Incentives

businesses are expected to generate jobs and spur economic growth. State and local leaders point to success stories — new companies attracted by economic development packages. But there’s an inherent trade-off for the taxpayer. Grants and tax revenue could instead be directed to improve schools, fix crumbling highways and other key government functions.

The analysis, “A New Panel Database on Business Incentives ... in the United States” leads to some key questions: how much is enough? And are the incentives designed to attract well-paying jobs, or dead-end work with little or no benefits?

Bartik, a senior economist at the Michigan-based think tank, found that states with high levels of incentives don’t have significantly better economic performance than their neighbors.

“If incentives have an effect, it’s at best relatively modest,” he said.

Compared with neighboring states, Tennessee leads the way. Incentive levels are 91 percent lower in Virginia, for instance, and 82 percent lower in Georgia. As of 2015, Tennessee’s incentives are 105 percent higher than the national average.

The state stands out for its property tax abatements, the analysis found. In these deals, local governments typically agree to forgo property taxes if a company commits to creating a certain number of jobs and investing a certain about in capital. Because companies make annual payments in lieu of taxes, the arrangements are called “PILOTs.”

In Memphis, for instance, the Economic Development Growth Engine for Memphis & Shelby County awarded Ikea a $10.7 million property tax break in 2015. Stretching more than 12 years, the PILOT is expected to generate 175 full-time jobs, with an average salary of about $41,000.

The study looked at incentives in Memphis and extrapolated to the rest of the state. Shelby County and Memphis have more PILOT agreements that any other area in Tennessee, with 439 active in 2016, according to state comptroller data. That could exaggerate the findings for the state, Bartik said, though he added that other major cities use property tax breaks that could be comparable, such as Nashville’s tax-increment financing.

Smaller markets rely on PILOTs to attract companies too, said Margot Fosnes, the chief economic development officer of the Robertson County Chamber of Commerce. She pointed to the Tennessee-Kentucky Industrial Park in Portland as an example of a successful PILOT that attracted a Macy’s logistics center with 1,200 year-round employees.

“It’s really the only tool we have available for us,” Fosnes said. “It’s a very competitive market.”

Unlike some business incentives, property tax breaks don’t always target high-paying jobs or desirable sectors such as the high-tech industry. Research shows that high-tech companies tend to cluster together, Bartik said, so attracting one company could potentially lead to many more jobs.

“If we want these things to pay off,” he said, “we have to design them in a way that has a relatively high bang for your buck.”

Community college job-training programs, he added, have been shown to generate better and longer-lasting employment effects than other incentives, for the same cost.