The St. Petersburg Times has a story today:
Florida has given tax breaks and other cash incentives to some of the world’s biggest companies in return for creating jobs.
But even Walmart, Publix, Kraft Foods and other corporate giants have had trouble meeting job goals.
New data show that Florida has signed contracts worth $1.7 billion since 1995 in return for promises of 225,000 new jobs.
But only about one-third of those jobs have been filled while the state has paid out 43 percent of the contracts.
That averages out to $10,237 per job.
This follows a similar story from the Orlando Sentinel last week that I recommended on Achievable Solutions, Inc.’s Facebook page (like us there, please):
Florida’s economic-development agency has paid $37.9 million to six companies for thousands of jobs that were never created and is now attempting to renegotiate their contracts in the hope of still saving some of them.
The state disclosed the efforts Friday, more than two weeks after the Orlando Sentinel requested information on hundreds of tax-incentive contracts that, according to Gov. Rick Scott‘s new Department of Economic Opportunity, were never fulfilled.
I have a few comments about this:
1. The $1.7 billion sounds like a lot of money, but in the end is only about $100 million per year. Most of the contracted amount wasn’t paid out if the jobs didn’t materialize, so we’re really talking closer to $50 million per year. At the end of the day, that’s not an enormous amount for one of the largest States in the USA.
2. Nor does the $10,237 per job actually created sound like money poorly spent to me. The social value of a new job has to be more than the salary or wage rate of the job–I’m going to guess a multiplier of 1.25 or so. So, even for the jobs created by WalMart, Publix, and Walgreens that are probably low-end, we’re talking $20,000+ in social value created for an expenditure of $10,237. And for those jobs at the Sanford-Burnham Medical Research Institute at Lake Nona and the University of Miami Miller School of Medicine, that’s probably $60,000 to $100,000 in social value created per job.
3. All that said, I’m pleased that the State DEO and the Orlando Sentinel are on the case. These monies are intended for job creation and if companies aren’t actually creating jobs, then they shouldn’t be receiving the incentives. I think economic development specialists should design incentives to give a rebate after the jobs are created, rather than an up front tax credit. Either way, the project is going to realize the incentive in its IRR, but there’s a huge difference between the project that can be financed on its own merits and the one that requires government investment to get it off the ground. At Achievable Solutions, we like to help design projects that work on their own, and then seek incentives that sweeten the deal for the investor or the principal; projects that rely on incentives to pay the bills are far more risky in my view.