Economic Development Incentives; What Is The Success Rate?

There are likely no cities or states that have not celebrated the successful efforts to site a new manufacturing facility or massive financial services corporation in their area. After all, everyone enjoys dreaming about all the benefits of boosting local economies through the addition of mega companies. Being the one who makes that all happen can be rewarding, and provide a feather in one’s cap… when it goes as planned. Sometimes the implementation of economic development incentives for an economic boost through a corporate installation does not go as planned though.

Economic development incentives entice companies

While company relocations or expansions include analysis of an area’s economic factors such as available labor force, proximity to transportation infrastructure, and conduciveness to the company’s mission, it’s often economic incentives that help make the decision. Incentives that are concessions by a city, county, or state to help lure an entity to their area. When the boost to an area’s economy comes to fruition, the area is rewarded, but that is not always the case.

How are successes and failures measured?

According to the Brookings Institution, the top reasons a government offers economic development incentives are job creation, capital investment, and return on investment.

Every responsible incentive package has a development agreement specifying success metrics. Successful projects meet or exceed the thresholds, and failing projects do not.

Sometimes, an incentive agreement or package may be amended after a project is in progress to increase or decrease value according to the changes in thresholds. The metrics in the development agreement are critical because they dictate government expectations and when funds are paid out.

What happens when the project does not achieve its metrics?

This doesn’t happen as often as people profess, but there have been some epic failures.

Foxconn in Pennsylvania & Wisconsin – Failure

The most prominent is Foxconn, which received governmental largess amidst spectacular promises and failed delivery in Pennsylvania and Wisconsin.

Pennsylvania never paid out funds because the company never built the promised $30 million facility, which was expected to employ 500 people. In Wisconsin, the state invested millions of dollars in a facility that has never been developed.

“It won the ‘worst economic development deal of the year’ award,” said John Mozena, President, Center for Economic Accountability. “The state used eminent domain to acquire land for the supposed Foxconn facility. Families farming or living in the area for generations were required to move. The state built extensive infrastructure.”

Then Foxconn did nothing, or very little, according to Mozena. Most of the land is underutilized, with little to show for all the roads and utilities. American Prospect reported that the state may be on the hook for $1.34 billion from a project that will never generate the promised revenue. The original incentive package agreed upon included more than $4 billion in incentives.

Faraday in Nevada – Failure

Other failed incentive-driven projects include Faraday Future, a Nevada-based electric vehicle manufacturer near Las Vegas, Nevada, with $335 million in incentives for 3,400 jobs and supporting infrastructure. The state put in the infrastructure, and the factory never developed.

Nissan in Mississippi – Failure

Mississippi offered Nissan over $1.3 billion in incentives to build a manufacturing plant. The facility was built, but the promised high-wage jobs never appeared.

Emerson Electronics in Missouri – Failure

“Sometimes things go too far,” said Mozena. “In Ferguson, Missouri, Emerson Electronics was talking about leaving town. The city gave the company credits in the form of tax reductions. It left the town in a deficit position.”

According to Mozena, Ferguson reduced taxes on Emerson to the point that it was losing money by delivering services to the factory—funds that had to be made up by the other residents and businesses in the city.

After the Google Drones fiasco in Moriarty, New Mexico, economic development organizations moved to reimbursement rather than up-front payouts. New Mexico spent over $1 million upgrading a rural airport to support a drone manufacturer in that rural city. After laying out the cash, Google bought the company and moved it to California. It took over a year, but the state finally negotiated a clawback of the million dollars from Google.

First Solar in Arizona

Sometimes, the lemon handed to a local government can turn into lemonade. The city of Mesa, Arizona, spent millions of dollars on infrastructure to support the construction of a 1.3-million-square-foot solar hardware manufacturing facility. First Solar opened but soon closed the facility, according to Jaye O’Donnell, director of the Mesa Economic Development Department.

“We didn’t directly give the company incentives,” she said. “We used it to make an already-planned area of the city available for industrial development by moving up capital improvements a few years.”

Sitting empty with all the infrastructure gathering dust, Mesa ultimately landed the global Apple Music command center in 2017.

Economic development spectacular successes

The city of Phoenix, Arizona, invested $235 million in public infrastructure, job training and tax credits when landing the $12 billion TSMC semiconductor fabrication facility on unused public land in the northern part of the city. As one of the largest foreign direct investments in the United States, even before the first phase opened, the project added second and third phases and a regional headquarters building, pushing the return on investment to over $60 billion.

Other successes abound. Tesla’s battery plants in Nevada and Texas delivered on promised jobs, wages and capital investment.

BMW received $327 million (2024 dollars) for its automobile manufacturing facility in the early 1990s. Since then, it has directly created more than 11,000 high-wage jobs and billions in capital investment and local spending.

Are sports teams worth the public investment?

Even after receiving economic development incentives, no governmental agency or sports team contacted was willing to share “on-record” details about the return on investment of public money into sports facilities.

“There are three dumb things that should never receive incentives,” says Mozena. “The three I picked are distribution centers, data centers and stadiums.”

According to Mozena, the first two are dumb investments because the developer must develop them within a specific distance from customers for the facilities to make sense. Whether or not there are incentives, he said, the facility is going to go on that spot anyway.

“Sports stadiums are in a class by themselves,” he said. “The average Spirit Halloween Store is open more days than any team plays. Spirit is open an average of 90 days, and Major League Baseball only plays 81 home games in a season.”

He noted that the big money-winners, like the Super Bowl or NCAA Championships, only come up once every five or more years.

What is learned about economic development incentives successes and failures?

Most economic developers in fast-growing areas see incentives as another tool to generate job creation, scale capital investment, and ensure that cities and states receive fair returns on investment. These jurisdictions have sophisticated economic development plans and policies that make it easier for interested businesses to grow, expand or stay in town.

Some areas of the country are more hopeful that the incentives can be used to rekindle employment opportunities and the tax base. The need to be the selected site leads to competitive bidding. Upping the ante may put more money into a project, but it could be seen as a sign of desperation, not determination.