Tucson’s plans to expand its economic development tax incentives are based on politics and bad math, not what’s best for the city’s residents and business community. Instead of being allowed to hand out more free money to developers and a few favored business owners, Tucson’s politicians and bureaucrats should have to answer some tough questions about what’s really going on with these deals.
The city’s Government Property Lease Excise Tax (GPLET) program is based on the old and discredited idea that businesses can be lured to a particular location by a specific tax break. In reality, incentives like Tucson’s property tax breaks play a very small role in a business’s decision on where to locate, ranking far behind more important issues such as where customers are, what the local workforce is like, where competitors are, property acquisition or lease costs, local infrastructure quality and the like.
Independent researchers across the country who’ve dug into how businesses make these decisions have found that at best, tax incentives only make a real difference in just one out of every four business location decisions. The other three-quarters of the time, businesses happily pocket free money to do what they were going to do anyway.
That means that the biggest concern that the average person has – that without these kinds of programs, all the jobs will go someplace else and Tucson will lose out – is simply not a real issue. If the city can get at least three quarters of the jobs it was going to get regardless, without handing out $31 million in special tax breaks, then that’s a much better deal for the city’s residents and existing business taxpayers.
Supporters of these deals also make doom-and-gloom claims that ending tax incentives will leave a gaping hole in the city’s economy and credit them with ridiculous economic importance. For instance, the city’s economic development office claims that more than 1,200 jobs have been created by the GPLET incentive program, for an estimated economic impact of $1.5 billion.
Big numbers like this sound great to voters, but they’re divorced from reality. Simply dividing the claimed impact by the number of jobs gives us a per-job economic impact figure of $1.25 million per new employee. That’s just ridiculous. If every worker in Tucson created that much economic impact, then the city would have an economy bigger than those of entire nations such as Norway or Ireland – or, closer to home, bigger than the entire state of Arizona.
Giving tax breaks to businesses to do what those businesses were going to do anyway benefits the politicians who take credit with voters for creating jobs, the economic development bureaucrats employed to run these programs, the consultants paid to generate ridiculous economic impact figures and the businesses whose profits get increased by not paying taxes.
Meanwhile, the costs are borne by Tucson’s other residential and business taxpayers, and by everyone who depends on the city services that could have been funded by the taxes the city’s no longer collecting. For instance, the annual cost of these tax breaks is more than the city spends to fund its Public Defender’s office; or more than the Parks & Recreation Department’s budget to operate public swimming pools and sports fields.
Rather than expanding Tucson’s costly and ineffective tax breaks, the people who benefit from these deals should be forced to come clean to the community about the real costs and benefits involved.