The path to jobs is not through the red ribbon

Since 2007, Arizona has lost 300,000 jobs, more than 10 percent of total employment. So it’s understandable our elected officials are anxious to bring more jobs to the state. Governor Jan Brewer and other state officials want to create a Commerce Authority armed with $25 million for grants to businesses as enticements to locate here. They often point to the Texas Enterprise Fund (TEF) as a model. A close look at the TEF, though, raises questions about how effective it really is.

The TEF makes grants to private companies to encourage them to locate in Texas. From 2004 to 2010, Texas gave $412 million to various enterprises ranging from a mattress company to Frito-Lay to Facebook. According to state statistics, these giveaways directly “bought” 54,269 jobs, which means each of these jobs cost Texas taxpayers an average of $7,600, assuming these jobs would not have been created anyway.

Making the model especially popular among politicians is TEF’s claim that a single $2 million grant resulted in a $3.5 billion investment in oil refinery expansion. This stretches credibility when Texas is already a top refining state and $2 million is a mere drop in a $3.5 billion bucket.

At $7,600 per job, $25 million would buy fewer than 3,300 jobs when we need 100 times that many. But that’s not a call to increase the fund budget. With a 2012 deficit of $1.1 billion, we simply can’t afford this. Not to mention that the money for the fund would come from tax revenues paid by businesses who are already here. Nothing like forcing people to subsidize their competition…

Arizona would do well to follow Texas’s most effective economic development policies, including a reduction in income taxes, elimination of excessive business regulations, and more use of our natural resources. Those policies might not come with ribbon-cutting ceremonies that allow elected officials to take credit, but they do bring jobs.

Dr. Byron Schlomach is director of the Goldwater Institute’s Center for Economic Prosperity.

Learn More:

Texas Comptroller: An Analysis of Texas Economic Development Incentives 2010

Texas Governor: Texas Enterprise Fund Grant Listing

The Economist: America’s Future: California v Texas