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GLIN==> Ohio Sen. Charles HORN - UPDATE #20

Posted on behalf of Chris Vaughan <cvaughan@mailr.sen.state.oh.us>

December 1999

In October of this year, Jay Hancock of the Baltimore Sun wrote a four part
series entitled "The Giveaway Game" that focused on America's new civil war:
the Tax Incentive Wars.  The impetus of this yearlong investigation was to
evaluate the viability of tax incentives as job creators and state income
generators while focusing on the more aggressive states in the incentive
war.  Well researched and well written, this series is an eye opening must
read for tax incentive proponents and opponents alike.

The complete text of Jay Hancock's series can be found on my website at:
http://www.senate.state.oh.us/horn/ <http://www.senate.state.oh.us/horn/>
(under the Economic War Between the States link).

Below is an editorial by Neal Peirce of the Washington Post Writers group
regarding Jay Hancock's series and as always Neal writes very perceptively.

  Copyright 1999 Washington Post Writers Group


  By Neal R. Peirce

     For years, those of us who have groused about tax giveaways to create
or keep jobs have expected a moment of bitter reckoning.  Some state, we
figured, would give away so much of its treasure that it would jeopardize
its fiscal health -- its ability to educate its children, keep up its roads,
protect its natural environment.

     The moment appears to be now.  The state is South Carolina.  It's the
fiercest aggressor in the industrial war among the states, offering stunning
subsidies and favors to footloose corporations.  In the process, it's
hollowed out its tax base so deeply that its future has come into question.

     Baltimore Sun reporter Jay Hancock discovered the South Carolina plight
in a year's investigation public industrial subsidies across the country.

     With its deep discounts on business taxes, free worker training,
targeted road expansions - even a $50 million airport runway for the German
carmaker BMW -- South Carolina has succeeded wildly in recruiting firms, or
persuading ones on hand to stay.

     Last year alone 1,395 firms got state favors.  "It's a feeding frenzy,"
Mat Self, chairman of Greenwood Mills, a big, historic South Carolina firm,
told the Sun.

     Indeed it turns out every kind of firm from health-product distributors
to food warehouses, automotive manufacturers to amusement parks, metal
fabricators to magazine sellers, have picked up South Carolina subsidies,
many with 20-year tax discounts.

     Many, Hancock determined, would have located in or remained in South
Carolina anyway -- a pattern he says is common nationally.

     The irony is that South Carolina, while adding jobs and population
rapidly, has given away so much of its tax base it's having difficulty
providing basic services.  Many public schools have leaky roofs and shabby
facilities.  South Carolina has the country's lowest SAT scores.  Infant
morality is high.  About four of every 10 homes are on septic instead of
sewer systems. Crime rates are increasing.  Traffic is overwhelming narrow
local roads.

     And while a privileged group of corporations enjoy a virtual tax
holiday, homeowner property taxes, trash fees, inspection fees, restaurant
taxes are all going up.

     A legislative committee figures South Carolina needs to commit $57
billion to schools, roads, sewers and other infrastructure by 2015. But the
tax base to do it is in real doubt.  Hancock sites a finding by the Strom
Thurmond Institute at Clemson that $2.7 billion in special industrial tax
breaks will be due in the next dozen years.  The Institute predicts budget
deficits well into the 21st century.

     It's fair enough to ask: If South Carolina's gaining jobs and people,
why worry?  Won't it all pay off eventually?

     The answer: Not unless the new workers are earning a lot.  Many
Americans accept the myth that all new jobs are good.  That's wrong.

     First, any added population requires new roads, schools, sewers, police
forces, fire stations, parks -- a long list of needs the public has to

     Second, government industrial recruiters are promiscuous payers,
subsidizing even industries that pay very low wages.  A recent review of
some 550 economic development subsidies in Minnesota, totaling $176 million,
revealed high costs, low wages, and few standards to guarantee any return on
the taxpayers' investment,  About two-thirds of the deals were approved
despite very low projected wages-- 20 percent or more below market levels
for their industries, according to a study conducted by the Washington-based
Institute on Taxation and Economic Policy.

     Look at South Carolina's result: In the last four years, even as it was
raking in new subsidized jobs, its average manufacturing wage fell further
behind the nation.  It rose just 5 percent, to $10.54, while factory jobs
nationally went up 12 percent, to $13.49 per hour.

     Subsidized lower-wage jobs and industries taking a tax holiday add up
to a strapped state.  Indeed, poor services can repel legitimate economic

     The basic fallacy is that jobs should be states' top goal.  We're in a
full employment economy.  There are plenty of jobs to go around.  The
much-predicted future world of excess labor, forced leisure time, has not
come about.  To the contrary, top industries are desperate for qualified,
well-educated labor, ready to deal with the advanced technologies of the new
world economy.

     Where governments, their corporate and non-profit allies need to look
is for ways not just to improve schools, but to motivate young people to
prepare themselves for the rich and exciting arrays of jobs, in every area
from high-speed communications to biotechnology, that await them in the next

     Human skills -- not raw materials, not capital agglomerations -- will
be the most valued assets of the 21st century.  Investment will flow to
where the talent is located.

     No American state or region has ever made the development of people its
core strategy for the future.  It's tougher work than administering tax
give-aways.  But the rewards will be infinitely greater.

Should you have any questions or concerns please contact my Legislative
Aide, Chris Vaughan, in my Columbus Office at (614) 466-4538 or email him at

Christopher Vaughan
Legislative Aide to State Senator Charles Horn
Ohio Senate
Columbus, Ohio 43215
Phone: (614) 466-4538
FAX: (614) 466-7018
Senator Horn's Website: http://www.senate.state.oh.us/horn

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