit subnational government actions to incentivize business location decisions. The first step involves a bidding process where companies are awarded incentives based on the lowest dollar amount required to create or retain a job. The second step involves recapturing incentives should a company fail to maintain or achieve a defined number of jobs. This two-step proposal has both regulatory benefits, such as extending public law values to the private sector, and it mollifies the political concern for jurisdictions to appear competitive and the need for public financial protection.