Viewpoint: Incentives to woo commerce is risky -- but worthwhile -- business

Like all aspects of business, the world of economic development is a fiercely competitive one. Drawing in new business -- and helping existing commerce expand -- is the lifeblood of any state's economy.

So providing effective tools to those who make it their mission to lure in new business is critically important. One tool that states offer to lure in new business is tax incentives. In general, tax incentives are a way to stimulate investment in or development of some objective, say a new retail store or expanding a widgets-making plant.

Such incentives can take the form of tax exemptions or credits. Tax incentives are sometimes deal breakers for corporate executives looking to locate (or relocate) into a new state. Such incentives allow corporations to receive credits or deductions ranging from 10 percent to 35 percent.

So when a company is looking to move to a new area, they no doubt compare which state will give them the best package of incentives.

Some call it corporate welfare, but we say it's another cost of doing business. Tax incentives lead to new business, which help create jobs and boost the tax base. New companies often make investment in real estate and equipment, more examples of economic spur. New employees spend money, which generates more sales tax, which is extremely important to city and county budgets.

Missouri offers a variety of tax incentive programs to help lower operating costs for startups and expanding businesses. These include enterprise zones, work force training programs and competitive tax credit programs, as well as property tax abatements and work force training grants. Utility providers may also offer significant rate discounts for large projects.

Missouri falls in the middle of the pack when it comes to states that offer incentives. Economic developers say they wish there more incentives in Missouri.

Still, Missouri is using more and more tax credits to lure in new businesses into the state. According to the Missouri Department of Economic Development, the state issued almost $326 million in tax credits in 2005, up from $246 million three years ago to lure new business and for other business expansion.

At a recent luncheon in Kansas City, Gov. Matt Blunt said the new St. Luke's East hospital in Lee's Summit was a good example of how tax credits can spur economic development. The hospital will receive $1.4 million in tax breaks over four years while generating 170 new jobs for the state. Generated by the Quality Jobs Act, which went into effect in July, the hospital jobs carry a higher salary than the average worker's pay in Jackson County. Such partnerships are already helping, he said, noting that the state's unemployment rate was at its lowest point since September 2001.

There are local examples.

Sears Grand and Renaissance Aircraft offer two different ways that incentives work. Or in the case of Renaissance, how they sometimes don't work out the way economic developers intended.

In 2000, the city of Cape Girardeau inked a deal to bring Renaissance Aircraft to the area. The city offered incentives including $2.1 million, issued through bonds, for facility construction, equipment, furnishings, water and sewer lines, roads and parking lots.

In return Renaissance would build Luscombe 8F airplanes, a two-seat recreational plane certified by the Federal Aviation Administration.

In the process, the relocating company promised to create 200 new jobs once the plant was up and running. But, as everyone knows by now, things never worked out that way. Their three-year attempt was plagued by litigation and a lack of investors.

A year ago, the company left Cape Girardeau, unable to make the bond and lease payments totaling more than $62,000. No substantial jobs were created and some employees of the company said they were still owed thousands of dollars when Renaissance left.

Renaissance's demise left the city with an empty hangar and costly bond payments. The city was left smarting until the recent announcement that Commander Premier Aircraft Corp. will relocate its airplane manufacturing film from Bethany, Okla., to Renaissance's former hanger. The new lease agreement ultimately will eliminate the city's financial burden.

Even here, though, the new Quality Jobs program helped mitigate the problem. Commander will receive $800,000 in tax incentives for creating 200 new high-paying jobs.

The Sears Grand is a more straight forward way that incentives worked locally. Sears Grand opened its 149,000-square-foot store in October to great fanfare in Cape Girardeau. In that deal, the city provided some concessions, including a development agreement to reimburse Sears' cost for its parking lot, a large culvert and other drainage improvements. According to the agreement, Sears will use sales-tax revenue generated by the new Sears store to repay Sears for the work, which cost $2.71 million. But it will only use revenue greater than what Sears already generated in the old store.

While the old store on William saw sales of about $11 million to $12 million, the new store is expected to see sales of $25 million to $30 million. The old store employed less than 100. The new Sears Grand employs 240.

Every state is spending millions to lure businesses to the state. Some economic experts say the incentives don't pay off. Some suggest companies are often bluffing when they won't relocate to a particular area without incentives.

We think such incentives should be considered on a case by case basis. It's a huge risk, as Renaissance and others have shown. Only after careful consideration and an exhaustive examination of a company's viability, should tax incentives be an option.

Still, tax incentives are an invaluable tool. Missouri's economic future will be enhanced because of them.