Friday, February 26, 2016

I hate this game

The combined management of the DowDuPont merger has forced Iowa, Indiana and Delaware to compete against one another to preserve the agricultural chemistry jobs they have. Here's a comparison of the different incentives offered by the states to DowDuPont from the Des Moines Register's Christopher Doering and Kevin Hardy: 
Delaware: Offered a strategic fund grant worth $9.6 million over five years. Part of that amount includes $3.6 million the company will receive for the creation of 400 jobs. Other strategic fund grants were awarded in the form of matching up to 3 percent of the company’s capital expenditures up to $6 million, which would require the company to spend at least $200 million in the state over a five-year period to receive the full amount. 
The new ag company will be headquartered in Wilmington, currently the home of DuPont. 
Indiana: Officials offered no retention incentives up front, instead focusing on performance-based incentives the company could be eligible for if they create jobs going forward. 
Indianapolis will become a "global business center" for the new company though the company has not said what effect the change will have on the 1,400 employees at the existing Dow AgroSciences, which specializes in crop protection and seed products.  
Iowa: Offered $17,238,000 in state, city and county incentives to the company. Officials say the incentives assure that the company will more or less maintain current staffing levels of about 2,600 in Johnston. But much of the state incentives are tied to the 250 to 500 research and development jobs the company expects to retain. 
Johnston will also become a "global business center," keeping research and development, sales and marketing teams, and business support functions. 
I am amused to read that the director of the Iowa Economic Development Commission considered their incentives "extremely modest."

(I sure as hell hope there was some level of collusion between Iowa, Indiana and Delaware to cap the level of incentives they were willing to offer.)

When I was younger, I used to think the use of public funds to attract corporate investment (and jobs) made a lot of sense. Over the past fifteen years or so, I've changed my mind. It seems that the balance has shifted (as has so many things) in favor of corporations, and playing American locality against American locality on who is more willing to drop their property taxes just doesn't seem wise anymore. I am not exactly a "there oughta be a law" type, but it'd be pretty wonderful if there was a federal law that discouraged this sort of race to the bottom. 

11 comments:

  1. Well why should sports teams be the only ones able to gorge themselves at the public teat?

    MO sure got screwed by the Rams and the half wits running San Diego are wasting large parts of their taxpayer-paid workdays trying figure out out to use taxpayer funds to massively enrich a family that's already worth hundreds of millions (really a nice job being born to a father who actually made something of his life). It's a shell game.

    Your "race to the bottom" comment is sadly telling: at some point governments will start offering lessened environmental and OH&S standards to entice companies to locate rather than move to areas (looking at you PRC) with no concerns over environmental issues or worker well-being---just put up another safety net to catch jumpers!

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    1. I'm happy to have found something BT and I agree on. Corporations are better at these games than the government, and taxpayers are the ones getting fleeced at every turn.

      It would be nice to take government incentives out of the market completely, but where do you stop? States can still race to the bottom on corporate tax rates and OH&S standards as BT points out (ask me how long I think any sort of chemical manufacturing is going to stay in California).

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  2. I don't think Indiana is going to be offering much incentives these days. Especially after Carrier decided to cut and run to Mexico after taking a few million in tax breaks.

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    1. Great point.

      For those who haven't seen, check out this video: https://www.youtube.com/watch?v=Y3ttxGMQOrY

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    2. That guy in the tie making the announcement sounds like a "corporate drone."

      Interesting comments here:

      http://www.ibj.com/articles/57162-carrier-plans-to-lay-off-1400-indy-workers-in-mexico-move

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    3. Carrier already played this game - they pulled out of Syracuse, NY for Indy a while back.

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  3. The press release statements indicating that the new company's R&D will be located in Indy does not bode well for the Dupont Crop Protection discovery and process groups at Stine Lab in Newark, Delaware. Could be another batch of chemists and engineers laid off - or relocated to Indy.

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    1. That press release was very vague about r&d. What we think it means is that Global Leadership, i.e., anybody with 'Global' in their title, will be located in Indy. Since there's two or more people per position on both sides, obviously this is an opportunity for 'Breening.' They're currently evaluating where all the work takes place. It does count as a plus for Stine that the headquarters will be in Wilmington. From a flexibility standpoint, they could always build a new building at Stine if the new Ag company didn't want to pay rent to corporate for Chestnut Run headquarters. Also, Process & Development will need space since Dow Agro seems to share this with Dow, which won't be there post split.
      They're also evaluating warehousing, etc. Can you imagine the number both have? That will most likely be halved and unfortunately, the people who staff those sites.
      Keep in mind also that Dow will likely use the merger closing as a way to synergize positions or sooner if it looks like the merger will be delayed or even not approved. Because don't forget, DOJ and shareholders have to sign off on this. It's not over till it's over and even the two architects of this 'deal' don't have control over everything.

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  4. Corporations are simply acting logically. They will go where they can produce for the lowest costs. State governments are also acting logically if the amount of tax money given to a corporation is less than the total increase in revenues that will result if the business remains there or locates there.

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    1. The IF in your statement is the problem. Rational actors are actually exceedingly hard to find outside of economics courses. In the case of sports teams, the idea that a pro team brings any economic value to its home city is demonstrably false. Yet city governments spend millions upon millions of dollars to lure and retain pro teams.

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    2. The last sentence of the post you linked to

      "Because as politically popular as it can be to attract a team, it’s seen as political suicide to let one get away."

      shows that city governments are acting rationally; they are ensuring their reelection by irrational voting sports fans.

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