Los Arcos, Boeing Spark Renewed Incentives Debate

Posted on July 25, 2003 | Type: In the News
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The flap over Scottsdale's tax subsidy for Steve Ellman's big-box development plans for Los Arcos mall and the state's pursuit of a new Boeing aerospace plant has rekindled the contentious debate over economic development incentives.

The debate over giving financial incentives or tax breaks to lure jobs and business investment has long been a heated one in Arizona. And the issue is not going away anytime soon, as business and political leaders look to jump-start the state's tottering economy and attract big-ticket and new economy investments.

Steve Slivinski, tax and budget policy director for the Goldwater Institute, said Arizona will continue to feel to pressure to match other states with incentive packages and tax breaks in order to lure jobs.

Texas doled out tax credits, work-force assistance and transportation infrastructure upgrades to lure a new Toyota manufacturing plant to San Antonio. There also is a major bidding war looming for a new proposed Boeing commercial aircraft assembly plant.

Kansas, Washington state and Michigan already have put forward major incentives in their Boeing proposals, and other states such as Georgia and South Carolina are expected to put economic development goodies in their Boeing baskets.

Mesa Mayor Keno Hawker, Congressman J.D. Hayworth and Assistant State Commerce director Joe Yuhas all have said that if Arizona makes Boeing's short list, some sort of incentive package will be fashioned. Such a measure could include free or reduced land, property tax credits, work-force assistance and tax-increment financing to pump money back into the project for infrastructure improvements.

Hayworth, Hawker and others argue such incentives are necessary to attract jobs, and the Boeing plant would create more than 1,000 direct jobs and would establish Arizona as a top aerospace hub.

Similar logic was put forward by supporters of Ellman's controversial redevelopment of the Los Arcos mall site in Scottsdale. The developer is receiving a $37 million share of sales tax revenue to help in his development of a big-box center featuring a Wal-Mart Supercenter, Lowes Home Improvement store and Sam's Club.

Earlier this month, the Scottsdale City Council approved the deal with supporters arguing the mall site desperately needs to be redeveloped and detractors (including Mary Manross and the Scottsdale Area Chamber) criticizing the subsidy and big-box retail mix.

Slivinski argues such corporate sweetheart deals are bad public policy.

He said the costs of incentive packages per jobs often are very high and that such special credits, exemptions or subsidies make it harder to lower other taxes.

"It's hard to lower taxes on every other business when you carve out these wedges," Slivinski said.

The Goldwater think tank and other economic conservatives prefer cultivating lower taxes and a business friendly regulatory environment to specific incentives.

Arizona does offer some enticements to get companies to invest in the state.

Employers that create jobs in state enterprise or foreign trade zones can receive tax breaks. Williams Gateway Airport is a former Air Force base and companies can get similar tax credits. Reduced or free land also is available at the zones to try to lure business investment.

On July 22, the Arizona Department of Commerce approved base reuse incentives for U.S. Positioning. The government software contractor will receive $187,000 in tax credits for moving to Williams from New Mexico in January.

U.S. Positioning President Steve Shope said the incentives are "testimony to the positive business climate that exists" in Mesa.

State Commerce Director Gil Jimenez sees a place for incentives in the state's economic development strategy.

"State incentives play an important role in economic development," Jimenez said when announcing the grants to U.S. Positioning. "Their value is obvious when you see companies like U.S. Positioning making strategic investments that will help increase the jobs per capita ratio and upgrade the overall skill level of Arizona's work force."

Commerce also has work-force assistance money to help new and existing companies in the state expand and train employees. Earlier this year, the ADOC doled out $701,000 to help Maryland-based GEICO Insurance expand its customer service operation in Tucson. The Commerce agency also gave $115,000 to assist newsprint manufacturer Abitibi-Consolidated train and add more workers at its plant in Snowflake.

The work-force money is not without its own controvery though. Commerce department officials were upset when the final budget passed by the Arizona Legislature swept $6.3 million out of the agency's workforce funds. That money was put into the state's General Fund to help reconcile the budget deficit and into a work-force program administered by the Department of Economic Security.

The problem for business leaders is that DES work-force programs are more geared toward entry level and low-skill workers than high-paying jobs.

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