Three different approaches to spur growth, jobs
St. Louis Post-Dispatch
November 16, 2010
By Tim Logan
It's what you'd expect from our patchwork system of incentives, which funnels more public dollars to real estate projects than to worker training, small-business development and other efforts crucial to competing in a global economy. It's time to shift tax dollars to new priorities, many experts believe. When it comes to economic development, there are no cure-alls. But here are a few promising ideas:
Ensure that incentives directly create jobs
Among the main criticisms of development incentives is that they don't create permanent, high-paying jobs.
But those sorts of jobs are the main goal of the Missouri Quality Jobs program, which waives withholding taxes for companies that add employees with better-than-average wages and health insurance.
Both economic development types and state budget hawks praise Quality Jobs, in large part because it doesn't pay out the credits until employers do what they promise. "We think it's a very clear example of an incentive program that (rewards) the right kind of behavior," said David Kerr, director of the Missouri Department of Economic Development.
Yet the state caps Quality Jobs' budget at $80 million a year, compared with the $140 million cap put on historic tax credits just last year. And, as currently structured, Quality Jobs works mainly for large companies. In the St. Louis region, firms in most industries must add at least 40 new jobs to qualify -- leaving out smaller employers that may add only three or four people at a time but collectively can pack a bigger economic punch.
The state's Tax Credit Review Commission is mulling tweaks to Quality Jobs -- and the popular Build Missouri bond program -- that would make it easier for smaller employers to qualify. It's also studying ways to use more of the money up front, to compete with states such as Texas and Mississippi that can simply write checks to companies that move there.
Whatever the tools, the focus should be on one thing, said Denny Coleman, president of the St. Louis County Economic Council: jobs. "That's what we should be all about," he said. "That is our primary emphasis."
Focus on building new companies
When it comes to growing small business, Missouri has lagged for years. Near the bottom on national measures of entrepreneurship, we trail many other states on investments in startup financing. Yet new and young startup companies create the majority of jobs, as a variety of research has shown.
"There are substantial state dollars going into these programs in our competing states," Coleman said. "Where is (Missouri) going to get the money to invest in entrepreneurship?"
One place to look: the hundreds of millions of tax dollars that now help finance real estate deals. Moving even a small share of that money into startup programs could have a major impact. As it stands, maintaining the current system has in some ways blocked state investment in high-tech ventures.
Last year, Gov. Jay Nixon proposed the Missouri Science and Innovation Reinvestment Act, or MOSIRA, which would have diverted a share of new tax revenue from science and research firms and used it to finance startups. Similar programs in Ohio and Kansas have helped high-tech industries grow there. MOSIRA had strong support from the state's bioscience industry and St. Louis-area business leaders. But it died in the Legislature -- a casualty of the broader fight over tax credit reform.
As a new, Nixon-led state review of tax credits nears its close, more ideas are popping up.
One proposal on the table: ending Missouri's $4.5 million-a-year tax credit for filmmaking and using the money to create credits for so-called "angel investors," to encourage spending on early-stage startups. Another idea: replace the state's incubator tax credit, which helps finance startup hubs like the Center for Emerging Technologies, with a more efficient grant program run by a state agency.
Spend on a smarter work force
Ask economic developers what it takes to compete in the 21st century, and one thing comes up a lot: brains.
Smarter regions grow wealthier, the thinking goes. They generate new ideas that sprout new companies. The most skilled workers still make products and provide services unique in the national and global marketplace.
While great buildings and a happening downtown might make St. Louis a bit more attractive to smart workers who can live where they choose, buildings themselves do little to boost the region's skill set. And with a tight budget, there's only so much money to go around.
Critics of the way Gov. Jay Nixon has handled tax credit reform say he has pitted education against economic development, in a scrum for state dollars. It's a false choice, they say, and they have a strong argument. The two are closely intertwined.
Still, some balance is needed. Missouri needs top-flight workers to grow and attract the companies that will fill all those buildings. "There is no business that is going to make a decision to expand or relocate in your state without a skilled work force," Kerr said. "No company's going to invest if we can't provide training. It's imperative that those resources are available."
Some are. Missouri has programs that give tax credits to employers for job training. State and local governments have partnered to help laid-off workers from Chrysler's Fenton assembly plants learn new skills. But much more money for these programs sits in the incentives we use now to finance building.
There are ways to tap it. In Chicago, for instance, many TIF districts divert a small stream of their revenue into funds for work force training. Hundreds of businesses in TIF districts have tapped those funds, training 3,200 people in just the last two years, according to the city.
The short-term problem in St. Louis -- and nationwide -- is the lack of good jobs to employ such retrained workers. But as the economy gradually recovers, that will change, and jobs will move to places that provide people to do them well.
That's why it makes sense to spend more, not less, helping people build skills now, said Greg Prestemon, president of the Economic Development Center of St. Charles County.
"Looking out over the next 10 or 20 years, there are some foundational investments we have to continue to make. Education from pre-K to post-grad," he said. "If we don't do those things, our regional economy will just flat-out not do well. We will be increasingly uncompetitive."
