The Incentive Game

By Johannes Werner April 30, 2011

TARP, the auto bailout, federal stimulus programs—direct government involvement in the economy has been en vogue since the 2008 economic crash. And now, in the deepest economic recession in Florida since the 1930s, locally funded business subsidies are breaking all-time records.

Within the past 36 months, Southwest Florida programs that subsidize private businesses have mushroomed to more than $30 million for cash incentives and potentially hundreds of millions more, both in direct incentives and tax breaks. And they’ve also become the subject of local public debate, in large part because of Maine-based Jackson Laboratory, a not-for-profit genetic research company that has proposed opening a personalized medicine institute in the region. After discussions with Collier County broke down—primarily because of public opposition to heavily subsidizing the project—Sarasota business and political leaders convinced Jackson to come here. Jackson has said it will invest $800 million into the project but wants a whopping $300 million in incentives—$100 million from the state, another $100 million from Sarasota County and $100 million from private sources such as foundations.

Whether Jackson can win support from the state, and after that, from local taxpayers, remains to be seen. Proponents cite sunny projections about new jobs that will be created, tax revenues that will be collected, and new medical-related businesses that will be attracted by the presence of the highly respected lab. Opponents question those figures and point to the so-far disappointing economic effects of Scripps Institute on Florida’s east coast, which is funded with $850 million in public money.

But Jackson is merely the latest and largest player in the Southwest Florida incentive game. In 2008, Lee County funded a cash incentive program with $25 million. Sarasota County’s $10 million grant program, started two years ago, has approved $5,775,500 in incentives from June 2010 through March 15, 2011, to 19 companies promising 1,772 jobs. Manatee County has budgeted $1 million annually for incentives since February 2009. So far, 38 companies have been approved for $5.7 million to create 3,051 jobs in the next five years. Add to that the $110 million Lee and Sarasota County taxpayers doled out for facilities for two Major League baseball teams recently, and the $250,000 the Downtown Bradenton Redevelopment Association offered the owner of a restaurant to move it to downtown, and it’s clear that local officials and voters have opened the subsidy spigot for private businesses like never before.

Are the subsidies worth it?

If you ask economic development officials, it’s a home run. As one local official put it: “We’re paying way too much, and it’s worth every single cent.”

An Ernst & Young study analyzing the effects of statewide incentives calculated that each incentive dollar produces a $3.49 return on investment, in the shape of capital investment, worker salaries, indirect sales and tax collections. Local economic development officials point out that most business incentives today come with “clawback” safeties that require a company to return payment if they cut back or close down operations. Also, the “Qualified Target Industry” (QTI) program—jointly run by the state of Florida and counties—provides tax refunds step-by-step, over several years. This ensures that companies only get cash when they meet certain benchmark job numbers they had promised.

Even the more than $260,000 in tax refunds the now-defunct Arthur Andersen LLP received from Sarasota County through 2002—as part of some $1.3 million in QTI tax refunds from 1998 to 2002 under the state-run business incentive program—were not a loss, argues Kathy Baylis, president of the Sarasota County Economic Development Corporation. After all, since Arthur Andersen disappeared into the maelstrom of the Enron scandal in 2003, the company’s former employees spawned new tax technology operations in Sarasota, such as Jackson Hewitt or Vertex, with hundreds of jobs.

Even so, an authoritative judgment of the long-term effects locally funded incentives might have is difficult to make. For one, local subsidy programs are a bureaucratic jungle of acronyms and rules. They come in a variety of shapes with multiple funding sources, and there are dozens of programs within each county, making it difficult to even estimate the total amount of local taxpayer funds used for job creation. Also, the bulk of local incentives haven’t been paid out until recently, so it’s too early to assess the outcome. Even long-standing programs such as the QTI have not been tracked by the counties’ economic development branches over the long term; no one follows the jobs trail after the local incentives have been paid out. A meaningful economic bottom-line calculation must include an analysis of the circumstances of each worker filling the new jobs—such as whether they left jobs elsewhere or in the same county, what kind of previous salaries they received, or whether they had been unemployed.

Questions about current staffing levels to the 11 area companies that received job-creation tax refunds in 2004—a year we picked randomly—were only answered by two of the companies. Most companies failed to provide information. One subsidy recipient, Sarasota-based Certified Collectibles, declined to share information, arguing that, “We are a private company.”

Transparency is probably the No. 1 concern of both critics and supporters of incentives. The fast growth of local incentives has created a thicket of programs: Sarasota County alone offers 25 economic development programs that range from providing services to tax rebates to loans to cash payments. Some of them are jointly funded by the State of Florida; most are locally funded. Some have a dedicated source of funding; some don’t. Because of such differences, it is difficult to compare programs across county lines.

One Washington-based organization, Good Jobs First, rates the transparency of state and federal incentive programs. However, GJF has not even begun to look into local programs.

Instant availability of data on project funding on the Internet is one of the benchmarks the organization uses. None of the Southwest Florida counties had its data available on a website for this article; while one provided statistics within hours, one took two weeks to provide basic data. In a few instances, the local EDC referred us to the county and the county referred us to the EDC.

“It should be very clear to the public, on a website for example, what the firms are supposed to deliver, and what they actually did deliver,” says Phineas Baxabdall, an analyst with the Florida PIRG. “Without this kind of public scrutiny, this could tend to become a way of just asking to trust that these subsidies are being used well.”

The State of Florida has shown some improvements after scrutiny from Good Jobs First. In 2007, immediately following the publication of the watchdog group’s first State of State Disclosure report, the Florida Office of Tourism, Trade and Economic Development began posting a list of economic development contracts.

The No. 2 criticism is the lack of follow-up. While most counties have built-in safeties, such as payout at time of reaching an agreed benchmark, or “clawback” provisions that require recipients to pay back incentives should they close down or move shop, little is known about the longer-term effects of cash incentives.

Even less clear is the accountability for tax breaks. While allowing politicians to claim that something is getting done without spending money, tax breaks also impact a county’s ability to provide services.

“The promise is that the new jobs will generate taxes, but there is no general accountability to have delivered on those promises,” Baxabdall says.

To be sure, one of the companies that did provide feedback for this story, Prestige Packaging, appears to be a showcase for business subsidies. When Lee County paid the medical packaging division of Unifirst Holdings Inc. a $48,000 job creation tax refund in 2004, it got a two-for-one, without negotiating. Not only had Prestige relocated from Massachusetts to Fort Myers in return for the QTI subsidy, creating the 24 high-wage jobs it promised, but another Unifirst division—Medique Products—eventually moved from Chicago to Fort Myers as well, bringing an additional 21 jobs.

“Without Prestige coming here, the other one wouldn’t have come, either,” says Todd Lewis, Prestige Packaging vice president.

What’s more, the company’s commitment is lasting. Seven years after the tax refund, Prestige maintains a total of 33 staffers, a precious asset in unemployment- and foreclosure-wrecked Fort Myers.

Bottom line for Lee County taxpayers: Although neither the county nor the company have crunched the numbers, between the property taxes eventually paid by Prestige and Medique, plus the local taxes received from their additional employees over the years, the actual taxes Lee County collected as a result of Prestige’s presence probably far exceeded the initial $889 it paid Unifirst per new job.

Meanwhile, women’s apparel retailer Chico’s FAS—another recipient of local funds in 2004 ($396,000 for 396 new jobs) as well as state funding (nearly $1.6 million)—had some ups and downs in employment levels at its headquarters in Fort Myers. In late 2008, the company laid off 180 members of the National Store Support Center. But the number of overall employees today still is twice as high as in the 1990s, and staffing at corporate headquarters is probably higher than the 860 in 2004.

Critics would contend that Lee County’s tax refunds are moot, because the companies would have relocated or expanded, anyway. The amount of local and state cash incentives and tax rebates is too small to make a dent in the cost structure of most businesses, argues a critical report on state incentives by the Tallahassee-based Florida Center for Fiscal and Economic Policy.

But because companies have gotten used to incentives, they have become an indispensable tool, says Sarasota’s Kathy Baylis.

“There have been changes in the use of incentives over the last 10 or 15 years,” says Baylis, who spearheaded the county’s efforts in dozens of corporate relocation and expansion projects since 1995. “When I first started, companies didn’t necessarily know about incentives, and those wouldn’t come into the discussion until late. They were more interested in infrastructure, buildings, the workforce, or transportation issues. Today it comes up right up front. There’s been lots of media coverage of what large companies have received, so small companies ask, ‘Where’s mine?’ Also, years ago we used to work directly with the CEO of a company. Today many of them hire professional site selectors from Chicago or Tampa, and we don’t even know who the company is.”

According to the most recent site selection survey of Area Development magazine, 87.9 percent of business executives ranked local incentives as “important” or “very important.”

“Government participation in the economy is on the rise, and for now will be an accepted part of the new business investment equation,” wrote Thomas J. Stringer, a New York-based principal of site selection and incentives for Ryan & Co., in a recent column published by Area Development. “Throughout the U.S., this ‘Incentives as Investment’ strategy has pushed financial resources out of the door directly into the hands of corporations fighting on the frontlines of the recession.”

Even so, the harsh reality of ever-shrinking budgets may soon dry up the wave of locally funded incentives. Spending levels of Southwest Florida counties for incentives over the past two years aren’t sustainable, Baylis says, but more robust state programs and more public-private partnerships, such as the one formed between the Gulf Coast Community Foundation of Venice and Sarasota County to lure Jackson Laboratory to Sarasota, will be added to existing local programs, she believes.

In the meantime, the political backlash against local incentives has already started. Collier County’s $130 million subsidy package for the Jackson Laboratory deal fell apart because of resistance of taxpayers and local businesspeople. Sarasota County has recently tightened its qualifications for grants. And the owner of the Bradenton restaurant who was offered $250,000 declined, citing the “underlying public opinion” of feedback she received after the deal was announced.


What’s the QTI?

Under the state-run Qualified Targeted Industry program, companies in certain industries deemed valuable for economic development purposes receive tax refunds of $3,000 for each new full-time job created, and additional amounts for jobs paying up to 200 percent of the average annual salary. The State of Florida contributes 80 percent of the refunds, the local county 20 percent.

Top* Recipients of Local Incentives

Company Description Incentives Jobs Average Wage All jobs created by: (projected)
Ringling College of Art and Design Digital Film Lab $1,750,000 N.A.** N.A. N.A.
Sanborn Film Studios Film Studio $650,000 117 $72,029 2013
PGT Window Manufacturer $600,000 400 $29,750 2015
Tervis Drinkware Manufacturer $450,000 175 $50,000 2013
Sarasota Medical Products Pharmaceutical Products $360,000 61 $50,000 2012-13

These incentives have only been approved, not allocated, during the time period June 2010-March 2011.

They are allocated only if the company creates the jobs it has promised according to a timeline. Incentives are through Sarasota County’s Business Economic Development Incentives Fund.

Source: Sarasota County.



Company Description Incentives Jobs Average Wage All Jobs Created By (projected):
Project Palm*** Global HQ $1,500,334 235 (148 retained) $74,000 2015-17
Project Curve Manufacturer $653,500 361 $45,198 2017-18
Project Win Telephonic and Online Business Services $365,000 365 $42,300 2015-16
Natural Prosthetics Dental Lab Medical Manufacturer $298,132 283 $50,000 2013-14
IT Global Works Corporate HQ $259,785 90 $50,373 2013-14


These incentives, which include cash and refunds, have only been approved, not allocated, during the time period Jan. 2010-March 2011. They are allocated only if the company creates the jobs it has promised according to a timeline. Incentives include Manatee County Economic Development Incentives Grants, Manatee County Transportation Impact Fee Incentives Grants and QTI funds and Manatee County QTI Match .

Source: Manatee County Chamber Economic Development Council.

*Complete list online.

**Sarasota County did not require this information from Ringling College.

***In some cases, companies choose not to reveal their names and are given code names.

Rebels in Collier

The only exception to the business incentive boomlet in Southwest Florida so far has been Collier County, which is reeling from Jackson Laboratory’s decision in January to skip Naples as a possible location for a genetic research lab and start negotiations with Sarasota and Tampa. Grassroots resistance and lawsuits by a local businessman against the use of $130 million in local taxpayer funds plagued the yearlong Jackson Lab effort.

Leading the resistance was Reinhold Schmieding, the founder of Arthrex, a 940-employee medical device manufacturer. Schmieding frequently cited “corporate welfare” as a reason behind his objections.

While concentrating on the big Jackson deal, Collier has left a six-year-old cash incentive program unfunded over the past two years. However, the Collier County commission was scheduled to revisit cash incentives in March.

The pressure on commissioners is high right now.

A dedicated funding source to aid expanding and relocating companies is “absolutely necessary,” says Tammie Nemechek, president of the Collier County Economic Development Council.

She gets support from at least one weighty resident. “It is fundamental for Collier to decide whether cash incentives are available as a tool,” wrote Egide Thein, a former director of the Luxembourg Board of Economic Development, in a February opinion piece for the Naples News. “If the answer is no, Collier votes itself out of a certain worldwide league.”

Filed under
Show Comments